Passing Gas

“Saudi America” has a dilemma. Should we “allow” the export of natural gas or should we continue to ban it.  Because of export restrictions (and shipping costs), the price of natural gas in Europe is up to 3 times greater than in the US, while in Asia, gas is considerably more expensive than that.

The economic case is clear: the export restrictions are distorting markets both here and overseas and should be dropped.

In the US, the restrictions mean that energy using firms face an artificially low price of gas and will use the resource more intensely. These firms are inefficiently over-producing, and creating more pollution than they would if they faced the world price for gas.

Abroad, the restrictions mean that energy using firms face an artificially high price of gas and will use the resource less intensely either by reducing production or by using a dirtier source of energy such as coal.

I don’t think that the pollution inefficiencies cancel out. Here gas is cheaper than coal and probably still would be if we allowed exports and let the domestic price rise toward the world price. Abroad, coal is cheaper than gas in some places, but likely would not be if our exports hit the markets and drove their prices down a bit.

Under the current export restrictions, we produce too much, they either produce too little or produce too dirty.

People, we call that a lose-lose situation.

Not to worry though, our political overlords are on the case, debating the restrictions on, you guessed it, National Security grounds!

I am not making this up.

Now sure, the fact that we now produce so much gas means that gas we used to import goes elsewhere and that can reduce the price disparity, but the disparity is still pretty big.  The US has become a huge player in global gas and our restrictions are seriously distorting the world market.

But judging by the rhetoric and lobbying in DC,  economics is probably not going to be used in any way to make the export / no export decision.

2 thoughts on “Passing Gas

  1. Who cares about the benefits of free trade? Not Congress. But exporting natural gas may undercut the economic positions of Russia and Iran, so let’s go for it.

    Funny thing about Europe, we can and do export both coal and wood pellets for fuel, but the law requires a finding that exporting natural gas requires a federal government finding that the export would be “in the public interest.” (Except in the case of countries with which we have free trade agreements.)

  2. Pingback: Passing Gas, part deaux | Cherokee Gothic

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