Hot Air About Natural Gas Exports

In his February 1 article on Reason.com, Ron Bailey writes, “To the extent we live in a ‘post-truth’ era” lobbying policy-makers “is in good measure because it pays so well to dissemble, exaggerate, and spin for government grants and favors.”  If he had written that today, he might have been referring a recent Wall Street Journalopinion piece by Dow Chemical’s CEO, Andrew Liveris, called “Wanted: A Balanced Approach to Shale Gas Exports.”

Mr. Liveris’ article attempts to convince readers that he is only interested in the long term interest of the economy and consumers.  However, his interest is clearly about getting the government to restrict trade and use its heavy hand to keep natural gas prices artificially low, allowing Dow to profit.  This is the classic “Bootlegger and Baptist” approach to pursuing self-interest.  Just as the bootleggers supported Baptist efforts to restrict legal liquor sales so they could monopolize the market and sell more product, Dow wants the government to once again interfere with market forces so that his company can reap a short-term economic benefit.

Mr. Liveris claims that energy producers want “to quickly export massive quantities of natural gas”and that “shipping unlimited amounts of natural gas overseas could raise U.S. prices high enough to threaten economic growth and cause job losses across the country.”  That is a scary scenario.  And like most scary scenarios, it falls apart when subjected to the application of facts and objective analyses.

First, Liveris’ allusions that we could “quickly export massive quantities” ignores the reality that each step in the extraction process takes a great deal of time; from getting proper authorization, developing the facilities, extracting the gas, and shipping the liquefied product.  As pointed out by the Oil and Gas Journal, these “Construction, transmission, and liquefaction costs also would limit exports, which in turn would keep domestic prices from rising significantly.”  In other words, Dow’s case falls apart as we are not going to see “massive” amounts of natural gas being “quickly” exported anywhere anytime soon.

The Department of Energy estimates the potential U.S. reserves of domestic natural gas to equal about a 100 year supply.  But the technological advances that enabled American companies to unlock vast domestic shale gas reserves are now being used around the world and more countries are unlocking their own natural gas potential to become global providers.  The economic boom that we are leading will soon become a global boom.  And despite Liveris’ attempts to paint a different picture, the global market forces will bring supply and demand into balance, shattering the image of unlimited demand for and limited supply of American natural gas.

Recently, the Department of Energy commissioned a study by the economic consulting firm, NERA, to assess the economic impact of permitting LNG exports.  The study was led by David Montgomery, one of the leading energy economists in the nation.  The study is devastating to Mr. Liveris’ protectionist pleas as it concluded that for a wide range of scenarios:

“the U.S. was projected to gain net economic benefits from allowing LNG exports. Moreover, for every one of the market scenarios examined, net economic benefits increased as the level of LNG exports increased. In particular, scenarios with unlimited exports always had higher net economic benefits than corresponding cases with limited exports.”

Natural gas prices have been drifting down since early last year, indicating that supply is greater than demand.  That fact is reinforced by the reduction in drilling rig activity since the early part of last year.  So, the low price of natural gas that Mr.Liveris would like to protect won’t last long anyway.  Most successful and well-run companies look at long run prices and hedging opportunities when making major capital investments.  Mr. Liveris and Dow would be better off doing the same rather than seeking government interference with the market to secure the price it prefers.

Mr. Liveris is right that we need a “sound and balanced energy policy.”  But if he took the time to study energy history since the early 1970’s, he would see that though the U.S. has abundant and diverse sources of domestic energy, the ability to deal with our energy challenges have been further complicated by the exaggerated pleas from those who wish to distort the market and the government’s willingness to interfere with market forces by enacting industrial policy initiatives.

Let markets work and we will all be better off economically.

This article appeared on the FuelFix weblog at

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