Supporters of limits say higher LNG exports will lead to higher natural-gas prices in the U.S. Opponents say higher exports will have broad benefits for the economy.
Nov. 13, 2017 10:04 p.m. ET
More drilling for oil and gas and new incentives for nuclear energy are part of the Trump administration’s plans to enlarge the already huge U.S. footprint in increasingly competitive global energy markets.
Another part of the plan: more exports of natural gas. The U.S. has become a major player in international natural-gas markets in recent years. Improved drilling techniques, including hydraulic fracturing, or fracking, along with technological developments that have boosted the industry’s ability to liquefy natural gas for shipping have fueled both a global boom and a glut in natural gas.
The fast-growing global market for liquefied natural gas, or LNG, that has arisen makes U.S. supplies more exposed to international prices than before. Some fear this will raise costs for natural-gas customers within the U.S., including manufacturers.
Industry sources, meanwhile, say that natural-gas exports will create more jobs at home and help the U.S. compete globally with other exporters of natural gas, such as Russia and Iran.
Arguing against increasing U.S. exports of natural gas is Paul Cicio, president of the Industrial Energy Consumers of America. Anna Mikulska, a nonresident fellow in energy studies at Rice University’s Baker Institute for Public Policy, advocates more exports.
YES: Exports Raise Prices in the U.S. and Hurt Manufacturing
By Paul Cicio
Years ago, Congress decided that if natural gas were to be exported to non-free-trade-agreement, or NFTA, countries, it would have to be in the public interest. But it can’t possibly be in the public interest to export as much natural gas as the Energy Department has approved for the next few decades: an amount roughly equal to two-thirds of all of our domestic demand last year.
Low-cost, plentiful natural gas has been a critical contributor to the U.S. economy for years. Inexpensive natural gas has played a major role in the revival of manufacturing in this country. The big increase in exports that the gas industry and the Trump administration want will pressure supplies and increase the price in the U.S., as buyers overseas bid up prices—posing a significant long-term risk to the U.S. economy. Plus, gas resource estimates are highly speculative and subject to significant economic and political risk long term.
When Congress passed the Natural Gas Act, which says that the Energy Department can’t approve exports to NFTA countries without it being in the public interest, the message was clear: The U.S. economy as a whole is a priority over exports to NFTA countries.
But last year, according to the Energy Department, some 56% of U.S. LNG exports were shipped to 13 NFTA countries. Such shipments don’t constitute fair trade, nor do they follow the president’s “America First” policy for U.S. manufacturers. Shipping our LNG to NFTA countries rewards them for not having free-trade pacts with the U.S. and undermines our ability to secure bilateral fair-trade agreements. NFTA countries buying our natural gas are often the same countries that subsidize their manufacturers and apply import tariffs to prevent U.S. manufacturers from exporting products into their country.
Increasing LNG exports is damaging to the economy when prices increase to global levels, undermining our manufacturing competitiveness and jobs. Even a study sponsored by the Energy Department to justify its export approvals concluded that increased LNG exports resulted in higher natural-gas and electricity prices, decreased wages, capital and indirect tax income, and created negative impacts to manufacturing competitiveness and jobs. Gas producers, exporters and shareholders are the winners, and everyone else loses.
Australia shows what can happen when LNG exporters reach full export potential. Exporters in Australia contracted for so much of its natural gas that prices increased threefold to levels equal to what foreign LNG buyers were paying. Manufacturers’ competitiveness was severely damaged and jobs were affected.
Exporting LNG isn’t a big job creator. The U.S. Bureau of Labor Statistics says that from 2010 to 2016, the oil-and-gas industry created only 22,600 direct jobs, while the manufacturing sector created 820,000. Significant job creation attributable to natural gas can only be achieved if the gas is consumed in the U.S. If it is exported, the countries buying the gas will get the job-creation benefits.
Linking our biggest, most affordable energy source more closely to international markets will mean increasing exposure of U.S. consumer prices to global volatility, price shocks and speculative international trading. The Energy Department should define public interest and complete an analysis of proposed LNG exports that includes long-term economic risk assessment. Then it should cancel NFTA approvals that aren’t in the public interest, and establish a consumer safety valve to ensure that exports won’t impose economic harm on the U.S.
Mr. Cicio is president of the Industrial Energy Consumers of America. He can be reached at email@example.com.
NO: Increasing Exports Will Have a Positive Economic Impact
By Anna Mikulska
U.S. exports of liquefied natural gas are on the way to becoming a vital part of global trade in natural gas.
The Energy Information Administration predicts LNG exports will more than triple by 2025, driven by growing international demand, record U.S. natural-gas production and added liquefaction capacity. Demand for LNG is poised to grow particularly in Asia, including China, Japan and other countries that don’t share a free-trade agreement with the U.S.
Meanwhile, some U.S. politicians and manufacturers have repeatedly asked the Energy Department not to issue new approvals for LNG exports to the so-called NFTA countries. But the Trump administration is continuing the Obama-era policy of embracing LNG exports as a way to stimulate the U.S. economy and facilitate broader aims of U.S. diplomacy. And there are good reasons for doing so.
To start, the U.S. already exports many manufactured goods, services, oil, refined products, chemicals and agricultural goods to NFTA countries. There is no reason to treat LNG differently. Shipping LNG is a commercial transaction, not a reward. If the U.S. doesn’t export its LNG, the NFTA countries will find other suppliers, including Australia, Qatar, Russia, Mozambique and possibly even Iran.
Advocates of limiting exports are concerned about depleting domestic supply and triggering an increase in domestic prices, to the detriment of U.S. manufacturing competitiveness.
But even if exports were to grow to six times their 2016 levels by 2018, they will constitute only about 4% of total U.S. production. And to achieve these levels, U.S. producers must remain competitive in global markets—in other words, domestic prices of natural gas have to remain relatively low.
Though it is true that increasing LNG exports will push domestic prices up, the impacts are modest. A 2015 Energy Department study on the macroeconomic impact of increasing LNG exports finds that LNG exports have a net positive impact on U.S. GDP. And U.S. industries reliant on natural gas grow under all LNG export scenarios, even if at a slightly lower rate.
Indeed, the U.S. natural-gas abundance has already had a profound impact on gas-intensive industries, and long-term investments are proceeding in parallel with continuing construction of LNG export capacity. The American Chemistry Council estimated that shale development as of July has triggered 310 chemical-industry projects (completed, started or projected). These projects are associated with an expected $185 billion in new capital investment, 464,000 direct and indirect jobs, and $26 billion in new tax revenue through 2025.
Critics might look at selective years and narrow job descriptions to try to argue that LNG exports won’t contribute much to job growth. But more than 61,000 jobs were created in the extraction of oil and gas between 2004 and 2017. And if one looks at Bureau of Labor Statistics for extraction, drilling and support activities in the oil-and-gas industry, more than 162,000 jobs were created between 2007 and 2012.
If restrictions were imposed on LNG exports, only a few domestic manufacturers would gain a small advantage, while the broader benefits to the rest of the economy would be lost. Restrictions would weaken the U.S. position in bilateral and multilateral trade discussions and reduce any foreign-policy benefit that could be derived from a growing U.S. role in the global energy market.
Dr. Mikulska is a nonresident fellow in energy studies at Rice University’s Baker Institute for Public Policy. She can be reached at firstname.lastname@example.org.