A few weeks ago, before I was to give a speech to a local civic group, someone at my table asked me how I felt about exporting natural gas. On the one hand, the answer seems simple. We have a glut of natural gas in the U.S., and prices are so low that most producers can’t make money. On Tuesday, the second-biggest U.S. gas producer, Chesapeake Energy, slashed plans for new gas exploration.
With gas selling for several times the U.S. price overseas, simply economics dictate that exporting gas makes sense. That’s the reason a group of lawmakers from oil states is calling for the Obama administration speed up permitting for exports of liquified natural gas.
Boosting exports helps the economy. Chemical companies and manufacturers that use natural gas as a raw material or energy source, of course, oppose exports, fearing it will drive up gas prices domestically, and several chemical companies have recently moved production back to the U.S. from overseas as a result of low gas prices, creating jobs.
It’s not clear how many companies are willing to make the huge capital investments needed to export gas because almost no one expects gas prices to remain at their current depressed level forever.
But there’s a bigger issue here, and it gets to the fundamental nature of U.S. energy policy or, more specifically, the lack of it. Without a policy, U.S. energy economics are directed by reaction to short-term market conditions. While it may make perfect sense to export gas at current prices, is it in the country’s long-term best interests? Boone Pickens, long a champion of natural gas, has argued that it’s folly to import oil while exporting cleaner-burning natural gas.
Of course, increasing domestic demand for gas — such as converting or building more gas-fired power plants or switching more vehicles to compressed natural gas, as Pickens advocates — will take years. In fact, it will take longer than building LNG export facilities. But if gas supplies are as long-lived as the industry claims, isn’t now the time to build the infrastructure of the future?
It’s easy to say the free market should prevail, but the idea that oil and gas operate in a free market has always been something of a myth. As far back as the 1920s, federal and state governments intervened in the markets, affecting both production and prices. The Texas Railroad Commission even deployed the Texas Rangers to curtail production in the 1920s, allowing prices to rise. In the 1930s the federal government enacted production quotas, a move welcomed by oil companies that feared low prices would drive them out of business. Their plight is similar to the situation in which gas producers now find themselves.
As the U.S. fuel mix becomes more diverse, the need for an energy policy becomes more important.
I didn’t have a definitive answer to the question when it came up at the lunch table, and I still don’t. Generally, I favor letting the free market prevail, but that answer ignores the long-term implications. Shale drilling has unleashed an apparent abundance of natural gas, but is it simply a commodity governed purely by the short-term concerns of the free market, or should it be managed as a valuable natural resource that could provide a cleaner, more secure fuel supply and reduce U.S. dependence on foreign oil?