Embracing the shale revolution

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Trucks hauling natural gas pass through Springville, Pa., on January 18, 2012.

Article Highlights

  • The boom in U.S. natural gas production makes supplies so abundant we should export some overseas

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  • Today America is completely self-sufficient in natural gas. In fact, we produce more gas than we can use

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  • The price of gas has fallen to below $2 per 1,000 cubic feet, almost one-seventh of the price four years ago

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  • The Sierra Club’s overarching goal is to block the production and use of fossil fuels, regardless of the economic effect

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If there is one conclusion that should be drawn from the boom in U.S. natural gas production, it is that supplies are so abundant that it makes economic sense to export some of our gas to countries overseas. No one could have imagined that possibility even a few years ago when the United States was actually importing natural gas, with much of it arriving on LNG tanker ships.
 
Today America is completely self-sufficient in natural gas. In fact, we produce more gas than we can use, and soon we will not have enough room to store the surplus gas.  Even now, some of the gas produced as a byproduct of oil drilling must be burned off or “flared” as a waste product until customers can be found to buy it.

Yet there are those in Congress who oppose plans to export natural gas because they are concerned that U.S. consumers and businesses would wind up having to pay higher prices for gas. Proposed legislation, backed by the U.S. chemical industry, has been introduced to ban gas exports. Such fears are overblown. Natural gas reserves are so abundant we would be foolish not to export some of the gas. There is plenty of gas in the United States to meet domestic demand and support exports at the same time.
 
The price of gas has fallen to below $2 per 1,000 cubic feet, almost one-seventh of the price four years ago. Cheap gas has resulted in lower electricity and heating bills for American consumers and reduced energy costs for U.S. manufacturers. It has spurred construction of plants that make chemicals, plastics, steel and other products. Thousands of jobs have been created, and cheap gas helps U.S. manufacturers compete for new markets worldwide.

 But nations with little gas production of their own, such as Japan, South Korea and countries in Europe and South America are willing to pay eight times as much for imported gas as the same gas fetches on the Gulf Coast. Japan, in particular, which is still reeling from the effects of the Fukushima nuclear accident and with 53 of its 54 reactors taken out of service, desperately needs access to our abundant gas supply. European countries that rely heavily on Russian gas are looking for an alternative supply. That is why shipping U.S. gas reserves overseas makes economic and political sense.

Japan, in particular, which is still reeling from the effects of the Fukushima nuclear accident and with 53 of its 54 reactors taken out of service, desperately needs access to our abundant gas supply. 

U.S. production of natural gas has grown 26 percent since 2006. This surge has come from the innovative technique of combining horizontal drilling and hydraulic fracturing to tap gas trapped in shale rock that had previously been inaccessible. The shale gas revolution has turned projections about our fuel supply on their head. The U.S. Energy Information Administration estimates that the United States has natural gas resources that can last more than 100 years at the current rate of use.
 
Natural gas is produced in 32 U.S. states. Exports would stimulate our economy, raise tens of billions in royalties and taxes, while spurring domestic gas production. Some of the existing re-gasification facilities, built for LNG imports, are being converted to liquefaction plants, so that excess domestic gas production can be exported as LNG.  So far eight companies, mainly in Texas and Louisiana, have applied to the Department of Energy for export licenses. It’s likely the first shipments will begin from Sabine Pass, LA, in 2014.
 
Predictably, the Sierra Club opposes gas exports, claiming that LNG terminals and tankers pose a threat to public safety. But the Sierra Club’s overarching goal is to block the production and use of fossil fuels, regardless of the economic effect such a blanket ban would have on the global economy.
 
Recently-completed studies of potential gas exports by two economic research companies, Deloitte and ICF International, determined that exporting 15% of gas reserves would cause domestic gas prices to rise from between 1.7% to 11% by 2035.  Even a 20% price jump would result in gas prices significantly below levels five or ten years ago.
 
We must resist protectionist temptations and let market forces prevail. The Department of Energy should give the go-ahead for LNG exports.  Construction of LNG tankers and terminals will provide needed jobs and revenue. Exports will encourage increased domestic natural gas production – a boon for states looking for investments and jobs from the oil and gas industry. The shale revolution is transforming the world energy landscape and reshaping our energy future. It’s time to embrace its full economic potential by allowing exports of America’s abundant natural gas.
 
Perry is a professor of economics at the University of Michigan, Flint campus, and a scholar at the American Enterprise Institute.

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Mark J.
Perry

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