Thursday, August 16, 2012

The Case for Natural Gas Exports

By MICHAEL A. LEVI Published: August 15, 2012 NEW data released last month signaled a milestone for American energy: natural gas joined coal as the top source of electric power. Gas production has boomed on the back of abundant supplies. That has spurred debates over hydraulic fracturing, a method to extract gas from shale. Times Topic: Natural Gas (Fracking) . A related political and economic debate has emerged. A string of companies have applied for permission to export liquefied natural gas, or L.N.G., to countries that don’t have special free-trade agreements with the United States. Under federal law, the Energy Department has to find such exports to be consistent with the “national interest” before they can occur, though the term isn’t clearly defined. Last week, more than 40 members of Congress urged President Obama to move forward with approval, citing the benefits of free trade and the prospect of creating more jobs as demand for exports leads to growth in gas production. Critics pose a contrary set of arguments. They fear that demand for gas exports might encourage hydraulic fracturing, threatening water supplies, and they worry that siphoning off domestic gas for export will raise costs for domestic consumers and disadvantage American manufacturers that benefit from low-cost fuel. There are also national security concerns. Some see an opportunity to frustrate the two biggest holders of natural gas reserves: Russia and Iran. Critics would prefer that natural gas be used to replace oil in American automobiles. In a recent study I estimated that American firms could make up to $3 billion per year by producing and exporting liquefied natural gas. It’s true that gas-dependent industries would have to pay more because of higher gas prices, but those costs would be substantially smaller than the benefits. But there are bigger stakes involved than just money. A decision to constrain natural-gas exports could have dangerous reverberations for American trade. For example, the United States has filed with the World Trade Organization a challenge to Chinese restrictions on exports of so-called rare earth minerals, which are crucial for new technologies like wind turbines, missiles and smartphones. If Washington hypocritically limits gas exports, it might as well write the Chinese brief. There are other problems with the opponents’ arguments. To truly keep America’s natural gas within our borders would require restrictions on exports to our big trade partners Canada and Mexico, and that would put the North American Free Trade Agreement at risk. Forswearing exports would also eliminate a valuable tool for American trade negotiators: countries like Japan want privileged access to United States gas, and American negotiators can seek concessions in return. At the same time, exports would likely reduce global greenhouse gas emissions. Moreover, the small price increases that would result from allowing exports would have at most a marginal impact on the use of natural gas as fuel for cars and trucks. Blocking exports wouldn’t push natural gas into automobiles — it would mostly keep it in the ground, because there would be less incentive to extract it. But the critics are right to point out that exporting natural gas could increase environmental risks to communities where natural gas is extracted. Even so, a recent report from the International Energy Agency makes clear that inexpensive steps could substantially mitigate those dangers. It will take years before any export terminals are up and running — in the meantime, producers and regulators should strengthen safeguards so that gas is extracted safely. Exports would also raise natural gas prices a bit, adding as much as $50 to the annual electric bills for the poorest American households by the end of the decade. But the federal Low Income Home Energy Assistance Program could help shield the most vulnerable as long as its financing is protected. The United States, which has imported natural gas for many years, has long benefited from a relatively open system for global trade in energy. Allowing natural-gas exports while protecting the environment and low-income consumers is the right way to go. Michael A. Levi is a senior fellow for energy and the environment at the Council on Foreign Relations.

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