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By Andrew Holland on Mar 24, 2014 with 3 responses

Of Course the U.S. Should Boost Gas Exports – But…

… We Should be More Ambitious

Licensing exports of natural gas would help American diplomacy – but this is not really about the gas, it is about American support for free trade. Since the end of World War II, the U.S. has been the world’s champion in creating a free, global trading system. The U.S. is a beneficiary of the global, open trading system and it is not in our interest to restrict trade.

The debate in the U.S. has become solely focused on natural gas exports because the Obama Administration has been negligent about promptly approving gas export licenses and opaque about the process and requirements for approving the backlog of applications. This restriction should be lifted because it tarnishes the free-trade credentials of the United States.

However, this debate must be about more than just natural gas exports. Recent statements by some Members of Congress portray U.S. natural gas exports as a “weapon” against Russia, but this overstates the influence that U.S. energy can have on this crisis in Ukraine.

Even if the U.S. government approved every export terminal application currently pending and if construction times and costs were reduced to zero, instantly giving the U.S. new Liquefied Natural Gas (LNG) export capacity, we would not see that much gas flowing to Europe because geopolitics also have to work with economics. Remember, this is not the U.S. government sending gas to Ukraine or the EU as economic aid: this is a private exchange between businesses. Because the demand for LNG is much higher in Asia, where prices are as much as double the price in Europe, we should not expect to see many tankers full of gas sailing to Europe any time soon.

The real “weapon” we should be talking about is not natural gas exports, it is the power of free and open markets. Free markets are always in the interest of the United States; they create an incentive for countries to invest in an open, global trading system instead of closed bilateral systems. They undermine the ability of petro-monopolies, whether Russia or OPEC, to extract geopolitical gains in exchange for goods. Free markets thrive on an open exchange of information that thwarts corrupt backroom deals.

We saw how a bilateral trade deal between Russia and Ukraine was a spark to the ongoing crisis. For two decades, a succession of such deals saw the Ukrainian government give Russia geopolitical gains – like the right to base troops in Crimea – in exchange for cheap gas. The prospect of joining the EU in a trade deal instead of Russia was enough to bring protesters out into the street of Kiev – imagine if a deal offering more trade with the United States were offered.

Conclusion: Free Markets are the Key

The most important thing we can do to help America’s diplomacy is to build an open trading system – with U.S. natural gas as a part of that system. The U.S. must re-engage with and complete both the Trans-Pacific Partnership (TPP) and the Transatlantic Trade and Investment Partnership (TTIP). Once a trade deal is formalized, U.S. law ensures that natural gas exports are deemed in the “national interest,” allowing access to U.S. gas exports to all parties in these deals.

Approving both the TTIP and the TPP will allow American businesses to export gas to most countries in Asia and Europe. More importantly, it will also give American companies the investment certainty to directly invest in countries in Asia and Europe that have their own unconventional gas resources. This is a real business opportunity for the American companies that have perfected the technologies needed for shale gas production here in the U.S. to go abroad and truly “globalize” the American shale gas revolution.

That means that Members of Congress should not waste time debating whether or not to approve LNG exports – they should immediately approve Trade Promotion Authority and start pressuring the Administration to complete negotiations on both the TPP and the TTIP. Once those deals are completed, the gas will start to flow – along with many other exports.

Great nations are not afraid of free trade – but Russia fears it because it will harm the oligarchs’ abilities to extort corrupt deals from subordinate nations. It is time for the U.S. to export natural gas. Even more importantly, it is also time for the U.S. to return to the business of free trade in goods and services of all types. In this time of change in global affairs, nothing would help America’s strategic position more than creating the two largest free-trade agreements in the world – the TTIP and TPP.

  1. By Newton on March 25, 2014 at 8:24 am

    TPP is DOA since it excludes China TTIP would probably pass if Monsanto was excluded Canada signed a FT recently with EU but over all seems like there’s a growing list of countries seeking an escape from the ever declining value of the dollars they hold ,when the dam holding them back bursts it will be epic times in ‘global affairs’

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  2. By cwellis on March 25, 2014 at 12:44 pm

    This is glittering theory divorced from reality. TPP and TTIP are not about “free trade” nor “open markets.”

    They’re about monopoly privileges and managed trade for corporatist insiders.

    Small business, competition and national self-government would suffer under the regime posited by the advocates of TPP and TTIP.

    Recent seismic activity confirms Adam Smith turning furiously in his grave because these monopolist agreements are mistaken for ‘free trade.’

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  3. By Forrest on March 26, 2014 at 9:42 am

    Trade agreements a good thing. Placing trading partners words to documents for evaluation and compliance concerns a better way to improve economies of both nations. Also, a good way to improve concerns of workers, pollution, and unfair practices. This will work to advantage of open democracies to instill or promote values. Foreign countries will have needs that can be met with trade if easier and cheaper as compared to their domestic production i.e. it may be easier to purchase a commercial jet from Boeing than attempting to manufacture themselves. Tea may be produced easier in mountains of Sri Lanka if transportation costs not a prohibitive. If U.S. business can export LNG to Asia and received 2x the purchase price, that’s a better return on investment. Conventional wisdom will often degrade to thoughts of promoting regs to restrict trade. This thinking along the lines of restricting market will result in over supply and low cost to consumers. Stop Ford from exporting autos just the trick to make them more affordable here. Stop Coke from shipping overseas, yum. How about the temptation for China whom produces most of the world supply of Lithium to prohibit export other than finished battery cars with lithium batteries? Ouch! Ask yourselves would shipping LNG increase your home heating bill? Maybe, but the extra influx of capital will push U.S. to higher standard of living. Push business interest to produce more natural gas or coal to gas technologies which in turn pushes country to high standard of living. More citizens employed upon the increased economic activity. Per my understanding of economics, it’s attractive to have efficient trades/activities to meet ever increasing demands of consuming public. These efficient trades quickly push capital to best or most efficient activities. Citizens in general are a tight fisted bunch whom stingy ways make money work to maximum advantage. Compare this to corrupt politicians easily spending other peoples money knowing not accountable and knowing wasteful spending will not jeopardize any of their locked in riches. So, is it smart to allow federal control of more GNP money and to allow them to do so for future generations? Federal expenditures are not very efficient and not productive. Government operations work to limit open market solutions and drag economies down. Sure they can hire road contractors to fix the roads and do so upon threat of IRS power. That’s the real juice of competitive forces to solve problems.

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