One of the leading complaints of the oil and gas industry in the United States is the longstanding prohibition against many instances of exporting natural gas and other energy products. Some of these prohibitions date back more than four decades and represent a lot of money (and jobs) left on the table as the US energy booms continues to expand. You can export liquified natural gas to Mexico and Canada, or to certain trading partners through “authorized” port processing facilities, but it’s tightly controlled. But if the latest report coming out of the White House is true, that may be about to change.
The Obama administration is warming up increasingly to U.S. exports of natural gas after years of blocking greater access by domestic producers to the international market.
Tucked inside the White House’s latest economic report to Congress is a section on energy production, with President Obama’s top economic advisers embracing the concept of boosting natural gas exports as a driver of job growth, even as it would likely drive up prices paid by U.S. consumers and businesses.
“An increase in U.S. exports of natural gas, and the resulting price changes, would have a number of mostly beneficial effects on natural gas producers, employment, U.S. geopolitical security, and the environment,” the report said.
A spokesman for energy producers said the change in attitude would be welcome if the administration backs up its words with positive action.
That last phrase – if the administration backs up its words – is a rather large, looming caveat, but if it happens we will enjoy the rare opportunity to praise the President for doing the right thing. The current approval process is a rather secretive, obscure maze which energy producers must navigate if they wish to do business. Cleaning that system up and making it transparent not only to the businesses concerned but to the public as well could represent significant opportunities in both job creation and a positive push on the GDP.
There are concerns being raised about a price increase, and it’s very possible (if not likely) that there could be a temporary uptick in costs. But in the long game, that is a relatively small price to ask of the public considering that energy prices are currently at historic lows. The fact is that our old friend, the law of supply and demand, will ride herd on these factors as the process plays out. At current levels of production, assuming all other factors remain equal, new markets overseas will increase demand and the prices will respond in an upward direction accordingly. But we currently have such a glut of natural gas production that new wells are not being tapped and domestic production is far below where it could be. The reasons for this are simple: below a certain price it’s simply not profitable to invest in a new well.
But once the new markets are open and prices nudge upward, more wells will come on line during the same year. Production will go back up and the downward pressure on the price point will resume. The upshot of all this is that we will most likely trade a few months of marginally higher energy costs in the summer for resumed low prices later, but with more jobs and more money flowing into the economy. This really should be a no brainer for the administration and it’s heartening to hear that they are even considering it. If only Obama can convince his Democrat allies in Congress of the need to do this.