FEATURED:

Regulatory hurdles are hampering natural gas exports

Regulatory hurdles are hampering natural gas exports
© Getty Images

Reaching consensus about energy policy is rare in Washington these days. It’s about as hard as getting the House and Senate to move forward rather than backward on health care and taxes.

But one extremely important issue on the table should be a no-brainer even for the anti-free-trade Trump administration: given China’s growing interest in switching from coal to cleaner natural gas for its domestic energy needs, a golden opportunity exists to take advantage of America’s huge shale-gas supply.

ADVERTISEMENT
China’s demand for natural gas is expected to reach 330 billion cubic meters in 2020, up from 206 billion last year, and the United States is well-positioned to capture a significant share of that rising demand. With little fanfare, U.S. shale-gas production has been booming. It recently rose 12 percent in one month alone, from 53 billion cubic feet in August to 59.4 billion cubic feet in September. Thanks to the shale revolution, the United States is now the world’s top producer of natural gas.

 

U.S. capacity for processing liquefied natural gas (LNG), or natural gas cooled to liquid form, also is expanding: it is set to grow nearly seven-fold by 2019, but that is not fast enough. Domestic gas production is outpacing domestic demand, producing a glut of unsold gas in storage, but only one U.S. LNG export facility is now operating — Cheniere Energy’s Sabine Pass terminal in Louisiana. Another terminal is scheduled to open soon on Maryland’s Chesapeake Bay, and at least three other terminals are expected to be online by 2019.

Despite this rapid capacity expansion, regulatory roadblocks are hampering the construction of even more terminals. The permit process for LNG facilities is outdated. Getting a permit takes several years and requires approvals from multiple federal and state agencies. Unless and until Congress passes legislation to expedite the process, the United States will find itself at a competitive disadvantage with other LNG exporters, such as Australia, Malaysia, Qatar, and Russia. 

The window of opportunity for ramping up U.S. LNG exports is narrow. The window is open now because the cost of transportation to Asia has dropped and Asian LNG prices are at their lowest levels in more than a decade. As is true here at home, market forces are encouraging China to substitute LNG for coal. If we fiddle while other LNG-exporting countries move aggressively, we will wind up paying the price of neglect in lost revenue and jobs.

Clearing the path to the world’s fastest-growing market for LNG would show that the United States is committed to its role as a global energy leader. Geopolitically, U.S. LNG exports would help diversify world energy supplies and enhance global energy security. Environmentally, selling U.S. LNG to China would make the air cleaner there, as the shift from coal to natural gas has done here.

Besides those benefits, thinking about expanding LNG exports to China teaches an important lesson about the gains from unfettered international trade are mutual: The goods we import from China, besides delivering good deals to Americans, provide Chinese companies with the foreign exchange — dollars — necessary to buy LNG and other things from us.

From either nation’s point of view, exports pay for imports. The trade “game” is not zero-sum, but positive-sum.

William Shughart II, research director of the Independent Institute, is the J. Fish Smith Professor in Public Choice at Utah State University’s Huntsman School of Business.