The Cost of Banning Natural Gas Exports

Both the costs and benefits must be weighed when considering a recommendation not to export natural gas.

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Liquid Natural Gas tanker at port with LNG liquefaction plant in background.

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

With the recent publication of a letter from 100 doctors and engineers, Physicians, Scientists and Engineers for Healthy Energy suggests that exporting natural gas from the United States would be imprudent. While there are projections that liquified natural gas exports could become quite large, the reality is that they will almost certainly be minimal for the next several years, and unlikely to affect prices any time soon.

The doctors are essentially applying the precautionary principle, which is to take no risks. This is derived from the doctor's maxim, "First, do no harm." Evidence of health effects might be marginal, but the intent is to act on the suspicion or, more accurately, fears. The problem is that the precautionary principle assumes no cost, only potential benefit. Taking no action usually means a less than optimal approach, which sometimes proves to be costly.

My favorite example is the Black Death in the 14th century, when Pope Clement VI, a real policy wonk, argued that Jews were unlikely to be causing the plague, as they were not present in many places suffering from the epidemic, and, when present, suffered equally with the Christians. Many Christians applied the precautionary principle and killed the Jews anyway.

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And there is now another example, in that a group of doctors has urged the United Nations not to ban thimersol, a mercury based preservative used in vaccines. A decade ago, the same group had urged U.S. vaccine makers to stop using the compound amid fears that it might play a role in causing autism. Since then, the research has decisively proven that the compound had no adverse effects, and the possibility that it will be banned threatens the distribution of vaccines in the Third World, where the lack of refrigeration necessitates a preservative.

So, would there be negative consequences for banning liquified natural gas exports? Some will opine that only "big oil" will be hurt, as if that made it acceptable. This conforms to the slogan "people, not profits" which is popular but disingenuous, since the slogan could just as easily be "fears, not jobs".

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And those lost jobs actually have health benefits. Unemployment leads to increased incidence of depression and alcoholism, major indicators for early death. The numbers might not be huge in this case, but there is a definite cost.

This is not to say that no industrial activity should be prevented because lost jobs have a health penalty, but rather that the costs and benefits should be weighed. In the case of shale gas, there seem to be no serious health effects, which implies that banning natural gas exports is nearly all costs, and no benefits.

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