Economics 101 Comes to the U.S. Department of Energy: Exporting LNG is Good
By Mark P. Mills
Apparently exporting something America has in abundance creates economic value — in this case, natural gas, not wheat (but that would be obvious). And the more of it you export, the more money you can make. And apparently in Washington D.C. this is “breaking news.”
The Department of Energy (DOE) released a report it commissioned from venerable NERA Economic Consulting: Macroeconomic Impacts of LNG Exports form the United States. Their mission? “… use its NewERA model to evaluate the macroeconomic impact of LNG exports.” Their findings?
- Across all these [various levels of export] scenarios, the U.S. was projected to gain net economic benefits from allowing LNG exports. Moreover, for every one of the market scenarios examined, net economic benefits increased as the level of LNG exports increased. [emphasis added]
- LNG exports have net economic benefits in spite of higher domestic natural gas prices. This is exactly the outcome that economic theory describes when barriers to trade are removed.
What more does one need to know? It’s time for DOE to expeditiously approve export applications by removing the only barrier in place – DOE’s approval of export licenses.
Now we can connect some dots.
- Technology has unleashed access to the staggering Middle East scale natural gas (and oil) resources extant on the North American continent. (For the possibilities, see Unleashing the North American Energy Colossus.)
- The U.S. can not only produce more, a lot more, natural gas than it needs, but it can do s at levels that will rapidly exceed the production capability of any other nation on earth. Even the formerly energy-starved American northeast, the nation’s largest net consumer of natural gas until technology came along, is about to become a huge net producer. Go figure. (See what industry experts, Bentek Energy, are forecasting for the northeast by 2017.) And if New York State got its act together and joined the party, it would happen even faster.
- American energy demand is growing slowly in our mature economy – but global demand for hydrocarbons is on a tear. In the past decade, world energy use has increased by an amount equal to adding one United States worth of demand. Over the next two decades, global energy use rises by an amount equal to adding two North America’s worth of consumption, the vast majority of which is in the form of natural gas, oil and coal. The opportunity for the U.S. and North America to export into that market is, obviously, enormous.
- Increasing North American hydrocarbon production to fuel the world’s growth will generate millions of jobs, quickly, and hundreds of billions of economic benefits. What’s not to like? (See for example Citi’s Energy 2020: North America, the New Middle East? and Jobs In a Ripple-Out Economy Come From Oil, Gas, Coal, and Then the Cloud.)
But energy is apparently unlike the agricultural world where exports have been long recognized as a profound economic good for the world and for America. The Department of Agriculture has a Foreign Agriculture Service (FAS) that proudly offers a Market Development and Export Assistance program:
- FAS partners with 75 cooperator groups representing a cross-section of the U.S. food and agricultural industry and manages a toolkit of market development programs to help U.S. exporters develop and maintain markets
Memo to the White House – let’s create something like a Foreign Energy Service office in DOE with the same Export Assistance mission – for all hydrocarbons, just like we do for all agricultural products — instead of continuing with the labyrinth of barriers to energy exports. The first barrier to remove is the interminable wait for DOE export licenses.
There are 15 applications for licenses to export LNG pending at DOE. They total over 8 TCF (trillion cubic feet) of annual gas export capacity. That’s roughly equal to 30% of current domestic consumption – an easily achievable production goal given the staggering North American resource and technology potential. DOE should approve them all – and why not? The millions of jobs and billions in tax revenues emerge from the private sector taking the investment risks. And, as NERA pointed out for DOE, the net economic benefits to America are greater the more the exports.
While we’re talking about exporting hydrocarbons, let’s also consider both oil and coal. The United States, and especially with our North American neighbors, can produce far more not just natural gas but also oil and coal than are needed here. (See for example, The International Energy Agency Catches Up With America’s Oil Producers).
For some perspective on the politics of forging a North American Common Market in energy oriented towards pursuing the goal of exports, see the video of a recent Manhattan Institute special event where I was joined by John Prato, Canada’s Consul General, and Luis de la Calle, former Undersecretary of International Business Negotiations, Mexico Ministry of Economics. We have in the U.S., in collaboration with our neighbors, the potential to become the world’s largest energy exporters.
In due course we trust the Administration will approves some — we hope all — of the LNG export applications. Then, as another bellwether, watch for approval of the economically obvious XL oil pipeline from Canada. America can harvest jobs and revenues from export-centric policies that can fuel not just feed the globe’s growing economies.
Yes I know that DOE is hedging its bet, as is clear from their statement accompanying the release of the NERA study:
- As this [NERA study] is not a Department of Energy product, the Department will be conducting its own review of the study as well as consideration of relevant comments made throughout the process prior to making final determinations.
But maybe we can take encouragement when the idea of the benefits of energy exports makes the first page of the New York Times business section. We hope and expect economic reason will prevail inside the Beltway.
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