The Debate Behind Natural Gas Exports
By Russell SeslerPublished March 24, 2014By Russell Sesler, 3/24/14:
During the recent crisis in Ukraine, many leaders in Washington have commented about the need for the U.S. to export natural gas to Europe in order to undercut Russian influence in the region. Speaker John A. Boehner (R-OH) argued: "The United States has abundant supplies of natural gas — an energy source that is in demand by many of our allies — and Vladimir Putin has happily exploited [the lack of U.S. natural gas exports] to finance his geopolitical goals." Although U.S. exports would not be able to affect the outcome of the Ukrainian crisis because permits would take a long time to approve, Boehner's point raises an interesting issue, namely: Should the U.S. actively attempt to export natural gas?
As a result of two technological innovations in oil and gas production — horizontal drilling and hydraulic fracturing ("fracking")- , U.S. production of natural gas has increased by a 25% in the last six years and has spurred the transformation of natural gas import facilities into export facilities. To complicate the issue, natural gas, unlike the liquid oil, is priced on a regional basis because it is more difficult to transport. In order to primary overseas distribute natural gas overseas, it must be transformed method into liquefied natural gas (LNG), a super-cooled (to -260o F) liquid version of the gas. However, the massive infrastructure required to convert and export LNG costs billions to build.
Since the U.S. has historically had to imported natural gas, it has modeled many of its export laws provisions on import laws, which are based on these premise of preserving energy security. In fact, the Department of Energy must approve each energy partner that the U.S. does not have a free trade agreement (FTA) with. However, this has limited exports because many countries with the highest demand for that American natural gas, such as Great Britain, France, Japan, and Ukraine, currently do not have FTAs.
As with many energy policy-related issues, there is no clear-cut answer whether the U.S. should export LNG. Economically, the issue centers on the benefits to different segments of American society. According a study done by NERA Economic Consulting, it concludes that increased exports would be a net economic benefit to the natural gas industry, shareholders, and landowners. On the other hand, another study done by Sarica and Tyner, argues that the losses from energy intensive industries and higher electricity prices, which primarily affects low-income households, would mean come at a net cost.
Environmentally, expansion into new markets would create more greenhouse emissions. This would be exacerbated by the efforts of re-gasification, which would cause an additional 15% increase in natural gas emissions over its fuel cycle. Additionally, the higher pricing of gas would lead to a fuel switching of either coal or renewable energy. Of the two industries, coal, at this point, would be favored to replace displace gas in as the primary source for electricity generation.
Politically, increased gas exports would lead to the strengthening of ties with our alliances and increase U.S. global economic influence. Nevertheless, in the long run, those same gas increases would minimize domestic energy security for the U.S. domestically in the event of an energy shortage.
Ultimately, the utility-maximizing option for pursuing LNG exports would be seems to be a two part plan that 1) grants partial freedom of trade to countries that are our geopolitical allies and have high natural gas costs in their domestic markets and 2) institutes a tax on carbon emissions from the additional methane gas produced from foreign greater LNG production. Nevertheless, this is clearly an issue where more research must be done to further investigate the benefits and drawbacks of natural gas exports.