Opponents of America exporting natural gas fear that it will drive up prices at home, harming manufacturers and possibly undermining the still fragile economic recovery. The more likely outcome is that it will stabilize prices worldwide to America’s benefit.
Last month, the Obama Administration allowed the export of more liquified natural gas from Cove Point on Maryland’s Chesapeake Bay. A month earlier, the Energy Department approved exports from a terminal in Lake Charles, Louisiana.
The Cove Point permit was the fourth issued since Barack Obama took office in early 2009 and the third issued this year. Almost two dozen export proposals have yet to be reviewed. But the government seems to have stepped up the approval process after spending almost two years studying the effects of natural gas exports.
Hydraulic fracturing and horizontal drilling have made America the world’s largest natural gas producer. Gas prices are now just a third of what they are in Europe. Liquifying and revaporizing natural gas remains a costly process, however. Thomas Tunstall, who is the research director of the Institute for Economic Development at University of Texas at San Antonio, wrote in The Wall Street Journal earlier this year that shipping 1,000 cubic feet of natural gas to Japan adds $6.40 to the price. Given that the same amount of gas costs between $16 and $17 in Japan, compared with $3 to $4 in the United States, that still allows American companies to generate a healthy profit.
In Europe, gas prices are thrice as high as in America because the continent is so dependent on imports from Russia. But Russia’s monopoly is challenged by cheaper gas from Norway, Qatar and the Caspian Sea region — which is due to be connected with Europe through the Trans Adriatic Pipeline — as well as shale gas exploration in Britain, Poland and Ukraine.
Tunstall predicted that the synchronization of supply and demand in Europe would moderate the demand for American gas and put downward pressure on prices elsewhere. “In the same way that crude oil has become a global market, so will natural gas.”
Moreover, American energy companies cannot afford cheaper gas. Extracting it from shale, a more arduous and expensive process than conventional natural gas drilling, would become too costly. Supply would then shrink until gas prices are high enough to justify drilling for shale gas again — until the cycle repeats itself. Better to have a global market that keeps the price of gas low and, importantly, stable.