Natural Gas: The Hostage of History

On March 25, Senator Landrieu, the new chair of the Senate Energy & Natural Resources Committee will hold a hearing addressing the logjam on exports of natural gas.  That this hearing should even be held is a prime example of the unintended consequences of federal laws that have long since become obsolete.

In 1938, Congress passed the Natural Gas Act of 1938 to control the interstate price and transmission of natural gas.  Under the act, companies had to demonstrate “public convenience and necessity” to the Federal Power Commission before they could make an interstate sale.  And, now, 76 years later, this law is being used to stifle free trade and to continue the heavy hand of government in controlling market forces.

For over six years it has been abundantly clear that the United States was blessed with an abundance of natural gas and that private sector technology had the means to produce it economically in large quantities.  US reserves are estimated to be large enough to meet our needs for at least a century.  As the global implications of the shale gas renaissance became ever more clear, companies began planning for the construction of LNG export facilities to begin exporting natural gas to other countries.

Unfortunately, before construction can begin, they must obtain DOE permission and DOE has been slow-walking the approval process in keeping with the Obama Administration’s hostility toward fossil energy.

Not only is the Natural Gas Act an anachronism but so is the prevailing mindset in Washington.  Over two centuries ago, Adam Smith demonstrated the benefits of free trade in advancing the Wealth of Nations and the economic penalties of protectionism.  Unfortunately, there are some “business leaders” who are attempting to subordinate the nation’s economic best interests for shortsighted opportunism.

The case for natural gas exports is compelling.  In late 2012, DOE released a report by a leading economic consulting firm—NERA—that concluded that the more natural gas that the US exports, the greater the economic benefits that we will realize.  Allowing unfettered exports will stimulate greater domestic investment in production, distribution, storage, facility construction and operation, and improve our balance of trade as money from foreign purchases flowed into the country.  As just one example, a planned facility in southwest Louisiana—Cheniere Sabine Terminal– represents an $11 billion investment that would employ 3000 workers during construction and create about 150 permanent jobs in a community of 6800.  Other projects would have similar benefits.

The Brookings Institution, hardly the focal point of unfettered free market economics, published a study that looked at the impact of natural gas exports to Europe.  It concluded that “European allies are ‘deemed to be in the national interest’ would indeed have an immediate impact on Russia’s market power and help accelerate the build-out of gas transportation infrastructure in Europe.”  Such a decision today would do nothing to deter Putin’s Crimea action, but it would be a clear signal that his days of using natural gas to intimidate and bully European nations was coming to an end.  And, it would be a clear sign of support for Ukraine to stay the course in looking west and not east for its future. In addition to exporting natural gas, the US government should do all that it can to encourage European nations with shale gas reserves to develop them with the help of US technology.

Other nations see the benefits of shale gas production and are not sitting on the sidelines while we dither over exports.  The US has an opportunity to maintain preeminence in the global market for natural gas.  If we continue to be hostage to an archaic law and the lobbying of special interests, others will fill the void and capture the economic benefits and improved trade relations that should be ours. For four decades, Congress, successive Administrations, and certain advocacy groups have used energy security to do little more than advance their agendas.  Now the time has arrived to test whether our actions are going to be guided by image or the reality that we can help bolster Europe’s energy security.  Truly, actions speak louder than words.

 

This article appeared on the FuelFix weblog at http://fuelfix.com/blog/2014/03/21/natural-gas-the-hostage-of-history/

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