We Need a 21st Century Energy Policy
The newly sworn-in Energy Secretary has taken a go-slow posture on natural gas exports. This, after the U.S. has just blown past Russia to become the world's largest producer. And America will shortly occupy the number one position in oil production as well. This nation is poised to become a major hydrocarbon exporter to an energy-hungry world.
But not everyone is eager to embrace the opportunity for America. There are even concerns, raised on the pages of the New York Times and Foreign Affairs, that the new U.S. position on the world energy stage has major downsides. Notably, we're told that this radical change could destabilize many of the world's fragile hydrocarbon exporters, from Russia to Nigeria and from Venezuela to the Middle East.
These experts warn that the loss of oil revenue will cause shock waves in countries that have increased spending (and mischief making) on the prospect of eternally selling $100 per barrel oil to the world, especially to America. This was apparently a negligible worry when alternative energy advocates were touting the importance of (expensive) biofuels and batteries for breaking America's "addiction" to oil.
Let's state the obvious: U.S. energy abundance is an unalloyed good for the American economy. The U.S. can start eviscerating its whopping $750 billion a year trade deficit, which rivals the combined deficits of the next 30 largest nations. It is a terrible drag on U.S. growth. And 40 percent of our deficit comes from just one import: oil. We can now eliminate those costs.
How? First, do everything possible to encourage yet more production of hydrocarbons to cut imports. Second, use cheap domestic fuel to manufacture and export more energy-intensive products like chemicals and fertilizers. Third, join the small club of crude oil and natural gas exporting nations. The problem with the last deficit-killing strategy is that exporting American natural gas or crude oil is illegal.
A 1975 law prevents crude oil exports, with only rare exceptions. It is the case that last year the U.S. became a net exporter of gasoline and diesel; exporting refined petroleum products is permitted. But oil production has grown much faster than domestic refining capacity. Thus, oil in the heartland sells up to $40 below world prices, but cannot be exported to willing buyers.
A 1938 law re-confirmed in 1978 prohibits natural gas exports absent specific permission granted by the Department of Energy (DOE). Twenty applicants now wait to each spend tens of billions on job-creating, tax-generating construction of export facilities. Dozens of countries are in line to buy hundreds of billions of dollars' worth of American natural gas.
America is saddled with laws crafted nearly a half-century ago based on ideas of scarcity that have been mooted by technology progress. American oil and natural gas are now abundant. The logic of laws prohibiting, and giving federal bureaucrats authority to decide if, when and where to export American products falls apart if you just substitute words like wheat, soy, ethylene, or microprocessors for the words, crude oil or natural gas.
The American energy sector is on track over the coming 10 years to see private investments reach a cumulative $5 trillion-without subsidy or taxpayer assistance. It makes no sense to restrain this sector. The past four years alone have seen $150 billion of foreign investment in U.S. hydrocarbon domains. No government stimulus or infrastructure investment begins to match this scale of private activity. Imagine if, instead of constrained, it were encouraged.
There's more: This new reality will reverse the trade and economic positions of the U.S. and China. America is shrinking net imports and can increase its share of global trade, especially in areas where we hold unique advantages such as our high-tech "manufacturing" of crude oil and natural gas. China, migrating towards more domestic consumption instead of exports, is already the world's largest oil importer. One fact set is predictive: China has fewer than 50 vehicles per 1,000 adults compared to 630 in America. In the future, China will export less in general and import more, especially fuel. We can do the inverse.
Let's not squander this opportunity through inaction, or worse, by imposing deliberate impediments to expanding domestic production-and exports-of hydrocarbons.
The solution is not just for the DOE to approve all applications for natural gas exports. That's obvious. Congress should entirely rethink energy policy in light of the 21st century's technological and demographic realities. The world is eager to buy American oil and gas. And it has been decades since the U.S. was in rough trade balance.
An energy-exporting America will drive down oil prices, and that does have consequences for other nations. Geopolitical challenges won't evaporate. But our new energy abundance means we can deal with them from a position of strength, independent of dire economic consequences. That can only be good.