In Response to Recent Criticism: AEA is Missing the Forest for Dow’s Tree

By Michael J. Economides

Recently, I published a piece in Energy Tribune that noted the folly in the effort by Dow Chemical and others to attempt to slow the export of liquid natural gas (LNG).  In response, America’s Energy Advantage (AEA) published a blog attempting to refute the points I laid out.

Of course I am not alone in my position. ExxonMobil “blasted opponents of exporting natural gas from the United States.” “It’s absolutely embarrassing for people in our industry at very high levels to make a case that’s blatantly to put money in their pocket,” Exxon Mobil Senior Vice President Michael Dolan said on Friday, March 8.

My issue is also that Dow is missing the economic forest for its own prized tree.  Below, I outline three major criticisms I have with their response to my article.  However, I would first like to underline the points that I made originally.  My piece compared comments by Dow Chemical CEO Andrew Liveris and other members of the new group America’s Energy Advantage calling to slow exports of what studies have concluded would be the net economic benefits of allowing LNG exports.  In a nutshell, allowing exports would ensure the U.S. maintains high production of natural gas, sustains job growth, boosts our domestic economic output and investment, and increases the energy security of our allies abroad.  My gripe with Dow and AEA’s efforts to manipulate natural gas is that they are advocating a position that would mean the entire economy would be held back from its full potential for the benefit of a single sector.

My first criticism of Dow’s response is that I would consider it an odd choice that AEA would point to the Department of Energy/NERA Economic Consulting study in its rebuttal.  That is the very same study that AEA’s member Dow Chemical has previously called both “baffling” and containing “serious flaws.” More to the point, AEA neglected to mention the core finding of the DOE/NERA study that across all of the export scenarios examined, there were net economic benefits to the U.S. economy.  That’s a finding that the Brookings Institute similarly concluded, who noted that “the job potential” is stronger further upstream than in solely the LNG market.  And a study by Deloitte also found net benefits, noting that the benefits to American allies in Europe from gains in energy security that would come from displacing Russian gas on the market.

While my piece did not advocate for “unchecked exports” as AEA claims, I simply wanted to point out that the free market should dictate supply, demand and the price of liquefied natural gas.

Here is the point that I believe Dow and its allies fail to recognize, that there is a sound process in place through the Department of Energy to carefully analyze all export applications.  Exporting also requires an investment of tens of billions to create a facility that would operate under a 20-year contract under the Federal Energy Regulatory Commission (FERC).  As the Economist recently noted, of the two dozen applications for an export terminal, only one has actually began investment and construction to build its facility, Sabine Pass in Louisiana.  And even that facility will not start exporting until the end of 2015.

The implication that there are not checks already involved in the process for exporting liquid natural gas is simply untrue – there are both administrative checks and investment requirements.  AEA, on the other hand, appears to advocate imposing yet more checks to slow down this process.  Or better yet, AEA seems to be advocating for the government or their membership to pick winners and losers and not the free market.   I simply disagree with that notion.

The idea that if the United States would somehow kickstart the existing process of approving exports could cause natural gas prices to rise dramatically is unfounded.  It’s not just the conclusion of NERA Economic Consulting, Deloitte and Brookings.  US News & World Report recently noted that global demand for LNG “isn’t likely to increase” prices.  And both CNBC and the Economist wisely noted that even with exports, the US will still enjoy the industrial world’s lowest natural gas prices.

The real question is:  are those prices still low enough for Dow and AEA?  Or is the United States willing to accept new, artificial limits on exports to maintain Dow’s preferred low prices at the expense of the larger Economy?

Third, I’d like to provide a justification for singling out Dow Chemical in my piece.  From an opinion piece in the Wall Street Journal to testimony in front of the Senate Energy & Natural Resources Committee, Dow has been the spearhead of the effort to slow the export of liquid natural gas (LNG). So while AEA has more member-companies to speak of, and used one other than Dow in responding to my piece, it’s a fair assessment to say that both Dow is the leading voice of these protectionist views and certainly deserves to be the main recipient of pushback against it.  The Economist recently named Dow Chemical as one of the most vocal opponents of exports – do they deserve criticism for not mentioning other AEA members as well?

Ultimately, I ask those who have not yet read my piece in the Energy Tribune to do so now.  I remain committed to the arguments I’ve made there.  Finally, I believe the Economist recently said it best: “If Mr Obama prevents companies from exporting American gas, it will be left in the ground. The world will be a dirtier place, and America a poorer one.”

Is that the fate that Dow Chemical and AEA want?

Michael Economides is Editor-in-Chief of the Energy Tribune