Exporting Natural Gas – Should the U.S. Regulate it?

During the last two years, much of the hype in the oil and gas industry has been centered around fracking, a process that involves propagating fractures in rock layers with pressurized fluids to release natural gas. Like most issues that make the media headlines, fracking has many vocal supporters and arguably even more vocal opponents.

The opponents point to the risk of ground water contamination during the fracking process as well as the risk for increased seismic activity. Over 500 different chemicals are used in the fracking process in addition to several million gallons of water. The process can result in accidental spills and leakages of this chemical-water mixture into the ground, which then contaminates the drinking water.

On thother hand, fracking has made it possible to reach substantial oil and gas reserves in areas that were previously believed to be unreachable. This increase in supply has led to a 30% drop in the price of natural gas to a 13-year low of $3.87/mmBtu. American consumers and businesses alike benefit from lower energy costs. Additionally, increased use of natural gas can decrease America’s dependence on foreign oil.

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Looking beyond the popular good versus evil debate on fracking, there is another debate that has the potential to have a significant impact on our economy. The debate is whether natural gas that is produced here in the U.S. should be allowed to be exported.

Reasons To Export:

The natural gas industry could generate significant profits if the government allows it to export natural gas to other countries. In Britain, for example, the price of natural gas is $8/mmBtu, and in Japan it’s $16. These countries would undoubtedly want to buy natural gas from the U.S. and would be able to at a substantially lower price than what they are currently paying. The U.S. economy as a whole would also benefit, says the Energy Information Administration (EIA). The EIA sponsored a study that shows exporting natural gas would lead to balance of trade improvements and economic benefits to the entire country.

Reasons Not To Export:

On the other side, cheap natural gas presents a huge competitive advantage for industries such as the chemical industry, which uses gas as a base ingredient in many of the products it produces (i.e., plastic, fertilizer, anti-freeze, fabrics, etc.). In fact, industry is the largest consumer of natural gas, accounting for 43% of its use. Already chemical companies such as Celanese and Dow Chemical have reported expanding and re-opening manufacturing facilities here in the U.S. and claim that cheaper natural gas may create 400,000 jobs. Since the fall in gas’s price corporations have planned $90 billion in new investments.

The low price of natural gas has also played a role in reducing America’s carbon-dioxide emissions by 450m tonnes over the past five years. No other country saw a drop this great in its emissions during this same period. The drop in emissions can be partly attributed to utility companies switching from coal or other dirtier energy sources to natural gas for power generation.

Earlier this year, five big U.S. corporations that rely on low natural gas prices created a new trade association to try to block unregulated exports. The association is called America’s Energy Advantage. It’s website sends the message that the U.S. should use natural gas to create manufacturing jobs and economic growth in the U.S. rather than export it to other countries. It goes without saying that these companies also stand to lose their competitive advantage in the global market if natural gas is exported.

The verdict is still out on how the U.S. government will regulate natural gas exports. Both sides of the debate stand to gain, and gain significantly, if the government rules in their favor.

Sources:

http://seekingalpha.com/article/998181-the-ultimate-guide-to-fracking

http://www.eia.gov/naturalgas/weekly/#tabs-prices-1

http://www.americanchemistry.com/Media/PressReleasesTranscripts/ACC-news-releases/ACC-Comments-on-Senate-Energy-Committee-Hearing-on-Future-of-Natural-Gas.html

http://www.economist.com/blogs/schumpeter/2012/05/americas-falling-carbon-dioxide-emissions

http://beta.fool.com/dylan588/2013/01/15/exporting-natural-gas-dilemma-persists4-part-1/21277/

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