Last week, Representative Ed Markey (D–CA) sent a letter to Secretary of Energy Stephen Chu questioning whether exporting natural gas would benefit American businesses and consumers. He wrote, “I am worried that exporting America’s natural gas would raise energy costs for American consumers, reduce the global competitiveness of U.S. businesses, make us more dependent on foreign sources of energy, and slow our transition away from fossil fuels.”
Natural gas prices have been consistently low in the United States for the past two years but much higher abroad. If the price of natural gas in the United States rises as a result of exporting it, the markets will adjust accordingly, but that should not be a reason to prevent natural gas exports.
Markey’s narrow view of how the global economy works neglects the fact that both the United States and other countries stand to benefit from free trade. Exporting natural gas would provide a huge boon for our economy, as it would expand market opportunities for American companies and the higher price would incentivize more exploration and production, offsetting some of the price increase. Providing other countries with cheaper energy would not only lower the prices of products we import (because businesses could make the products more cheaply), but it would also promote economic development in those countries so that they import more American goods. Simply put, the gains from free trade far outweigh any losses incurred.
In the letter, Markey expressed fears that exporting natural gas would not only raise electricity rates for homeowners but would also make it less attractive for companies that use natural gas as a feedstock for fertilizers, chemicals, pharmaceuticals, and other industrial products. Keep in mind: Markey was the co-sponsor of the House cap-and-trade legislation that would have slapped an unnecessary price tag on greenhouse gas emissions, thus taxing carbon-emitting fossil fuel energy, including natural gas. His legislation would have sent electricity rates through the roof and driven up production costs for businesses.
Recent price trends and production rates for natural gas show just how difficult it is to project how prices will change and how producers will respond. The Wall Street Journal reported that “Despite a 32% drop in prices last year, onshore production rose 10%, and it is expected to rise another 4% this year.” The article continues, “Eventually, the natural-gas market is expected to correct itself, either by forcing companies to further slash gas-development budgets or by luring in new gas customers. But industry observers say that could take many months, or even years.”
If producers see fit, some of those new customers should be overseas, and natural gas prices will likely rise. But if natural gas prices rise, not only does it incentivize more natural gas production, it creates opportunities for other energy producers to expand their production. Electricity producers (coal, nuclear, wind, or solar) could provide electricity at a lower cost. Distorting the market and restricting free trade reduces prosperity, stifles innovation, and stunts economic growth.