We live in an interdependent world that requires energy and chemicals to keep our modern society functioning. As the world’s population grows and develops, it puts pressure on the lands and seas so that material resources for trade and food for consumption can become scarce.
This scarcity is overcome by technological developments. This is a cycle that continues on as our species evolves and resolves scarcities through our collective adaptation.
Until recently, natural gas was a scarcity in the U.S., requiring that we import its liquefied form (LNG) from the Caribbean islands to satisfy our demand. With new technology, the price of natural gas in the U.S. is now significantly below world price levels and has sparked an economic boom for exploration companies and those industries that benefit from low cost gas.
In fact, companies like Dow Chemical and lobbying groups such as The Fertilizer Institute want to keep the good times rolling with a plentiful supply of cheap gas. They oppose efforts to export U.S. natural gas as that issue is now before our federal regulators. In 2012, 15 companies petitioned the federal government to allow export of LNG. In response, the Energy Department requested studies and comments to help it make proper decisions on each request later this year.
J. Clark Mica, vice president of government relations for TFI, wrote to our energy secretary, Steven Chu, in opposition to LNG exports saying, “The U.S. nitrogen fertilizer industry is both energy intensive and trade exposed, with 70 to 90 percent of the cost of production being attributable to natural gas, which is used as the principal feedstock and also an energy source. Farmers in the United States rely on domestically produced nitrogen fertilizer for a significant portion of their fertilizer supply, but must compete with farmers around the world for the remainder of this critical input.”
The American Petroleum Institute’s CEO, Jack Gerard, in recent testimony before the Senate Committee on Energy and Natural Resources, pointed out that LNG exporting is an economic plus for the nation as each facility requires billions of dollars in investment creating many jobs during the construction cycle and promotes further growth in the natural gas industry. Add to this the influx of foreign investment in such facilities and the revenue stream for foreign sales. He says we should take advantage of our good fortune and maximize its potential now before the rest of the world figures out how to develop less expensive sources of energy and we miss our window of opportunity.
There are Michigan farm families that lease their natural gas rights. While they would like to have low fertilizer prices so they can reduce food production costs, they also support LNG exports because more of their gas is produced at higher prices for larger royalty payments. Alas, not all of us can grow corn and cash royalty checks. LNG exports will either help or hurt most of us economically, depending upon which industries support our communities.
Reports commissioned by the Energy Department on the LNG export issue take a mathematical modeling approach to determine whether the country, as a whole, will benefit or suffer as a consequence of allowing LNG exports. The bottom line finding is that LNG exports, while increasing our domestic energy and chemical costs, will benefit the country overall.
Accelerating the pace of gas production by selling into the world market will have a relatively short-term positive impact on our economy and then in 10 or so years, the world is expected to rebalance its natural gas needs and our advantage may dissipate.
We are not very good at predicting the future. Five years ago, no one was predicting this gas boom. Computer models have severe limitations, as is exhaustively discussed by the LNG export report authors. So while I understand these reports, I would discount the model results and independently come to the conclusion that we should rely on the natural order of allowing resources and goods to realize their highest potential via free trade.
What is known of the future is that we will need new technologies and energy resources to keep our interdependent world spinning. We will have a much better chance to adapt if we all can benefit by the free exchange and use of the world’s resources.
Business consultant Harley Luplow of Harbor Springs earned a law degree from Indiana University and a master’s in business administration from Georgetown University. Luplow can be reached at 709-9000 or email@example.com.