Restraining Gas Exports (and Prices)

Michael Lynch is the president and director of global petroleum service at Strategic Energy & Economic Research.

Calls for a ban on natural gas exports are perhaps the surest proof of the success of "fracking," or hydraulic fracturing of shale, which has seen a boom that has depressed wellhead prices by 75 percent, bringing major benefits to both residential and industrial consumers. The benefits to the overall economy include lower inflation, a better balance of trade, and more money in the pockets of consumers. Banning exports of natural gas to keep prices low, as some have suggested, would seem to be a win-win for both the economy and consumers. What could go wrong with the government trying to manipulate commodity markets?

[Obama Exaggerates Role of Federal Government in Natural Gas Boom.]

Well, recall the caverns full of government-owned cheese in the 1980s. That mess was trivial compared to the 1978 Natural Gas Policy Act, which tried to micromanage natural gas production by setting various price levels according to estimated production costs. There were different prices set for old gas, new gas, deep gas, tight gas, and so forth. Granted, one sector of the economy benefited—the lawyers—who made a mint trying to untangle the chaos that ensued.

Once deregulated, increased drilling brought prices down for a decade and a half, just as economists predicted (or should have, though most didn't). Despite a couple periods of elevated prices, to say nothing of peak oil advocates decrying the imminent collapse of production, the United States has benefited economically from fuel that was significantly cheaper than prevailing prices in Europe or Japan.

[Limiting Natural Gas Exports Sets A Dangerous Precedent.]

But this doesn't mean that we should restrict exports to maintain a glut. Consider such a strategy applied to other commodities: the U.S. exports 40 million metric tons of corn every year, about ten percent of production, which raises domestic corn prices and thus, meat prices. Why not ban corn exports? It would lower food costs for Americans, reduce inflation, increase economic growth: the perfect policy, no?

Perhaps that's a bad example, given our history of corn policy. More probable is the government trying to boost consumption. Corn bread could receive a large tax break, for example. If that doesn't work, why not require bakers to blend a certain amount of corn meal into all wheat products? This is what the government does with gasoline.

[Rising Foreign Demand Keeps U.S. Gas Prices High.]

Of course, farmers who produce corn are "good" whereas companies that produce gas are "bad." Except, like Peter Venkman in Ghostbusters says, "I'm fuzzy on this whole good-bad thing." That is an issue for another day, but interfering with trade to influence prices is a slippery slope that would lead us to a very bad place, and it is shocking to think that some industries would support it for their own benefit.

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