The U.S. Must Not Wage an Energy Trade War Against Itself

Trade wars don't help anybody—why would we consciously choose to wage one against ourselves?

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

Pete Sepp is executive vice president of the National Taxpayers Union.

Last week's disquieting news from the Commerce Department, that the U.S. economy contracted by an estimated 0.1 percent in the fourth quarter of 2012 has generated a cacophony of pundits' voices. Shallow analysis holds that a massive decline in Pentagon spending is to blame, and that federal expenditure reductions are somehow suicidal in the future. But seasoned observers such as former Assistant Defense Secretary Lawrence Korb have noted that whatever slowdown there might have been is closely linked to the "use-the-money-or-lose-it" mentality among government agencies at the end of a fiscal year (which was the 3rd quarter). Furthermore, there were those little matters of the "fiscal cliff" and the "regulatory cliff," which were responsible for giving individuals and businesses worries over tax hikes and burdensome federal rules changes that would hit hard this year.

Yet, one important component of the pullback was a steep decline in U.S. exports of goods and services, making a recent political development in the energy sphere all the more troubling.

[See a collection of political cartoons on the economy.]

As this column has often recounted, oil and natural gas have served as a bright spot in an otherwise gloomy economic picture these past several years, offering everything from robust employment opportunities to stable returns for millions of middle class investors. In particular, hydraulic fracturing and horizontal drilling have unlocked natural gas resources in vast swaths of America, not just in traditionally energy-rich states. The result has been abundant and cheap supplies that will likely make the United States a net energy exporter by the end of the decade.

That is, if the federal government will exercise its powers prudently instead of recklessly. In the "reckless" department, a small coalition of companies called "America's Energy Advantage" hopes to pressure regulatory officials into denying permits for exports of liquefied natural gas, known as LNG. The companies contend, among other things, that trading more liquefied natural gas abroad will leave less of it here, raising prices and affecting domestic manufacturers.

[See a collection of political cartoons on energy policy.]

To electricity consumers and industries that use natural gas for their own products, low prices for this commodity are a boon, not a bust. But would allowing more exports really work to our detriment? The U.S. Chamber of Commerce doesn't seem to think so. Nor do these sources:

  • A December 2012 NERA Economic Consulting study commissioned by the U.S. Department of Energy examined 13 scenarios involving the impact of liquified natural gas exports. The study concluded that in spite of limited price fluctuations, "Across all these scenarios, the U.S. was projected to gain net economic benefits from allowing exports. Moreover, for every one of the market scenarios examined, net economic benefits increased as the level of LNG exports increased." Those total benefits could be as high as $47 billion by 2020.
  • A 2011 analysis from the Deloitte Center for Energy Solutions projected only a modest price increase domestically from liquefied natural gas exports, weighed against gains in economic activity. One key finding: "there are sufficient volumes of domestic natural gas for both domestic consumption and LNG exports."
  • A May 2012 study from the Brookings Institution concluded that, "U.S. policy makers should refrain from introducing legislation or regulations that would either promote or limit additional exports of LNG from the United States. The nature of the LNG sector, both the costs associated with producing, processing, and shipping the gas, and the global market in which it will compete, will place upper bounds on the amount of LNG that will be economic to export."
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    The upshot of all this research is that the market, not government, is best equipped to balance supply and demand and thereby create equilibrium for prices, wages, and jobs—an equilibrium that will foster long-term economic prosperity. That's why American taxpayers have such a major stake in supporting free trade. Knowing this, why would we treat liquefied natural gas exports any differently?

    Now, this author is not one to get worked up about natural, market-based fluctuations in the nation's trade balance. The free exchange of goods across borders benefits American consumers and businesses. Viewed in this light, importing more than we export is not necessarily a sign of national weakness.

    [Read the U.S. News Debate: Should the Government Invest in Green Energy?]

    Unless, of course, the "weakness" is something our government deliberately concocts through heavy-handed tax or regulatory policies that hamper our industries' competitiveness abroad. One move that amply fits this definition would be for Washington to put a stranglehold on liquefied natural gas exports. In the process, the feds would be choking off yet another promising contribution to a full-fledged economic recovery, one that could create jobs at a time when we desperately need them.

    Trade wars don't help anybody—why would we consciously choose to wage one against ourselves?

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