US manufacturer’s sounded alarm bells last week with the approval of a fourth liquefied natural gas (LNG) export facility, this time on the East coast at Cove Point Maryland. At issue is whether LNG exports would “harm” the US economy by raising energy costs. But opponents of US energy exports are missing the point: US exports of LNG, refined products, condensate (and some day even oil) strengthen the United States’ ability to promote open trade in energy and capital investment in oil and gas resources around the world and to depoliticize the market once and for all.
Barriers in open trade and investment in energy resources has long dogged the US and the global economy. The US’ potential to be a pacesetter on open investment and trade in energy is an unexpected and unique opportunity. There is no doubt that at least some of the rapid increase in world energy prices in 2005-2008 is the result of insufficient investment in oil and gas producing capacity, in large measure due to barriers to open trade and investment in the Middle East, Russia and to some extent China, where national oil companies (NOCs) control access to large national reserves. NOC dominance strengthens OPEC monopoly power by making it easier for OPEC members to control the pace of investment and the expansion of oil production capacity. By reducing investment in future capacity in concert, OPEC can augment control of global energy prices and orchestrate artificial supply shortages for a period of time. But now, many NOCs are investing in shale plays in the United States and looking to bring the US supplies and technology home to make themselves more profitable. Actively promoting such a tendency is in the US national interest because it will eventually countermand OPEC practices to constrain needed global oil supplies.That would be good for the US economy, not harmful.
Over the past thirty years, the policy of the United States and international organizations such as the International Monetary Fund and the World Bank has been to promote and encourage the privatization or partial-privatization of state-owned energy firms in many developing countries to ensure a freer flow of energy to the local and global economy and to help countries better align their national balance of payments and foreign debt. The policy, where successful, has had the effect of transforming many of these state firms, such as Petrobras and China’s CNOOC, into more aggressive, commercially oriented global competitors.
Trade agreements that aim for fair competition and adequate investment in upstream energy sectors are squarely in the U.S. interest and in the commercial interests of U.S. energy firms which are leading globally in technology and investment in oil and gas exploration. As such, emphasis on free trade requires the United States also to keep its borders open for energy exports and investment in our domestic resources by foreign companies. US exports of LNG are part of a package of export policies that could eventually depoliticize oil and make it difficult for countries to artificially inflate prices. In other words, US exports, even if they create additional demand, ultimately will contribute to a lowering of US energy costs over time by reducing monopoly power of foreign producer coalitions to increase prices. With the 40th Anniversary of the 1973 Oil Embargo, opponents of exports need to think more broadly about the broader benefits that might come from US energy export policy.
As I argue with co-author Edward Morse in a new article in Foreign Affairs online, as a large consuming nation, the United States should insist that cross investment be a critical part of an overall framework that keeps all markets open to global trade and investment, including access to U.S. markets, in non-oil commodities, financial services and other goods.