It would have been hard to imagine just a few years ago that we’d need to debate whether to export our energy. But the North American energy landscape is changing rapidly, and companies have now requested nearly 20 permits from the federal government to export natural gas. Despite opposition from some on Capitol Hill, environmentalists and petrochemical firms, the Obama administration seems to have decided in favor of exports, announcing recently that it was approving a second permit to export overseas, nearly two years after approving the first, and signaling more may be coming. They made the right call, and should continue to approve natural gas exports on both economic and geopolitical grounds.
An independent study commissioned by the Department of Energy found that liquefied natural gas (LNG) exports would boost U.S. economic growth and average household income (although there are winners and losers). Exports would spur higher natural-gas production, supporting jobs in the industry, in the construction of export terminals and in the supply chain — like a new steel mill that opened in Ohio. Exports will also improve the U.S. balance of payments.
Moreover, because exports to neighboring countries are automatically approved (since we have Free Trade Agreements with them), a decision by the administration to deny applications to export to non-FTA countries may just lead to increased exports to Canada, and then more exports of Canadian gas — still increasing prices in the integrated North American market.
The geopolitical arguments for allowing gas exports are even stronger. Encouraging increased global trade in gas fosters more competition, driving down prices that historically have been linked to the price of oil overseas. This has already started to happen in Europe. Lower natural-gas prices can encourage substitution of gas for coal and oil, which is good for the environment and global oil prices. Increased competition also weakens the geopolitical influence of Russia, which has traditionally been a monopoly gas supplier to Europe. National Security Adviser Tom Donilon echoed these benefits of a more global gas market recently at Columbia University.
Opponents of exports have argued that increasing demand for natural gas through exports will drive up prices in the U.S., harming consumers and manufacturing. But most economic studies find that any increase in natural-gas prices due to exports would be relatively small, at most 10 percent. (Prices are up 100 percent in the last year, a result of colder weather and idled production due to low prices.) The net economic benefits of gas exports outweigh any harm, as the Department of Energy reaffirmed.
Environmentalists are also concerned that exports will increase “fracking.” But shale gas production is poised to rise sharply whether we export or not, so we are going to need to make sure water and air are protected in any case.
In total, the projects still awaiting approval would export around one-third of U.S. production, a volume that would cause gas prices to spike. But nowhere close to this volume of export capacity will ultimately be financed and built. The administration has said it will decide on applications in the order received. It should move quickly, so that the market can decide which projects are most viable, rather than advantage those that got in line first.
Even better, the administration should continue working to secure an FTA with the European Union and the Trans-Pacific Partnership (which Japan recently joined), which would automatically allow exports to most of the largest LNG markets.
The boom in North American oil production means that natural gas is just the beginning. The U.S. will surpass Saudi Arabia in total liquid fuel production this year. But producers will increasingly look to export this oil, even as we remain a net importer, because our refineries are set up to take different types of crude than we are producing. That means the administration may soon need to consider whether to loosen restrictions on oil exports as well.
The president has a goal of doubling exports, recognizing the broad economic consensus that free trade leads to faster economic growth. Energy should be no different. Increasing global energy market integration will benefit both the U.S. economy and our national security.
Bordoff, a professor and director of the Center on Global Energy Policy at Columbia University, previously served as senior director and special assistant to President Obama for energy and climate change on the staff of the National Security Council.