Bryan Schutt
The energy industry is unlikely to create a revolution if coal, oil or natural gas exports are limited, but history leading up to the Revolutionary War could serve as a guide for policymakers who are questioning whether they should, or could, limit energy exports, according to a U.S. Chamber of Commerce trade expert.
John Murphy, vice president for international policy at the Chamber, believes U.S. policymakers would be well-advised to avoid limits on the "traditional U.S. freedom to export." In fact, the country's history, tradition and law "take a dim view on the notion of export restraints," Murphy said at a Jan. 16 energy exports event at the Chamber's headquarters in Washington, D.C.
"British control over American colonial exports of basic commodities, and impositions of stiff export tariffs, were high on the list of grievances that sparked the Revolutionary War," he said. "The founders' fierce support for the freedom to export led directly to the Constitution's so-called export clause, which reads that no tax or duty shall be laid on articles exported from any state. So this aversion to export restraints is really in our national DNA."
More modern trade policy shows a similar aversion to export restraints, according to Murphy. The World Trade Organization prohibits the use of quantitative restrictions on exports, Murphy said, and that prohibition extends to energy. Exceptions to the WTO prohibition are allowed for the goal of preserving exhaustible natural resources, but Murphy said restricting LNG, coal or oil just to depress prices is "exactly the practice the WTO is trying to prohibit."
Recently, a coalition of natural gas end users has called on Congress to limit LNG exports. The group, America's Energy Advantage, argued that a majority of Americans oppose unrestricted exports and that natural gas supplies are best used for domestic purposes.
That the U.S. Chamber of Commerce is completely in favor of energy exports is unsurprising, as the organization was formed with free trade and free enterprise as its backbone. Karen Harbert, president and CEO of the Chamber's Institute for 21st Century Energy, said any policies to restrict LNG exports would indeed contradict America's past and limit its economic future.
"We do not believe we should throw up obstacles [to LNG exports]; we believe the market does work," Harbert said. "It will certainly bring better balance to our trade imbalance … and it will certainly provide us some geopolitical advantages going forward. … The idea and the conversation in Washington that we should throw up trade barriers, we should wall ourselves off and become only consumers of our natural gas, is just shortsighted."
Also shortsighted, according to the American Petroleum Institute's upstream director, Erik Milito, are efforts to protest LNG export projects because of their upstream impacts. Milito said the country would be foolish to turn away from an economic opportunity that would come with as many positive implications as LNG exports, but he sees much of the opposition rooted in the same opposition the oil and gas industry has always faced.
"We have this hysteria about whether or not we should allow [shale development] to happen. From my standpoint, it is really a debate and argument that is against the use of fossil fuels and the development of fossil fuels," Milito said. "We as an organization continue to talk about what the president says, how we need an all-of-the-above approach."
Environmental groups, including the Sierra Club, have argued that the full environmental impacts of LNG exports need to be studied. Because LNG exports would require an expansion of shale drilling, some groups argue that LNG exports should be restricted until a comprehensive accounting of impacts is completed.
While unconventional production has reshaped U.S. energy markets, some believe LNG exports will enter a crowded international market and have a limited impact. Nonetheless, LNG exports could not have happened without the sea change brought by shale development.
Kevin Book, managing director of research at ClearView Energy Partners, said the story of abundant shale production surprised energy experts because of a few key principles. First, people failed and continue to fail to acknowledge incremental progress. Second, people often ignore the fact that good ideas propagate. And third, there is a displacement effect when one product can be produced more easily or cheaply than before.
Specifically with unconventional production, Book said, many energy experts ignored the incremental progress that had been made by people trying to crack the code on shales. While those efforts largely began with the U.S. Department of Energy's Eastern Gas Shales Project that launched in the late 1970s, progress continued for decades until it was widely feasible. Once it was, independents took to the gas patch and proved shale development to be profitable. Again, many overlooked the fact that such a good idea would widely propagate, according to Book.
Soaring gas production overhauled traditional energy patterns as gas became the low-cost hydrocarbon. When gas displaced coal and mining continued, coal also became cheaper. Given the country's relatively fixed demand environment, Book said, both coal and gas are naturally looking to become bigger players in the export market.
"The displacement effect leaves more fuel on the table everywhere that has to go somewhere," he said. "That is a source of opportunity and a tremendous one."