Energy Independence or Free Trade?

In 2006, yields from U.S. natural gas fields were on the decline. The prevailing expectation was that the U.S. would need to increase reliance on international sources to meet natural gas demand. But, relatively recent technology advances in drilling methods have unlocked a new supply of natural gas extracted from large shale reserves. Estimates now suggest the U.S. could have enough natural gas to meet current demand for more than 100 years. This reversal of fortune has created the possibility to consider exporting natural gas to foreign markets.

The driving business rational behind the interest to export is that consumers in foreign markets pay nearly twice the price for natural gas than U.S. consumers do. This price differential is sufficient to cover the added cost of shipping natural gas to foreign markets, so the delivered volume can be sold at a profit.

The Players (partial list)

The Department of Energy gave Chenier Energy Partners approval to sell natural gas to foreign customers.

T. Boone Pickens believes the surplus natural gas is best used to reduce U.S. dependency on foreign energy sources

The Industrial Energy Consumers of America is opposed to exporting natural gas

The American Public Gas Association has concerns over the anticipated pricing impact a reduced supply would have on U.S. consumers

China and India (among other countries) have an increasing demand for natural gas import

What Do You Think Is The Right Thing To Do?

This is a great real-life case study in the making. It has potentially important implications in economic development.

  • There is certainly the chance that exporting natural gas will increase the price of gas to U.S. consumers. But experts are uncertain what volume of exporting would trigger a meaningful price increase.
  • Continued availability of low cost natural gas potentially reduces the commercial incentive to drill and bring more supply online commercially. That could mean a delay in incremental job creation and tax revenue for community development.
  • T.Boone Pickens has been quoted in the press as saying exporting natural gas would be a mistake and potentially a national security issue. He has warned, “We’re truly going to go down as the dumbest generation.”

As with most situations in economic development there is no black and white answer. Every choice has trade-offs. This situation is no exception.

From an economic development perspective, what do you think is the right thing to do and why? Leave a comment with your perspective. Let’s take the opportunity to learn from each other and understand all aspects of this strategic choice.

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10 Comments so far

  1. Brent Billock

    June 15, 2011

    I normally would land on the free market side of this argument. The foreign buyers still have to cover the expense of shipping, so natural gas would remain inexpensive in the States relative to the price paid elsewhere. Also, the potential to sell for higher profits abroad would spur more natural gas exploration.

    However, in this case, I might rather see the natural gas stay at home. A steady stream of very cheap natural gas (which burns cleaner than gasoline or coal) could change the way we generate electricity and even power our cars.

    If that breaks our dependence on foreign oil, we might finally see our country embark on fewer military adventures with questionable political benefit, merely to insure the continued flow of oil.

  2. jason esser

    June 15, 2011

    Since you’re talking about independence I assume you’re speaking to oil and not other sources of energy. Some like to lump coal, natural gas and wind and solar into the “energy independence” discussion but, the fact is we’re not dependent on any other country for those resources so we are already independent. Less of our consumer dollars would be flowing to foreign countries; I won’t go as far as saying we’ll see cheaper energy prices but, perhaps less price volatility.

    We should also realize not only a cost savings but also a saving of lives as a country by lessening our need to have a military presence in some regions.

    Like Brent, above I’d like to see this stay in the USA but, I also believe in capitalism so on that note if they’re going to export it make them pay a tax on it before leaving the dock.

    As for “Free Trade” it’s never free.

  3. Roger Titkemeyer

    June 15, 2011

    I don’t believe the two are mutually exclusive. I agree with the previous comment that increased profits will lead to increased production, thereby minimizing/negating any potential significant increase in price domestically. Geography certainly plays a role, too.

    Government intervention in oil exploration, and gas for that matter, has been a huge factor in dependence on foreign energy. These would be the same people who would write the regulations on whether the natural gas is sold abroad or not.

    I am no energy expert, but history is what it is. When government regulates, the consumer ends up paying more. Let the (truly) free market decide.

  4. The USA needs an energy policy that embraces multiple sources of energy. The abundance of natural gas finds in the USA gives great opportunty for energy independence for our country, however we cannot overrely on one source as this will cause an upheaval in the balance of the price which is now at under $6 an mcf. As well as a source of fuel, natural gas can be used to create plastics, paints, and fertilizers giving a significant boost to US production and manufacturing capacity.

  5. Scott Gibbs

    June 16, 2011

    It’s difficult to discuss this issue in issolation. The fact that there is no serious, critical dialogue underway concerning a National Energy Policy is infuriating. Personally, I don’t have a problem with exporting the natural gas to the highest bidder. The existence of such market aberrations is due to the fact that energy prices in the U.S. do not reflect the real costs of carbon based energy sources. If they did, energy demand management and renewable energy investment would be looked at differently. The transportation of natural gas is difficult, and necessitates new LNG facilities. Significant opposition to LNG facilities, similar to oil refineries.

  6. Rodney J Littles

    June 20, 2011

    Energy Independence…Free Trade is restricted by Domestic Political Influences of the native voter in any Country. Domestic businesses put pressure on Government to protect their interests. Thus even if you have an agreement on trade there will be violations. With Energy under domestic control and American Genius creating products at home we can export what we do not consume that is made in America.

    The question is do we the people have the influence to move America in that direction? Maybe if we had a “Citizen Lobbyist” with some big stick we may be able to hold back the Status Qua that does not want anything to change.

    Interesting question. Glad I could respond.

  7. Emery Graham

    July 17, 2011

    Gas shale and the “fracking” process is used as a market exciter. The cost-benefit assessment of this possible opportunity has not yet been done. In this economic and environmental climate, it’s very likely that the negative externalities of the fracking process will be valued and integrated into the production cost equation. I am aware of the opposition, and impact on import costs, to LNG import schemes. The publicity around the idea of an LNG ship exploding on the Delaware River near Wilmington, Salem, and Chester excites a lot of interest among the public.
    Your perspective uses the popular language but doesn’t seem to move beyond the popular dialog. Can you broaden the relevant scope of your conversation to include little more detail?

  8. Emery Graham

    July 17, 2011

    “Energy independence” in our highly integrated world economy is a media term used to make commerce flow more easily. If you model the complete energy production and use cycle you’ll find a very large number of conditions where the process impacts a huge number of entities not directly involved in the core processes. Language distorts the perception of the technical reality it seeks to convey. “Energy Independence”, to me, is one such technical reality. In this sense we can never be “energy independent”. We will always, and have always, existed in a physical state of energy dependency. Our advances in technology and science are just now allowing us to get a handle on the reality of our existence.

  9. Don Holbrook

    July 18, 2011

    I believe that energy independence is not only our priority but that it is possible. But I do not see the need that such a focus would be indicative that free trade should be hampered by it. Creating a national energy board with a focus on creating an actual national energy policy would be a great first move. By addressing our need to reduce fossil fuel consumption through a number of steps, not just pumping more natural gas is the real objective. A hybrid of energy platforms is more realistic such as solar (still expensive but worth the investment), wind, tidal, bio-fuels especially from algae and the expansion of clean coal technologies and nuclear on existing platforms all would prove smart investments. The bigger issue to energy independence is energy savings and avoidance of use during peak hours. Our buildings and transportation consume 73% of our energy uses. Both can make exponential leaps in terms of major energy efficiency gains. This would be the best course for our country this decade.

  10. […] Energy Independence or Free Trade? […]

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