Natural gas prices in the United States have been low in the past few years, and increased estimates in natural gas reserves from shale formations in Pennsylvania, New York, Texas, Oklahoma, Arkansas, and Louisiana are opening opportunities to increase exports to other nations. In some countries, natural gas prices are three times as high as they are in the United States.
Exporting natural gas would provide a huge boon for our economy, as it would expand market opportunities for American companies and incentivize more production. In 2010, President Obama said that he wants to double exports in five years. There are productive ways to meet this goal, and exporting natural gas could play a critical role in meeting that target.
But that concept has its critics.
In a Senate Energy and Natural Resources Committee Hearing earlier this week, Senator Jeff Bingaman (D–NM) expressed concern that opening up the natural gas market to increase exports would drive up prices in the United States. Bingaman said, “In oil, regardless of the fact it costs not one penny more to produce, the price of the gas goes up dramatically because of what’s happening in Libya or Egypt. It would concern me if we would see the same kind of global market for natural gas.”
Congressman Tim Murphy (R–PA) shared similar thoughts after the Department of Energy approved a plan for Louisiana-based Cheniere Energy to export 2.2 billion cubic feet of natural gas overseas—the first approval of its kind. Murphy said, “Sending natural gas overseas is the medical equivalent of bleeding a patient in order to cure him. I fear what this would do to prices.”
No one knows how dramatically prices would rise, if at all, with increased exports. With the amount of natural gas the United States holds, an increase in supply to offset some of the natural gas going overseas could make the price increase marginal. If coupled with the freedom to ensure access to new fields, creating a market abroad would incentivize additional exploration.
Even so, if the price of natural gas in the United States rises as a result of exportation, the markets will adjust accordingly. Prices rising at home should not be a reason to put in place protectionist policies or restrict free trade. Not only would American gas producers benefit from increased exports, but citizens in other countries would benefit from cheaper imports—just as Americans benefit when we import cheaper products.
Providing other countries with cheaper energy would not only lower the product prices that we import that use energy to make, but it would also promote economic development in those countries so they import more American goods. Simply put, the gains to free trade far outweigh any losses that would be incurred.
The energy economy, like the broader economy, is incredibly complex. It relies on dispersed, tacit knowledge from millions of actors that coordinate their actions through the pricing system. Since no one man is capable of acquiring all the information to allocate resources efficiently, as F. A. Hayek argued in “The Use of Knowledge in Society,” price signals provide the information necessary to effectively motivate and harmonize economic actors in ways a central planner could not do.
So if natural gas prices rise, it creates opportunities for other energy producers to expand their production, providing opportunities for other electricity producers (whether it be coal, nuclear, wind, or solar) to provide electricity at a lower cost. Distorting the market and restricting free trade reduces prosperity, stifles innovation, and stunts economic growth.