The national interest and exports of energy

This summer, you’re likely going to see a lot more talk about exports of American-made energy.

As a result of the oil and natural gas industry’s technological innovations, including hydraulic fracturing, the United States is producing levels of oil and natural gas that no one expected just a few years ago.

Under the guise of protecting American interests, some are claiming that energy resources are not like other products that are commonly traded on international markets – and therefore exports should be limited.

This is a fundamentally untrue statement. The free trade of oil, natural gas, coal or chemicals is no different than the thousands of other products that are produced in the United States and exported globally on a daily basis, from corn and soybeans, to automobiles and machinery, to computer products and semiconductors.

I recently talked about the common misconceptions about energy imports and exports, and I’ll reiterate a key point I made in that blog post: The freedom to import and export products benefits countries on both sides. The production of commodities, goods and services creates jobs, revenues and other important economic activity – while free trade allows other countries access to products they use to expand their economies and raise their standards of living. Exports of U.S. goods and services – including energy resources – totaled $2.1 trillion in 2011, making them an essential component of our wealth as a nation.

Of course, the reverse is true as well: Imports of goods and services are an essential component of the U.S. economy, especially when it comes to energy. Despite growing domestic oil production, the United States still imports about 45 percent of the crude oil and petroleum products it needs – evidence that the United States has a significant stake in maintaining the very same free trade of energy that some want to eliminate. Kevin Massy, the assistant director of the Energy Security Initiative at the Brookings Institution, recently commented on this “double speak” by those opposed to energy exports:

“In the wake of its latest round of sanctions on Iran, the U.S. has asked Saudi Arabia to pump more oil to make up for lost Iranian crude. For the U.S. to implore other energy-producing nations to export more so that it can use that energy as an input to make goods and services to sell back to the rest of the world while simultaneously limiting exports of its own energy is not only bad economics, it is rank hypocrisy.”

Let’s consider what would happen if the leaders of Canada, Russia and Saudi Arabia decided to take the approach some Americans advocate and restrict exports of their energy supplies. In 2011, Canada accounted for about 13 percent of the U.S. crude oil and petroleum products supply; Saudi Arabia, 6 percent; and Russia, 3 percent. Such a decision would mean we’d need to find ways to immediately replace more than 20 percent of the oil and products we use to keep our economy running every day.

However, the debate is quickly turning from questions regarding exports of U.S. petroleum products to those of U.S. liquefied natural gas (LNG). Those who want to restrict exports point to all the benefits of greater U.S. natural gas production – from job growth to affordable prices for consumers and manufacturing. And they conclude that exporting natural gas will put all these U.S. benefits at risk.

But a look at the research shows these conclusions are misplaced. The Brookings Institution recently published a study on U.S. LNG exports. A review of that study makes it clear that the price effects would be nowhere near what critics of exports have been suggesting. And when it comes to the impact on U.S. manufacturing and industry, the report found that “the competitiveness of natural-gas intensive U.S. companies relative to their counterparts is likely to remain strong” given the large differences in projected U.S. prices versus those abroad, inclusive of U.S. LNG exports. Furthermore, the study concluded that “LNG exports are likely to stimulate domestic gas production, potentially resulting in greater production of natural gas liquids such as ethane, a valuable feedstock for industrial consumers.”

Many companies are already planning to build or expand chemical facilities in the United States to take advantage of affordable domestic natural gas supplies – even with the potential for LNG exports on the horizon. Just last week, ExxonMobil filed plans for a new petrochemical expansion at our Baytown, Texas, complex. The plant would produce ethylene, a building block for plastics. It is estimated that the project could create about 10,000 construction jobs and add about 350 permanent jobs to ExxonMobil’s existing workforce in Baytown.

All of these factors and more led Brookings to the following conclusion in its study of LNG exports:

“Policymakers should recognize that the non-exportation of U.S. LNG comes at the opportunity cost of forgoing the benefits of the free market. As a principal advocate and beneficiary of a global trading system characterized by the free flow of goods and capital, the United States has a long-term economic and political incentive to refrain from intervention in the market wherever possible.”

As the national discussion on energy exports continues, you’ll hear those debating whether such exports are in the national interest.

Essentially, the question isn’t if exports of U.S. energy are in the national interest – it’s a question of if our nation’s leaders will reinforce the free trade and free market principles that are essential to our national interest.


3 Comments

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  1. Drew Hemingway says:

    Another thing to consider is reducing the trade deficite in terms of cash. Increased gas exports means more cash flowing into the United States, instead of flowing out of the country. That means higher tax revenue for government. Then there is the secondary cash flow into the greater community as that cash is reinvested, distributed as dividends to shareholders, and doled out in payroll. Not to mention the increased investment mean increased operational activity, leading to new job creation with very high paying salaries.

