Weighing in on a hot policy issue for 2014, Sen. Lisa Murkowski (R-Alaska) recently called on the Obama administration to lift the ban on U.S. crude oil exports and to reform a Byzantine federal regulatory framework that hampers the export of American energy resources, in particular liquefied natural gas (LNG).
Murkowski makes several excellent points. Removing limitations will encourage greater domestic production and help moderate the impact of changes in global oil prices on U.S. consumers. To foster the domestic energy boom, policymakers should remove limitations on the free trade of all hydrocarbon exports – especially crude oil and LNG – and ensure uniformity in the regulatory process.
Such unique growth can continue under the right conditions. Experts estimate domestic natural gas supplies can meet demand for well over the next century. In Senator Murkowski’s home state of Alaska, for example, there are approximately 35 trillion cubic feet of proven conventional gas reserves on the North Slope , (more gas than the U.S. consumes each year) and the potential for 200 trillion cubic feet more both onshore and offshore of Alaska’s northern coast. Meanwhile, the International Energy Agency anticipates the United States will overtake Russia and Saudi Arabia as the largest oil producer by 2015.
But like any business – and perhaps more so because of colossal infrastructure and overhead costs – the energy industry reacts very acutely to the climate of the marketplace and long-term financial forecasts. Accordingly, when shaping policy, lawmakers face the critical task of creating an environment that appropriately incentivizes growth.
Today’s policies limiting exports fail to consider the long-term sustainability of the energy boom. Many of these policies, such as the ban on exports of crude, stem from the oil shortages of the 1970s, which sent shocks through the American economy. Forty years later, these isolationist views no longer fit America’s energy outlook. If left intact, such policies threaten to stifle the progress made in recent years.
As a result of the boom in production, domestic natural gas prices have fallen more than 65 percent, from a high in 2008. But without the added demand from foreign buyers, prices will be too low to encourage U.S. producers to continue to explore and develop natural gas reserves. Without the ability to export LNG and crude oil, U.S. energy production will fail to reach its full potential, resulting in fewer jobs and smaller growth in federal and state tax receipts.
Opponents of relaxing export restrictions on LNG argue doing so could cause prices to increase here at home. In reality, however, the costs of exporting the product will cap the upward mobility of prices. And unlike crude oil, the price of which is set globally, natural gas contracts would remain tied to the domestic market price here at home.
The advantages of unshackling our energy frontiers are obvious and significant. In the midst of a sluggish economic recovery, the energy industry has added jobs and bolstered GDP. Experts predict natural gas exports alone could add more than 400,000 jobs between 2016 and 2035, and as much as $73 billion per year in GDP within the same window.
In fact, given its history, Alaska should be a model of the opportunity presented by energy exports. Exports allow for new energy production in Alaska that will reduce the nation’s trade deficit, provide new revenue to both the state and federal government, and bring previously untapped and cheaper gas supplies to Alaskan consumers and industry.
As Murkowski points out in her white paper, lifting export restrictions will reaffirm our standing as a global leader. Freely trading our resources allows us to provide our allies with reliable sources of energy while simultaneously reducing our own dependence on foreign countries.
The administration should heed Murkowski’s call to reform America’s outdated energy export architecture. For continued success within our borders, it’s important we look beyond them.
Thorning serves as chief economist and senior vice president of the American Council for Capital Formation.