Free Trade & Economic Self Interest Boost Diplomacy

It is unfortunate that the Ukrainian crisis has been the catalyst for renewed attention to the export of natural gas. In truth, the need for natural gas exports was already plainly obvious. The current limits beyond exports to free trade agreement countries are just another reflection of misguided energy policy. US LNG exports are being hamstrung by an archaic 76 year old law that should have been repealed decades ago.

Producers and investors in LNG export facilities should not have to beg the Department of Energy for permission to invest and export, especially since the 1938 legislative authority requiring such approval dealt with sales of inter-state natural gas.

Adam Smith made the compelling case for free trade over two centuries ago. His argument and logic have stood the test of time. Free trade encourages investment, job creation, efficient use of resources, and strengthens relations among nations. In the extant case, our relations with our European allies would become even stronger and their energy security enhanced and more certain.

Europe is heavily dependent on Russia for its natural gas—about 30%–and as was shown in 2006 and 2009, Russia has no reluctance to use natural gas as a weapon to coerce and intimidate. While Europe has taken some steps to reduce reliance, it clearly has not taken them with the urgency that is now called for.

Given DOE’s slow walking in approving applications and the Obama administration’s hostility toward fossil energy, it will be another year before the first LNG can reach Europe. Five facilities have been approved but DOE is sitting on applications for 20 more. As Secretary Moniz admitted in a moment of candor, politics is the stumbling block.

Nations and companies make decisions on the basis of future circumstances and prices. If Russia became convinced that we were going to go all out in both producing shale gas and assisting European allies to produce theirs and all out to build LNG export facilities, there almost certainly would be an affect on Putin’s calculus. This conclusion was echoed in an analysis by the Brookings Institution that concluded, “European allies are “deemed to be in the national interest…[it] would indeed have an immediate impact on Russia’s market power and help accelerate the build out of gas transportation infrastructure in Europe”.

Russia’s economy is tied to its oil and gas revenue. Any actions that drive down the price of either oil or gas will inflict more economic pain and further weaken the ruble. Russia may be able to use its military might in ways that keep NATO countries on the side lines but it clearly is ill prepared for an economic war.

The strongest argument for natural gas exports is that it is in our economic self interest. It would encourage more investment in production, transportation and storage facilities, export facilities, and greater use of a plentiful and affordable resource. More jobs, a better balance of trade, and foreign funds flowing into the US make our economy stronger. That was demonstrated by a DOE study that was released in 1012. NERA, a pre-eminent economic consulting firm,concluded that the more natural gas that the US exports, the greater the economic benefits that we will realize.

The opposition to exports is being led by a group of manufacturers, special interests, who are willing to subordinate the nation’s long-term economic interest to their short-term profit potential. They are being extremely short sighted. If they cannot compete without the heavy helping hand of government, they should reallocate their investments into lines of endeavor where they can compete. In the long run crony capitalism is like a cancer.
This article appeared on the National Journal Energy Insiders weblog at http://disqus.com/wokeefe/

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