The Unintended Consequences of Exporting Natural Gas

By Bryan Walsh
May 27, 20130

The best intentions during an election campaign have a habit twisting beyond recognition once a candidate is in power. I doubt when Barack Obama was teaching constitutional law at the University of Chicago he thought that, once in the White House, his Administration would be responsible for one of the most chilling crackdowns on the freedom of the press in recent American history. And yet, after the revelation of the Department of Justice’s wide-ranging move to seize phone records of AP reporters and a deeply disturbing investigation of the Fox News reporter James Rosen-seriously, read this-Obama’s legacy has been permanently altered.

I also doubt that the candidate who in 2008 ran on a cap-and-trade plan and promised to make climate change a top priority thought that he would go down as the driller-in-chief. And yet-without taking anything away from Obama’s very real accomplishments in supporting renewable energy and efficiency-that’s exactly what’s happening. Domestic oil and natural gas production have boomed under Obama’s watch, and even though he was hardly the cause-most of the new fracking is happening on private land largely outside federal regulation-neither had Obama done much to stand in the way, at least according to his increasingly frustrated environmental allies. Greens want Obama to stop the proposed Keystone pipeline and halt the expansion of fracked oil and natural gas-but as Obama begins his second term in earnest, that seems unlikely.

Take natural gas. For some time gas companies have been pushing the federal government to make it easier to export natural gas in liquified form (LNG) to foreign countries. This is itself a huge turnaround-less than a decade ago, domestic production of natural gas was so low that facilities were being built in U.S. ports to import foreign natural gas. The shale gas revolution, made possible by fracking, changed all that. Now the U.S. literally has more natural gas than it knows what to do with, and the price of gas has tumbled to around $4 per million BTU.

That’s great for U.S. utilities, which have taken advantage of cheap natural gas to close out old, polluting coal plants, helping them comply with environmental regulations while reducing U.S. pollution and carbon emissions. It’s also been good for American manufacturers-especially those in the chemical industry-who can take advantage of cheaper power and raw materials. But the glut of gas-and natural gas, unlike oil, can’t easily be stored-hasn’t been so great for one sector: natural gas companies themselves, which have begun complaining that drilling has is costing them more than they can make selling their product.

Econ 101: if your supply outstrips your demand, the only way to raise prices is to reduce your supply-something gas companies can’t easily do because their contracts on wells often require them to keep drilling to maintain the lease-or increase the demand. And since the demand for natural gas in the U.S. seems to be more or less maxed out, the best way to do that is to ship the gas to other countries where the price of natural gas is much, much higher. Like Japan, which has virtually no natural gas resources of its own, and which pays some $17 per million BTU-or more than four times what we pay in the U.S.-to import liquified natural gas (LNG).

So the news on May 17 that the Department of Energy (DOE) had given a terminal near Freeport, Louisiana-one originally built to import gas-permission to export LNG was met with approval by natural gas companies, even as chemical companies worried about the effect on prices and environmentalists worried that more exports would mean more fracking. In a statement after DOE approved the export terminal, Deb Nardone of the Sierra Club’s Beyond Natural Gas campaign said:

Exporting LNG will lead to more drilling – and more drilling means more fracking, more air and water pollution, and more climate fueled weather disasters like last year’s record fires, droughts, and superstorms. In today’s conditional authorization, DOE acknowledges that it has not yet considered any of these impacts, but that environmental effects must be considered before DOE can grant final approval.

But while there are legitimate environmental concerns about more natural gas drilling, there’s an economic value to exporting a product that can sell for far more abroad than it can at home. Let’s let Joe Nocera of the New York Times, in a May 18 column entitled “Energy Exports Are Good!” explain why exporting natural gas would be good:

Exporting natural gas has enormous benefits for the United States. Exports create jobs that are every bit as good as manufacturing jobs. They help our trade deficit. They tie us closer to important allies like Japan, which desperately need the gas. According to Michael Levi, the author of an authoritative new book, “The Power Surge: Energy, Opportunity, and the Battle for America’s Future,” the prospect that America could export natural gas has even helped our European allies gain leverage with its primary supplier of fossil fuels, Russia.

Nonetheless, it’s hard to see how exporting natural gas will help the environment, at least at home. The price for natural gas has begun to rise-and partially in response, utilities have begun switching back to burning polluting coal. Since January, utilities have been burning less gas, and coal now provides about 40% of U.S. electricity. That’s still a much smaller share than coal demanded a few years ago, but it’s a sign that pricier natural gas-which is significantly cleaner-burning than coal-will likely mean more carbon emissions. Export more natural gas, and that’s just what you might get.

In environmental policy-in all policy-actions can have unintended consequences, and take you places you never expected. Just ask the driller in chief.

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Bryan Walsh @bryanrwalsh
Bryan Walsh is a senior editor at TIME.

Special thanks to Richard Charter