Boosting the economy through natural gas exports
By Editorial Board,
IN AN OTHERWISE gloomy economic time for the United States, the boom in natural-gas production has been a dazzling bright spot. Thanks in large part to expanded production of previously inaccessible shale gas, the United States has passed Russia as the world’s largest gas producer, with an output of more than 23 trillion cubic feet in 2011. As the price of natural gas has plummeted, consumers have benefited from lower electricity rates, the cost of manufacturing in the United States has gone down, and thousands of jobs have been created.
As recently as 2005, many experts thought that the United States would need more liquefied natural gas (LNG) imports. Now, the U.S. industry is gearing up to export gas, including LNG. The Energy Department recently approved Cheniere Energy’s plan to export 2.2 billion cubic feet a day of LNG from a facility in Louisiana that was originally intended to take in imports. The department is considering applications from seven other companies. If the Energy Department approves them all, the United States would be capable of exporting a quantity of gas equal to almost a fifth of current consumption.
That prospect has some people worried. Environmental groups such as the Sierra Club fear that increased “fracking” for shale gas would harm groundwater. But most of the pushback comes from certain segments of the business community that fear that diverting U.S. gas into world markets would raise prices for everyone from steel companies to electric utilities. Rep. Edward J. Markey (D-Mass.) has proposed a bill that would prohibit any new LNG export facilities until 2025.
Unlike oil, gas does not trade on a unified world market. Prices in Asia are four times higher than in the United States. Obliging U.S. customers to compete with, say, Chinese customers, would exert upward pressure on U.S. prices. The Energy Department estimates that, by 2035, exports could raise gas prices by between 3 percent and 9 percent. Electricity prices may rise by up to 3 percent.
But the benefits of expanded exports must be weighed against these predicted costs — which are neither inevitable nor dramatic. Among them would be a potentially significant reduction in the U.S. trade deficit, which would mean less need for the United States to borrow from its Asian trading partners. Foreign demand gives U.S. companies an incentive to produce more, which creates jobs; if they don’t expand production, then, over time, supply will dwindle, and domestic prices will creep up anyway. Don’t forget that taxes and other fees on gas production help state and local governments balance their books. Already, low prices, and the resulting reduction in drilling, have cost many communities revenue.
The environment could benefit from exports, too; countries could use U.S. gas to replace coal. Some day, U.S. gas exports could help offset the geopolitical power that Russia derives from supplying Europe gas.
Some increase in U.S. exports appears inevitable: Under current law, the federal government must approve gas sales to countries, such as Canada, Mexico and South Korea, with which the United States already has free-trade agreements. For other countries, the government must grant approval unless it finds that “such action is not consistent with the public interest.” We don’t think opponents can make that case persuasively.