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June 3-7, 2013 . . . only on NRO

Unleash the Energy-Export Revolution



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On May 17, the Department of Energy (DOE) approved just the second license in America to export natural gas. Nineteen more applicants still wait. Yes, private businesses, willing to spend tens of billions of private capital, are lined up for a schoolyard game of “Mother May I” to get permission to export a product that the U.S. is uniquely good at manufacturing. So good, in fact, that America is now the world’s No. 1 producer, with no end in sight. What a world.

Liquefied-natural-gas exporters are eager to capitalize on the U.S.’s ridiculously abundant supply. Consider: Since 2010, U.S. natural-gas production from the three major shale fields has risen 250 percent. In order to sell some of that abundance to eager overseas buyers, exporters must spend billions of dollars on enormous facilities to supercool and liquefy the gas so it can be carried on ships. The DOE’s decision to grant the second permit ever for that activity was met with cautious praise, especially by those hoping for more permits to dribble out.

Congressional hearings and government and private studies have parsed the economic benefits of exporting natural gas, as have innumerable articles and blogs. But this whole controversy is based on outdated laws and assumptions.

The DOE’s control over natural-gas exports — and the Department of Commerce’s over crude oil — comes not from some fundamental constitutional principle, but from legislation that dates back to 1938 and 1975. The underlying motivation then was a misconception about the imminent exhaustion of domestic oil and natural-gas resources (this outdated idea is still cherished by some — call them “clingers”).

One thought experiment cuts to the core of this issue. Substitute words like wheat, soy, microprocessors, or even software, for the words natural gas and ask whether it makes sense for bureaucrats and politicians to be empowered with decisions about where American firms can sell what they produce cheaper, better, and more productively than any other country.

Modern technology has made the U.S. the world’s fastest-growing producer of oil and natural gas. This is not, it bears noting, the result of some happy “discovery” in a heretofore unexplored corner of America. The U.S. Geological Survey identified the existence of pretty much all the hydrocarbons in America’s territories a century ago. Instead, today’s smart-drilling technology, of which hydraulic fracturing is just one feature, albeit an important one, has changed the game. Consider how the ever-cautious International Energy Agency recently put the implications: “[The] surge in North American oil production will be as transformative to the market over the next five years as was the rise of Chinese demand over the last 15” (emphasis added.

The oil-and-gas business today more closely resembles manufacturing than an extractive industry, unlike the first American hydrocarbon revolution, a century ago. But what is remarkably similar now is that we find in today’s hydrocarbon shale fields tens of thousands of entrepreneurially driven businesses of all sizes. This is not a “Big Oil” game (though they’re buying into it now), but a classic reprise of America’s “can do” era. And it is much more widely distributed this time, in dozens of states. We’ve been looking for a manufacturing- and small-business-driven economic revolution. Well, it’s here.

And this hydrocarbon-manufacturing revolution came about in the face of stiff ideological, political, and regulatory headwinds. (It’s not even possible to look for, never mind produce, oil or natural gas in at least half of American territory.) But the hydrocarbon boom has already started to take a whack out of the staggering, job-killing U.S. trade deficit. It has stimulated $150 billion in foreign direct investment in hydrocarbon fields in the past four years alone — a free foreign stimulus. And there will be a total of $5 trillion more in cumulative investment over the coming decade. The boom has already generated millions of jobs and sent billions in revenues to state and federal treasuries. All this has happened without encouragement, specific subsidy, regulatory favoritism, or stimulus largesse. Imagine what could be done if Washington decided to flip the intellectual framework from delay, oppose, and control to accelerate, encourage, and unleash.

Instead of urging the DOE to do the right thing, Congress should take up legislation to fix the core problem. To start, strip the DOE of export authority. And while we’re at it, strip the Department of Commerce of its similarly antiquated anticompetitive authority to control the export of American crude oil. Next, enact policies to unleash production and exports of hydrocarbons. This would be consistent with the president’s National Export Initiative (NEI), which professes “that exports will play a critical role in catalyzing America’s near- and long-term economic growth” and further boasts that the NEI “represents the first time the United States will have a government wide export promotion strategy with focused attention from the president and his Cabinet.”

Those who write, defend, and administer our current energy policies are suffering from what psychiatrists call cognitive dissonance, “a mental conflict that occurs when . . . confronted with challenging new information, most people seek to preserve their current understanding of the world by rejecting, explaining away, or avoiding the new information.”

Is there a doctor in the House?

— Mark P. Mills, a senior fellow at the Manhattan Institute, is the author of its newly released report The Case For Exports, and the co-author of the book, The Bottomless Well.



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