Markey's Natural Gas Protectionism

http://www.futureofcapitalism.com/2012/05/markey-natural-gas-protectionism

The top Democrat on the House Natural Resources Committee, Ed Markey, is out with a press release describing himself as "an advocate for keeping America's natural gas here for use by American families and businesses." The release is about a letter that Congressman Markey sent to the energy secretary, Steven Chu, that says in part:

I believe that using our domestically produced natural gas here in America to reduce our dependence on foreign supplies should take precedence over any plans to export our natural gas. Currently, nine applications have been filed with your department to export more than 20 percent of current domestic natural gas consumption. And more applications could come in to the department in addition to these initial applications.

Here are some reasons that Mr. Markey's approach is misguided:

Right of contract/property rights: It should be up to the companies that own the gas to decide who to sell it to, not up to the government. It's not the government's gas, unless it came from government land to begin with.

Efficiency/price distortion: If the owners sell the gas without government interference, they will use the information contained in prices to sell the gas to the places where it is most valuable. If the government interferes to give domestic gas sales a preference over exports, the effect will be to make domestic gas artificially cheap, and gas on the international market artificially expensive. That distortion could affect behavior and other prices by decreasing the incentives of Americans to conserve energy while increasing the prices that Americans pay for imported goods for which energy is a component.

Retaliation: If America is going to start imposing export restrictions, our trading partners may also do so in retaliation. That could make imported goods more expensive for American consumers.

The false national security argument: Mr. Markey argues that importing natural gas puts America at the mercy of supply interruptions from Middle Eastern nations subject to terrorist activities. But it is a global market, and American natural gas exports might also help drive down global energy prices in a way that hurts some of our enemies. Some of our export customers might be countries that otherwise might be buying oil from our rivals. And in the long run a strong American economy that includes exports is vital to American national security, anyway.

Am I missing any other reasons?

Update: A reader-community member-watchdog-content co-creator-participant adds:

Another possible reason it is silly: natural gas is used as a feed stock for many other things (from chemicals to fertilizer) and all of those things can be exported (including electricity).

The price distortions could have really bad consequences especially if the export policy ever changed. Imagine a utility adding gas fired turbines expecting gas to be artificially cheap because of the export limitations. And then another administration changes the rules. It is really hard to plan projects, especially the long-term ones, when policy is a moving target. Policy uncertainty has been a hallmark of the past three years.

by Editor  |  May 9, 2012 at 8:56 am Related Topics:  Energy receive the latest by email: subscribe to the free futureofcapitalism.com mailing list