In “Better Out Than In”, the author asks a poignant question, “why are we not exporting natural gas now that fracking has made the U.S. the Saudi Arabia of natural gas?” Due to natural gas’s clean burning nature, the author argues that it would be in society’s interest to export America’s cheap natural gas abroad because it would decrease worldwide pollution while also allowing American energy firms to make a fortune in the world market.
It would seem that the government is responsible for preventing a major potential positive externality by withholding export permits to gas exporters because of domestic lobbying. As the author points out, natural gas prices in the U.S. are far below the world average, at a rate of about 3.40 per million British Thermal Units. The cost in Asia and Europe for the same amount of natural gas sometimes rises to 20 dollars per mBTU. Because of the administration’s stalling, some natural gas producers may choose to leave their natural gas in the ground, creating a heavy deadweight loss in the world economy. The irony here is that despite the U.S.’s concern for its domestic markets, the author contends that the cost to American society for not allowing the export of natural gas is higher than the benefit of retaining our gas! Because of pollution released in other countries through more dirty forms of energy, American society will pay a high price for its cheap natural gas, along with the rest of the world that did not benefit from American natural gas. America seems to be missing an incredible free lunch opportunity here; domestic natural gas producers could benefit from massive profit, while the world would enjoy a cleaner environment.
So who benefits economically from keeping domestic prices below the world market by not allowing trade? First and foremost; energy-hungry companies seeking economic rents. In an increasingly competitive world market, low-energy prices can give American firms an edge in producing energy intensive products such as smelted aluminum or natural gas fueled power plants. Second, many environmentalists see fracking as a danger to public health, and thus lobby against the expansion of fracking. In addition, domestic consumers of energy (such as myself), also benefit from the artificially low cost of natural gas.
However, because the government has yet to decide what the optimal quantity of gas exports is, they have yet to sell the permits required to export the natural gas that has been produced. The price of natural gas will eventually increase domestically regardless of the world price as natural gas becomes harder to obtain; are we willing to sacrifice a few years of unnaturally low energy price to improve pollution and economic growth worldwide? The decision is in the Department of Energy’s hands.
Via Better out than in; american energy and economics. (2013, Mar 02). The Economist