LNG Exports Make a Lot of Sense

Jan 10, 2013

Photographer: Kimimasa Mayama/Bloomberg.

Not so many years ago, America was anxiously building new import liquefied natural gas (LNG) terminals so that we would have adequate supply. Today is quite different. As U.S. Chamber President and CEO Tom Donohue noted in the State of American Business address, the United States is “now the largest single natural gas producer in the world,” and is now in “a position to export liquefied natural gas.”

However, the handwringing has already begun, with critics warning that LNG going to Europe or Asia will raise domestic prices.

But the facts indicate that so far, LNG exports seem to make sense. First, Research disputes price fears. A new Deloitte study finds that any increase would be marginal, and an Energy Department-sponsored study found that in every situation there would be a net economic benefits from LNG exports even if there were modest price increases.

At a press conference after his speech, Donohue made the point that without exports, we’ll see a build-up of natural gas supplies in the United States that will continue to push the price down. "If they don’t do something to stimulate the price of gas a little, nothing will be taken out of the ground," he said. Exporting LNG creates a more balanced market, stabilizes prices, and makes continued American natural gas exploration profitable.

With LNG exports, we also must consider U.S. trade relationships. At the press conference, Bruce Josten, the U.S. Chamber’s Executive Vice-President for Government Affairs, said, "The United States is a signatory to several global resource commodity trade agreements, and ought to get more gas to global markets." Donohue also noted that preventing LNG exports could violate World Trade Organization (WTO) commitments. As Donohue said, "You can’t go around the world demand free, open, and transparent markets, and then not allow LNG exports." And LNG exports will help us reduce our huge trade imbalance.

One more thing to consider is LNG exports as a useful foreign policy tool. Energy analysts Robert Johnston and Leslie Palti-Guzman write in the Wall Street Journal:

For instance, the rise of a major alternative supplier diminishes the likelihood of cartel behavior by rival suppliers such as Iran and Russia. These countries were among the key founding members of the Gas Exporting Country Forum, often described as a potential "gas OPEC." Although today there is already more gas produced and exported by countries outside the GECF than by its members, this trend will be accentuated by U.S. gas exports.

Furthermore, the rise of American LNG exports makes it easier for Washington to convince allies not to do business with rogue states, particularly Iran. With the prospect of American LNG imports, India, for example, now has more attractive alternatives to the Iran-Pakistan-India pipeline. Pipelines are like a marriage, where the partners may be locked into supply and pricing arrangements that can last decades. A reliable and stable supplier of LNG such as the U.S. eliminates the need for risky long-term infrastructure projects and contracts.

With U.S. gas exports set to add to the global supply, there is also less interest in riskier Iranian and Venezuelan LNG export projects, which may now never materialize, as they would have to compete with more advanced U.S., Canadian, East and West African projects.

From economic, trade, and foreign policy perspectives LNG exports make sense. We should move ahead to take advantage of the position we’re now in.

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