Sell, Sell, Sell

This is the third discussion post for my Energy Science and Technology course. The question I was responding to was “What should the U.S. do with its abundance of natural gas reserves and production?” This course is challenging my thoughts on making the switch to renewable energy. I know it isn’t as simple as flipping a switch, but the more I learn the more complicated the problem becomes.

The decision about what to do with the U.S.’s abundance of natural gas reserves is complicated because of the different actors and interests involved. There are the pro-export, the anti-export, and the anti-drilling camps. They each feel their interest is the most important one. They’re wrong.

The most important interest is the one that provides the most benefit for the most people. Exporting liquefied natural gas (LNG) is in the economic, political, and environmental interests of the U.S. and various interests of many other countries. Thus, I recommend permitting exports without a cap.

Economically, U.S. gas companies gain by selling LNG to other markets at higher prices than they can get on the saturated U.S. market. Other countries will be able to buy our LNG at prices lower than elsewhere on the market. Both the U.S. and our customers benefit.

Politically, oil and gas is the greatest strategic tool Russia has other than its military. Our exports will weaken the leverage Russia can use against Europe and the Ukraine by threatening to cut off supplies. The result is our allies are less beholden to Russia and we gain a way to keep Putin in check.

China is not going to trade coal for renewables, but it will trade coal for natural gas. Since China is the largest emitter of CO2, switching them to NG is better for the global environment.

Those in the anti-export camp fear exports will erode the competitive advantage gained from low energy costs and raise utility costs. The first exporter of LNG from the Continental U.S., Cheniere Energy, predicts prices 2 to 2.5 times higher for customers in Europe and Asia than the U.S. market price (Shauk, 2014). So U.S. companies will still enjoy a competitive edge in energy prices. As these two charts from EIA show, U.S. production will far outstrip consumption and, as long as production continues, prices will not spike:

NG use and production.jpg

Environmentalists want the gas to stay in the ground so that its carbon isn’t released. As mentioned earlier, selling LNG to China will have the greatest global impact on reducing carbon emissions. For many reasons, the U.S. is not ready for immediate massive adoption of renewables. Instead, we should use natural gas as our pivot point to switch coal energy production to renewable energy. Wider adoption of renewables will reduce their cost. At that point, the market will take over in making the switch from natural gas to renewables. Concurrent with exports, we must continue tightening regulations on NG extraction so that it truly is a cleaner fuel than coal.

The math is straightforward, exporting LNG maximizes benefits for the U.S. and much of the world while having very little risk.

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