Michael Lynch is the president and director of global petroleum service at Strategic Energy & Economic Research.
The huge boom in shale gas in North America has caused some companies to suggest liquefying it and shipping it overseas to markets where natural gas sells for three or four times the domestic price. This has prompted others, particularly industries that rely on natural gas, to argue that this should be prevented to avoid raising domestic gas prices. Aside from confirming a stunning reversal of the fuel's prospects, the proposal also represents a revival of a pernicious attempt to control fuel markets which ended during the Reagan administration.
On a practical level, the amounts involved are moderate. Capacity is unlikely to exceed 20 million tons a year any time soon, which would equal about 5 percent of U.S. production. The United States not only imports three times that much from Canada, but exports about half as much by pipeline to Mexico. The more dangerous aspect is the precedence that export restrictions would set.
Two justifications are given for such a policy: conserve our natural resources for the future, and drive down costs for energy intensive industries and consumers. This blog post will address the first; the next, the latter.
Conserving a "strategic resource" seems rational, and is often done, including in oil-rich Middle Eastern countries, where some cite the saying, "My grandfather rode a camel, I drive a Cadillac, and my grandchildren will ride camels." This is pithy but nonsense: in the four decades since the saying was first bruited about, Middle Eastern oil reserves have increased, not decreased, and there has not been the slightest sign of resource scarcity. The grandchildren are now driving Mercedes, by the way.
In the United States, President Jimmy Carter epitomized the promotion of resource conservation when he argued in favor of keeping natural gas in the ground for noble uses like conversion to petrochemicals or home heating. My former M.I.T. colleague Loren Cox used to refer to this as trying to make natural gas a "boutique" fuel, when in fact it was more of a discount store item. One result of Carter's policy was an increase in coal consumption in the United States, which few besides coal producers will laud.
Modern policymakers should be embarrassed not to have learned this lesson already. Fifteen hundred years ago, Theodoric, the Ostrogoth leader who ruled Italy in the early sixth century, encouraged his people to loot Etruscan tombs—but only of their valuable metals, such as gold. Religious artifacts, he opined, should be undisturbed, but not useful materials. Arguably, he became the first resource economist when he noted, "There is no profit for what lies in the ground."