Don’t let protectionism strangle America’s energy renaissance

The North American energy renaissance is a remarkable achievement of innovation and risk taking.  Continued improvements in production technology have generated enormous growth in U.S. natural gas production, contributing to greater employment, savings in consumer budgets, a manufacturing revival and reduced emissions of greenhouse gases. 

One would think that capturing the benefits of this good news would be embraced by both the administration and the business community.  Guess again.

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A lobbying group called “America’s Energy Advantage,” led by petrochemical producer Dow Chemical and steelmaker Nucor, is seeking to restrict competition for natural gas in a misguided effort to protect their market share.

At issue is a 1938 law that grants the federal government broad powers over international trade of natural gas. The U.S. Department of Energy (DOE) must make a determination if natural gas exports or imports are against the “public interest” before granting a license to sell to countries without free-trade agreements with the United States.

After a self-imposed two-year moratorium to study the export issue, the DOE now faces a backlog of 21 applicants seeking to sell natural gas in liquid form overseas.  Liquefied natural gas, or LNG, is the world’s fastest-growing source of energy trade, enabling developing nations without resources to transition away from dirtier coal and crude products in their economies.

Under new Secretary Ernest Moniz, the DOE has started issuing conditional LNG export permits. Yet even this limited progress is a step too far for AEA, whose members are demanding that DOE revisit its “public interest” standard before issuing more export licenses.   

AEA’s members are worried that permitting excessive LNG exports will raise domestic prices and harm manufacturing interests. However, this concern fails to understand important forces now underway in natural gas markets. The onerous requirements of the review process itself are likely to find the U.S. exporting too little LNG instead of too much.

The global LNG industry is highly competitive and U.S. LNG projects, with massive capital requirements, require stable long-term contracts and a responsible regulatory and political environment to succeed.

The latter has been in doubt. The Obama administration’s equivocation on LNG exports has cast a pall among America’s trade partners, many eager to buy our natural gas but uncertain if our leaders will stand behind trade with them.

While the industry and our allies scrutinize DOE for direction on export policy, the important permitting work is being performed by the Federal Energy Regulatory Commission (FERC), which leads the safety and environmental review of LNG projects.

The cost for FERC permitting is steep, up to $100 million per applicant. Only one LNG project so far has completed it.

The cost for compliance with the FERC review will serve to weed out good projects from bad ones. Furthermore, capital markets will intently analyze LNG projects before lending billions for construction. The scrutiny of the market will determine better than any regulator which LNG projects should move forward. 

The irony is that restricting LNG exports will not only damage America’s potential as a major producer of energy, but also impair growth in the value-added manufacturing that the members of AEA seek to protect.

Faced with a saturated domestic market, the natural gas industry is voting with its pocketbook. Investments in natural gas are down more than 50 percent in two years.  Less investment by the industry means less demand for goods like steel and concrete, and less production of ethane and propane stripped from wellhead natural gas that underpins the revival in our chemicals sector.

A new study by IHS-CERA finds that unconventional energy development supported more than 2.1 million jobs last year and contributed $284 billion in to the U.S. economy. By 2025, those contributions are seen at 3.9 million jobs and $500 billion in economic gains, including $1.6 trillion in total tax revenues, if the industry could grow to its potential. A rising tide does indeed lift all boats, a lesson that would-be protectionists should remember.

U.S. policymakers should fight protectionist measures and support America’s role as a reliable trading partner to our allies. We otherwise will cede the global market to competitors and deny our energy industry the opportunity to realize these economic and employment benefits for the nation.

Pugliaresi is president of the Energy Policy Research Foundation (EPRINC) and a former member of the National Security Council in the Reagan administration.