Energy Exports Are Good!
By JOE NOCERA
May 17, 2013
What first caught my eye was the op-ed article in The Wall Street Journal. Published in late February, it was written by Andrew N. Liveris, the chairman and chief executive of the Dow Chemical Company. Liveris, an Australian, has become quite the Washington player in recent years. Among other things, he heads President Obama’s efforts to revive manufacturing.
The op-ed was about one of my favorite subjects: the abundance of natural gas reserves discovered in the United States since the “fracking” revolution began. This newly found gas, Liveris wrote, offered “a historic opportunity to strengthen the economy, increase national competitiveness and create jobs.” I couldn’t have said it better myself.
Within a few paragraphs, however, the Liveris article took on a Pravda-like quality: a political insider sending a coded message to other insiders. He wrote, for instance, that the new jobs the natural gas boom was expected to create would depend on an “affordable” and “plentiful” supply. Given that that’s exactly what we currently have, what was the real subtext?
Then it became clear: Liveris’s plan for ensuring cheap domestic gas was — are you ready for this? — limiting exports. An export market driven by, you know, supply and demand was described as “unchecked.” What was left unsaid was that if natural gas could not be exported, the resulting oversupply would depress prices — and boost Dow’s profits.
Finally, Liveris acknowledged that Dow owned 15 percent of a proposed facility in Texas, which was causing “advocates of unchecked exports” to “attack” the company for being in a position to profit from exports while publicly opposing them. But, he insisted, Dow would not make a profit. Hmmm.
I bring all this up because on Friday, the Department of Energy, after a two-year hiatus, granted a permit to a facility called Freeport LNG, which will allow it to export liquefied natural gas to countries with which we do not have free-trade agreements.
Originally built to import natural gas, the plant will cost as much as $11 billion to retrofit and take years to complete. It will export only a tiny fraction of the natural gas that is consumed by Americans. And wouldn’t you know it? This is the facility in which a Dow Chemical limited partnership holds a 15 percent stake.
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.
“Most studies suggest that the main impact of exports will be to increase U.S. production rather than take away other uses,” Levi says. Thus, it will not likely have a major effect on the price of gas. Levi told me that one legitimate fear is that the additional drilling could increase the potential environmental risks posed by fracking. But the answer is to ensure that wells are drilled in an environmentally safe manner. That is true whether we export gas or not.
And what does Dow Chemical say now that “its” facility has been approved? I spent much of Friday afternoon peppering the company with questions, most of them revolving around Dow’s seeming hypocrisy in opposing “unfettered” exports while owning a big chunk of a facility that would someday be shipping natural gas to Japan.
Finally, more or less in exasperation, a Dow spokesman put Liveris on the phone. The Dow chairman pointed out that when the company originally invested in Freeport LNG, the facility was meant to import gas rather than export it. He said that the company won’t make money because its stake will be so diluted once capital is raised for the retrofitting. He insisted that he is a believer in market forces, but that the natural gas market is so different from other commodities that it must be treated differently.
He also said, though, that the company was not opposed to natural gas exports — just so long as it was limited.
Earlier, a Dow spokesman had sent out a press release claiming that the permit approval by the Department of Energy was actually a victory for Dow’s position. To put it in words that the press representative would never use, so long as the Department of Energy permitting process is so absurdly slow — thus creating a government bottleneck that restrains “unfettered” exports — Dow and Liveris have gotten exactly what they’ve been seeking: limited exports and plenty of cheap domestic gas to help fuel their profits.
There is a technical term for this. It’s called “having your cake and eating it, too.”
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