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U.S. Should Export Natural Gas, Not Coal

By the Editors May 8, 2013 6:00 PM ET

President Barack Obama’s suggestion last weekend that he may favor greater U.S. exports of liquefied natural gas is a welcome sign. More exports would spur more domestic production and help balance U.S. trade.

LNG exports could also help counter the unsettling increase in American exports of coal to Europe. In 2012, the U.S. sent about 66.4 million short tons (60.2 million metric tons) of coal across the Atlantic, 23 percent more than the year before. Exporting coal works against the progress the U.S. has made in lowering its own greenhouse-gas emissions by replacing coal power with cleaner-burning natural gas.

In Europe and Asia, where natural gas sells for $10 to $16 per million British thermal units -- three to four times the U.S. price -- demand is high. Imports from the U.S. could also give European countries greater power to bargain on prices with Russia’s OAO Gazprom, now a dominant supplier of natural gas. All that’s missing are the U.S. facilities to liquefy gas for export.

Opposition to building these terminals comes mainly from U.S. manufacturing companies that don’t want to see domestic natural-gas prices go up as some of the supply is sold overseas. Dow Chemical Co., Alcoa Inc. and other industrial-energy users argue that by raising domestic prices, exports would slow the U.S. manufacturing renaissance and hobble economic growth. Paul Cicio, president of the Washington-based trade group Industrial Energy Consumers of America, has called for delaying approvals for some new export terminals to avoid a domestic price shock.

Individual consumers, too, have reason to wince at the prospect of electricity and natural-gas bills going up because of greater exports.

More Production

Yet any increase in prices would be temporary if gas production rises, too. The low U.S. prices of the past year and a half (last June, they were less than $2.50 per million Btu, and have since risen to about $4) led many energy companies to stop drilling. With more demand from exports, more production is to be expected. As much as 80 percent of foreign demand for American natural gas could be met by new drilling, studies suggest.

In a December report for the U.S. Energy Department, NERA Economic Consulting found -- as other researchers have before -- that exports would bring a net economic benefit by helping to balance U.S. trade. The increase in gross domestic product may amount to $20 billion, or possibly as much as $47 billion if very large amounts of LNG -- 12 billion cubic feet per day -- are exported, the NERA study found.

Delaying or restricting export terminal permits would not only negate that benefit. It would also put the U.S. in a new trade quandary: Because there is no national-security reason to limit exports of the U.S.’s new surplus of natural gas, doing so would amount to unfair competition. As Michael Levi of the Council on Foreign Relations has pointed out, the World Trade Organization might see limits on U.S. natural-gas exports as no less unfair than are China’s restrictions on exports of rare-earth elements.

The U.S., with its $38.8 billion trade deficit, shouldn’t see its booming oil and gas production as a reason to secede from global energy markets.

Obama seems to agree; in Costa Rica on May 4, he said he envisions the U.S. becoming a net natural-gas exporter by 2020. If so, he has some work to do converting words into action.

Last year, the Energy Department gave a permit to one facility in Louisiana to sell LNG to countries without trade agreements with the U.S. -- including sales to Japan and European nations. Nineteen more applications are pending. Given the expense and time involved in building these plants -- several billion dollars each and at least four years -- only a few can be expected to come to fruition.

A recent Moody’s Investors Service report predicted that if three more plants -- in Texas, Maryland and Louisiana -- are soon approved, as expected, it will still take until 2020 for the U.S. to export significant quantities of natural gas.

On May 4, Obama said, “I’ve got to make an executive decision broadly about whether or not we export liquefied natural gas at all.” Though the decision has yet to be made, the right one is clear, and the approvals of the new plants should be made without delay.