- - Monday, April 16, 2012

For scurrilous attacks on the oil and gas industry, few liberals in Congress can hold a candle to Rep. Edward J. Markey of Massachusetts. Several weeks ago, Mr. Markey, who is the ranking Democrat on the House Natural Resources Committee, filed a bill that would require bidders for oil and gas leases on federal lands to certify that all production from such leases would be offered for sale only in the United States. In a press release, Mr. Markey argued that oil and gas from public lands belongs to the American people and, therefore, should stay in America. He also claims the energy industry is interested only in boosting domestic production so it can sell more oil and gas abroad.

The congressman obviously doesn’t understand how energy markets work. The export of American crude oil and refined products has no impact on the global price of petroleum or the local price of gasoline in the short term. On the other hand, if we adopt policies to encourage more domestic production of oil, whether it’s consumed at home or exported, over time the additional output will help put downward pressure on prices and further reduce our dependence on imports (which have fallen from 65 percent to 40 percent of consumption since 2007).

An alternative explanation for Mr. Markey’s filing is that he’s kowtowing to consumer, environmental and even some industry groups that are opposed to constructing terminals for exporting liquefied natural gas (LNG).

Unlike the price of oil, the price of natural gas is set in the domestic market. Right now, American consumers and businesses are reaping a windfall from the lowest natural gas prices in 10 years. Cheap gas has reduced heating and electric bills for millions of households, while industries using natural gas as a feedstock or boiler fuel have realized huge production cost savings. But at the same time, $2 gas per thousand cubic feet at the wellhead has caused many drilling companies to reduce production and move their rigs to more profitable oil plays.

Because of America’s large and growing reserves of natural gas, potential supply will exceed anticipated domestic demand for many years to come. But there is a huge unmet demand in other parts of the world. For example, with Japan retreating from nuclear power after last year’s Fukushima accident, the demand for gas to generate electricity has grown exponentially. But because Japan produces less than 4 percent of the gas it consumes, it must import the rest. With Germany also planning to phase out nuclear power over the next decade, that country’s need for natural gas will escalate rapidly. China and Korea also are expected to be huge gas importers for the foreseeable future.

Mr. Markey and other liberal members of Congress claim that exporting LNG will push up prices, reduce the competitiveness of U.S. business and slow the transition away from dirty fuels. Dow Chemical contends America would be better off using its “cheap” natural gas to boost domestic manufacturing as opposed to indirectly shifting jobs abroad. These arguments are nonsense. A recent study by Navigant Consulting estimates that LNG exports of 2 billion cubic feet per day would boost prices 17 percent by 2020. But a study by Deloitte estimates only a 1.7 percent gas price increase from LNG exports caused by the supply response. In either scenario, the impact on domestic prices will be minimal - somewhere between 8 cents and 85 cents if gas prices climb back to a more “normal” $5 per million BTUs.

Some environmental activists, such as the Sierra Club, are opposed to LNG exports because, they claim, the liquefaction process results in air and coastal water pollution while endangering wildlife. They also argue, with little basis in fact, that processing plants and LNG tankers are inherently unstable and prone to explosions. But their real objective is to prevent any undertaking that results in more fossil fuel demand.

As an energy-abundant nation, America logically should be a major energy exporter. This already is the case with coal, and there is no reason we can’t become one of the world’s largest gas exporters as well, with all the attendant job creation that would entail. We also should bear in mind that Canada is pushing to become a major LNG exporter and already has issued export licenses for several projects on its Pacific coast. Let’s not repeat the mistake of the Keystone XL pipeline by imposing roadblocks to exporting America’s natural gas.

Bernard L. Weinstein is associate director of the Maguire Energy Institute in the Cox School of Business at Southern Methodist University and a fellow with the George W. Bush Institute.

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