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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