The Economics of Natural Gas Exports
The game-changing development of the Barnett Shale unleashed a torrent of natural gas supplies in the United States. Supplies increased so quickly as other gas shales were developed that natural gas supplies outpaced demand, causing prices to decline since mid-2008, and now becoming fairly stable for the last year or so.
Even though many exploration and production companies refocused their efforts from natural gas to oil plays, natural gas supplies have continued to increase, in part due to the associated natural gas that accompanies most oil wells.
Recognizing that domestic natural gas supplies will be greater than domestic demand for years to come, some companies have begun the process of obtaining the permits to build liquefied natural gas (LNG) facilities in order to export natural gas. One facility is in Freeport, Texas; one is in Corpus Christi, Texas; and another is in Sabine Pass in Cameron Parish, La. All three would be bi-directional terminals, meaning they could export or import LNG.
While increased exports of almost anything from the U.S. would normally be welcomed due to our negative trade balance, there have been objections raised to the Department of Energy (DOE) that they should deny the necessary permits to build these facilities. Subsequently, the DOE commissioned NERA Economic Consulting to conduct a study on the impact of LNG imports from the U.S.
The experts at NERA found that LNG exports would produce net economic benefits for the U.S. across a range of possible natural gas price changes. In all cases, benefits increased as LNG exports increased. “Benefits that come from export expansion more than outweigh the losses from reduced capital and wage income to U.S. consumers, and hence LNG exports have net economic benefits in spite of higher domestic natural gas prices," says the report. "This is exactly the outcome that economic theory describes when barriers to trade are removed."
Most of the arguments against exporting natural gas center around the notion that broadening the market for natural gas will raise prices for American consumers, and that any economic gains should be ignored. By such logic, the U.S. should never export anything. That would mean that we should not export corn because, if we do, American consumers will pay more because Chinese demand has raised corn prices. But we all know that the increased revenues that our corn farmers get from their exports in fact subsidize the prices that domestic consumers pay. The same would be true for exports of LNG.
American energy consumers are best served by letting the market operate. The government should not stand in the way of American energy companies utilizing market opportunities as they arise.