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Strategic Gas

The foreign policy case for U.S. energy exports.

Apr 29, 2013, Vol. 18, No. 31 • By GARY SCHMITT
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The liquid natural gas facility at Cove Point, Maryland​—​a seven-tank complex on the shores of the Chesapeake Bay​—​has borne witness to the up and downs, the good times and the bad, of the American natural gas market. Built in the 1970s to handle liquid natural gas (LNG) imports from abroad, the plant was mothballed within two years as deregulation of the domestic gas market boosted supplies and lowered gas prices at home.



That’s where things stood for much of the next 20 years. Supplies of natural gas more than kept up with demand, and gas prices in the 1990s bounced around between $1.60 and $2.30 per million British thermal units (Btu).

But at the turn of the century, as ready supplies of natural gas peaked and demand grew, natural gas prices climbed appreciably higher, reaching $10 per million Btu over the winter of 2000–2001, and spiking to well over $14 in 2005 in the aftermath of Hurricanes Katrina and Rita. Reflecting the conventional wisdom of the day, Federal Reserve chairman Alan Greenspan testified before the Senate’s Energy Committee in the summer of 2003 that “tight natural gas markets have been a long time in coming, and distant futures prices suggest that we are not apt to return to earlier periods of relative abundance and low prices anytime soon.” Around the same time, a new energy company bought the Cove Point plant and spent over a billion dollars to upgrade the facility in the expectation that LNG imports would start flowing from abroad to address the supply shortage in the United States.

Today, the plant stands largely idle once again. As a result of the revolution in tapping into unconventional natural gas reserves through “hydrofracking,” the United States is now afloat on a sea of natural gas. Last year, American gas production reached a record high of nearly 30 trillion cubic feet, with U.S. natural gas prices dropping to around a quarter of what they were just four years ago. The International Energy Agency estimates that the United States will shortly pass Russia as the world’s largest producer of natural gas. If there is a problem now, it’s a gas glut, with low prices threatening to make it uneconomical to bring new supplies to market.

The logical solution is to export natural gas in the form of LNG to countries whose domestic resources are short or nonexistent and who are paying premium prices for new, dependable supplies. Or at least one would think so.

But even though study after study—​including one sponsored by the Department of Energy and released after November’s election​—​has concluded that exporting natural gas would help reduce the trade deficit and create jobs at home without appreciably raising prices domestically or undermining the competitive edge in manufacturing the United States gains by having cheaper energy, the Obama administration has been sitting on more than 20 applications and, to date, has approved only one new export site at Sabine Pass in Louisiana.

Fearing apparently the blowback both from environmentalists (who have been on a green jihad against fracking for the past several years) and members of Congress (who want to keep the cost of heating fuel and power as low as possible for their constituents), the White House has slow-walked initiatives to export LNG. And of course the administration is also worried that the success of the revolution in natural gas production will undermine the Obama agenda of propping up solar and wind energy.

What’s all the more remarkable about the administration’s position is the degree to which it ignores the strategic benefits that would accrue to the United States if it became a reliable supplier of energy to allies and partner states.

Note, for example, that in 2011 more than half of the globe’s LNG exports went to frontline Asian allies and security partners: South Korea, Taiwan, and Japan. Each country is importing more natural gas and, at the same time, attempting to diversify its supply chain to enhance its energy security. The United States ought to be a player in addressing their need for secure supplies of more gas.

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