    The compounding effect far outweighs the little savings by limiting exports. In fact we are already seeing natural gas heavy companies reduce drilling and shut-in existing gas wells until prices come up enough to be economic again. One way or the other, prices are going to come back up, so why not choose the option with the economic benefits?

  2. Neil Lynch says:

    I am OK with being in the category of, “rank hypocrisy”.

    From a global corporate perspective, the economic premise of the article is appropriate. I feel we need to consider macro-economics, and long term, social responsibility.

    The distinction between exporting energy and exporting other products mentioned is that the other products are renewable. This is not a small distinction.

    The energy exports arguments are based on the consumption of non-renewable raw materials. The socially responsible side of me leans toward prolonging the availability of domestic fossil fuels for domestic consumption. There are, of course, other considerations.

    My preference in the presentation of the justification of exporting is:
    1) we create wealth (actual production of good and services) through the extraction, transport, and processing of the raw material.
    2) we create jobs, community wealth, pay taxes, and are productive citizens with the domestic production
    3) we distribute the costs of overhead across a larger volume of product and recover much of that overhead costs from the sale of exported product
    4) larger volume makes better utilization of our capacity to help lower the price we can profitably sell the product
    5) Should an energy disruption occur, the excess capacity used to support the exports provides a buffer to insure adequate supply for domestic markets (simply by reducing the volume exported.)
    6) The ability to leverage exports to handle disruption reduces the impact of disruptions from natural disaster, political upheaval, war, and seasonal demand.

    regards,
    Neil

    • bill cordeiro says:

      Any references to “natural gas exports”(LNG)should be made in perspective to overall production percentages. The comparisons to the exportation by other countries to the US have comparisons to the total production of the commodity of said country. That being said, the export of domestic LNG by the US should be easily a factor LESS (far less) than 50% of total production. The oil producing countries retain their bounty, generally, for their own progress and economic values. I perceive that the big energy companies dealing with energy product export (lng) wish to maximize profits irrespective of domestic use and storage of natural gas product in any form. There should never be a disproportionate level of product export at the expense of domestic use….and THAT my friends, is the core issue with untethered export of natural resources.
      “Let those with much, not gather more, nor those without much, get less.”

  3. Drew Hemingway says:

    Another thing to consider is reducing the trade deficite in terms of cash. Increased gas exports means more cash flowing into the United States, instead of flowing out of the country. That means higher tax revenue for government. Then there is the secondary cash flow into the greater community as that cash is reinvested, distributed as dividends to shareholders, and doled out in payroll. Not to mention the increased investment mean increased operational activity, leading to new job creation with very high paying salaries.

    The compounding effect far outweighs the little savings by limiting exports. In fact we are already seeing natural gas heavy companies reduce drilling and shut-in existing gas wells until prices come up enough to be economic again. One way or the other, prices are going to come back up, so why not choose the option with the economic benefits?

  4. Neil Lynch says:

    I am OK with being in the category of, “rank hypocrisy”.

    From a global corporate perspective, the economic premise of the article is appropriate. I feel we need to consider macro-economics, and long term, social responsibility.

    The distinction between exporting energy and exporting other products mentioned is that the other products are renewable. This is not a small distinction.

    The energy exports arguments are based on the consumption of non-renewable raw materials. The socially responsible side of me leans toward prolonging the availability of domestic fossil fuels for domestic consumption. There are, of course, other considerations.

    My preference in the presentation of the justification of exporting is:
    1) we create wealth (actual production of good and services) through the extraction, transport, and processing of the raw material.
    2) we create jobs, community wealth, pay taxes, and are productive citizens with the domestic production
    3) we distribute the costs of overhead across a larger volume of product and recover much of that overhead costs from the sale of exported product
    4) larger volume makes better utilization of our capacity to help lower the price we can profitably sell the product
    5) Should an energy disruption occur, the excess capacity used to support the exports provides a buffer to insure adequate supply for domestic markets (simply by reducing the volume exported.)
    6) The ability to leverage exports to handle disruption reduces the impact of disruptions from natural disaster, political upheaval, war, and seasonal demand.

    regards,
    Neil

    • bill cordeiro says:

      Any references to “natural gas exports”(LNG)should be made in perspective to overall production percentages. The comparisons to the exportation by other countries to the US have comparisons to the total production of the commodity of said country. That being said, the export of domestic LNG by the US should be easily a factor LESS (far less) than 50% of total production. The oil producing countries retain their bounty, generally, for their own progress and economic values. I perceive that the big energy companies dealing with energy product export (lng) wish to maximize profits irrespective of domestic use and storage of natural gas product in any form. There should never be a disproportionate level of product export at the expense of domestic use….and THAT my friends, is the core issue with untethered export of natural resources.
      “Let those with much, not gather more, nor those without much, get less.”