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The curious task–natural gas edition

Posted By Russ Roberts On December 19, 2012 @ 11:03 am In Energy | Comments Disabled

As Hayek wrote in The Fatal Conceit:

The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design.

Evidently, the US now has lots of natural gas. There is a question of whether we should export some of it. Who knows whether that is good or bad for America? Ron Wyden knows. Or at least he wants to know. The Washington Post reports [1]:

“We have so much gas we don’t know what to do with it, and it’s unlikely that we can create enough demand for all the gas coming on stream,” said Cherif Souki, chief executive of Cheniere Energy, which is spending $10 billion to add LNG export capability to an idle import facility in Sabine Pass, La.

Cheniere has its permit, but Dominion is one of 15 companies that have applications pending at the Energy Department to build export facilities.

Not so fast, Wyden says. He wants to be sure gas exports don’t raise prices and hurt U.S. consumers and manufacturers.

Under current law, the Energy Department must decide whether an LNG gas export operation safeguards domestic needs and meets the public interest, especially for gas going to countries with which the United States does not have a free-trade agreement. Japan is one of those countries.

On Wednesday, the Energy Department released a long-awaited study, carried out by NERA Economic Consulting, that acknowledged exports would raise U.S. gas prices. But it said that in all of the scenarios it modeled, “LNG exports have net economic benefits in spite of higher domestic natural gas prices. This is exactly the outcome that economic theory describes when barriers to trade are removed.”

Natural gas is a commodity. Increasing the world supply will lower its price. Discouraging American sources from coming on line because they cannot be exported will raise the price of natural gas world-wide including here. Turning natural gas into a political football is good for Senator Wyden and his friends. Bad for the rest of us.

UPDATE: Don’s take [2]. He gets it right…

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URLs in this post:

[1] reports: http://articles.washingtonpost.com/2012-12-07/business/35673759_1_surge-in-shale-gas-natural-gas-cove-point

[2] Don’s take: http://www.nypost.com/p/news/opinion/opedcolumnists/let_america_gas_industry_boom_tp8U0EtNyDPRHvtiobMw0J

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