The Argument for and Against LNG Exports

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In short, this situation is thus: The United States has a lot of natural gas and needs to decide what to do with it. One side (the petroleum industry) wants to turn it into liquefied natural gas (LNG) and export it.  The other side (big manufacturing companies) wants to keep it at home and use it in manufacturing. 

The Department of Energy (DOE) is currently considering a dozen applications to build facilities for LNG exporting. The petroleum industry feels strongly that exporting LNG will not only be good for the industry, but for the American economy overall. Right now, the price of natural gas is very low in the U.S., exporting it would raise the price to become more competitive with the global market. The more LNG that is exported, the more money that comes back into the country, and therefore, boosts the economy.

America's Energy Advantage (AEA) is a coalition of manufacturers opposing LNG exports. The coalition is comprised of the American Public Gas Association, Alcoa (the world’s largest aluminum producer), Eastman Chemical (NYSE: EMN), Nucor Corporation (the largest American steel producer), Celanese Corporation and The Dow Chemical Company (NYSE: DOW).  These companies argue that the record low natural gas prices help U.S. manufacturing by lowering costs, providing cheap energy to consumers, increasing energy security and creating jobs. They believe that allowing more natural gas to be exported would be detrimental to U.S. manufacturing growth by raising natural gas prices.

"Exporting America's low-cost natural gas is actually one of the least valuable uses for this resource," adds Eastman Chemical Company's Ray Ratheal, Director of Energy and Climate Change Policy. "America's chemical manufacturers use a broad array of technologies to turn natural gas into an incredible variety of products that touch nearly every aspect of our lives. Some will benefit by selling the low-cost resource directly, but the greatest value to the nation as a whole will be realized by allowing American industry to transform natural gas into more valuable materials. Exporting value-added products, instead of the low-cost resource, will benefit the broader economy and enhance America's energy security."

“The shale gas boom in this country has really brought a competitive advantage to the United States,” said George Biltz, vice president of energy and climate change at Dow Chemical. He believes that LNG exports would “raise prices dramatically, would have a very negative effect on this industry and a massive ripple effect economically.”

The battle over LNG has become politically charged and divisive. The petroleum industry says that the AEA would “substitute narrow interests and agendas for the proved economic benefits of free trade to the entire United States – long demonstrated in the sale of countless other U.S. commodities to overseas buyers.”

It is not every day that large manufacturing companies come out against free trade, especially not companies heavily involved in international transactions such as these. It is true that the AEA membership is thinking of their own interests first, but why would any company support a policy that works to their detriment?

American Petroleum Institute CEO, Jack Gerard, says, “Short-sighted efforts by a few industrial users to restrict exports in an apparent attempt to control prices would deprive American families of the wider benefits of lower costs and increased job creation. America’s newfound abundance of natural gas resources is a boon to all domestic manufacturing through lower energy costs, lower costs on raw materials and reduced heating bills. Restricting exports of energy as a ‘strategic resource’ makes no more sense than unnecessarily restricting the export of chemicals, agriculture products or cars, and such a backward move  could violate international trade rules.”

Deloitte recently revealed the results of a study that showed the global implications of LNG exports, and found it would bolster global energy security and American foreign interests.  According to the study, exporting LNG would boost the U.S. LNG global market share at the expense of countries such as Russia and China, decrease the price of natural gas in Europe where it is sorely needed, and keep prices low at home. And when looking at the bigger picture, it is also important to recognize that if the U.S. does not fulfill the demand for LNG around the world, other countries (again, China and Russia), will step in.

The answer is simply thus: We have a lot of natural gas, and there are a lot of needs for it both at home and abroad. It has the potential to bring in a great deal of money to the economy and create jobs.  But which way it should be done all comes down to where you stand on free trade, and which industry you are more loyal to. After all, beauty is in the eye of the beholder.

ErinAnnie has no position in any stocks mentioned. The Motley Fool recommends Nucor. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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