America’s Foolhardy Ban on Natural Gas Exports

from US News – One of the many blessings Mother Nature has provided us with is the banana. Bananas can be consumed as a final product – raw, fried, boiled, etc. They can also be used as intermediate inputs for banana bread, or, as in Thomas Pynchon’s “Gravity’s Rainbow,” for Banana Breakfasts that even some who are allergic or outright hostile to bananas can appreciate.

What else? Ah yes, we can sell bananas to other people, and use the proceeds to acquire different delicious fruits or even goods and services from entirely different product categories. So many competing ends, so few bananas to allocate to them … how do we decide what to do with them?

Now imagine a country that produces many bananas. Let’s say it’s on the equator, and let’s call it Ecuador. Ecuadorian producers of banana bread compete with producers of banana bread all over the planet – and bananas are, for them, an important part of their cost structure. They would like to have access to cheap bananas, so what do they do? They try to keep foreigners who are willing to pay lots of money for bananas from being able to outbid them.

Ecuador is currently the world’s largest exporter of bananas, but these banana bread producers will want to petition their government for a ban on banana exports. Were they to succeed, rents would accrue to them and many a gainful trade between Ecuadorian owners of bananas and banana-loving foreigners would be thwarted, making the world as a whole worse off. Should the Ecuadorian government go along with this cunning scheme? No, of course not – the goal of trade policy should not be to benefit a few insiders at the expense of everyone else.

Weirdly enough, the U.S. Department of Energy has implemented policies regarding the export of natural gas that have an impact that is quite similar to these detrimental consequences of a ban on banana exports. To export some of America’s abundance of natural gas to countries that do not have free-trade agreements with the U.S. (that is, all but 18 countries in the world), the Department of Energy needs to give its approval. It has done so only once.

Natural gas is an extremely important world commodity for which many industries compete. It is used as a primary energy source in electricity production, for direct heating in households and industry, as a chemical feedstock in the chemical production industries and even as a major transportation fuel (among many other uses). With the recent advent of horizontal drilling techniques and hydraulic fracturing, vast new U.S. natural gas resources have resulted in a local glut, driving down prices to historic lows which U.S. corporate consumers are enjoying while the natural gas transportation industry works as fast as it can to gain access to foreign markets that haven’t been so lucky.

No individual, let alone the U.S. policymaker, is able to understand the incredible complexity of such a large and multi-faceted commodity market. However, humans have luckily stumbled upon a mechanism to sort all of this complexity out – prices.

Yesterday, at a hearing in front of a subpanel of the House Energy and Commerce Committee, two former U.S. senators spoke out in support of changing the export ban, making U.S. natural gas available to those most willing to pay for it. As the banana example showed us, the vast majority benefit. Who wouldn’t? Only the producers of banana bread, or, in this case, companies in natural-gas-intensive industries who want exclusive access to U.S. resources they don’t own.

And indeed, it is a coalition of such firms, led by Dow Chemical, that is most forcefully opposed to allowing natural gas exports. We wonder if they’d sing the same tune were someone to propose a ban on plastic exports to keep U.S. plastic costs manageable for U.S. manufacturers.

These firms are, of course, fully justified in petitioning the government for a redress of any and all grievances they may have, but their specific demands in this case harm the common good. And not just because of the benefits that accrue to all from free trade. Natural gas is more important than bananas, and can serve broader geopolitical goals. Russia has, for example, successfully exploited its gas supplies to strongarm U.S. allies in Europe. Similarly, selling American natural gas to, for example, Japan, not only makes the U.S. better off financially, but also strengthens a crucial alliance between the U.S. and an important ally. Richer and safer. Not a bad outcome. If only all public policy changes worked that way…

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John Abbe
7 years ago

Two years have gone by, the ban has been lifted, and the fossil fuel companies are rushing toward exporting natural gas as quickly as possible. Many of us are putting our lives on the line to stop it. Some because of the local hazards that go with fracking (which will increase if we can sell on the global market), pipelines, and export terminals. Others for an even more serious reason.

Exporting natural gas will contribute to the unfolding climate crisis. While natural gas produces less carbon dioxide than coal or oil when burned, in the process of extracting, transporting, and especially compressing it for export there is quite a bit of leakage. The primary component of natural gas is methane, and methane is an even worse greenhouse gas than carbon dioxide. As a recent New York Times article notes, the leaks may be even worse than we already knew. In any case, as a planet it is time to start winding down our fossil fuel usage, not increasing it.

So it is not only domestic natural gas consumers who would benefit by the lower prices that come with a natural gas export. It is everyone who depends on a somewhat stable climate. Let’s reinstate the ban, and ramp up our conservation efforts and the shift to wind & solar. To prevent the worst impacts from the climate crisis we need to do this on the scale of our WWII mobilization, since we failed to act promptly for the last two+ decades.

Richard Baker
9 years ago

Smoot-Hawley anyone?

Jeff Barstow
9 years ago

Unless you are an isolationist then you might have noticed that for most commodities and manufactured goods it is a world market out there. That means that bananas are available year round on the store shelves and a lot of cars have foreign name plates. Only because our legislators have their hands out for bribery and do not have our best interests at heart do we have protectionism on some commodities and products… natural gas being one of them. Natural gas is unique because it is a raw product and the production can’t be moved outside of our borders.

Our legislators had better figure out real soon that industries do not “pay” taxes, they pass them on to their customers. They pass them on in the form of higher retail prices or if subjected to a world market reduced profitability. That is why a lot of cars are manufactured offshore. Taxing our businesses at world leading rates chokes our economy. I would rather have low taxes and minimal export/import regulations on our industries and have taxes come from the incomes of the workers employed as a result.

9 years ago
Reply to  Jeff Barstow

I agree completely with everything you’ve said. This country cannot afford to repeat the same protectionist policies of the 1930s just so a few politically connected companies can benefit at the expense of our overall economy. Growing the economy and creating well-paying jobs should be our primary focus, not whether a couple of companies like Dow Chemical want to maintain a stranglehold on the natural gas energy market.

It’s not just legislators that need to understand that companies don’t pay taxes. The average American has to understand this as well. If they did, they would realize that the corporate tax is one of the most regressive taxes ever pushed through by the Progressives.

C William Sheehan
9 years ago

The example with “bananas” is good. But, I remember some years back when the U.S.A. sold tons of wheat to the U.S.S.R. The price of wheat went up for everyone in the U.S. and cereal prices spiked. If we got a great price from the Soviet Union, why did we have to pay “the same [bid on} price” then? If we can keep our prices low for our own natural gas and have the price paid by other countries “even out” our lower producers’ price, then I’m for selling our excess gas at a hefty profit. But if the high prices bid by countries that need our gas drives prices up for us, too. then to me it is not a good idea. Even OPEC Countries still pay less for their energy. Just something to think about.

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