Only a few years ago, the commentariat made ominous predictions about Peak Oil while editorial pages were filled with daily jeremiads about American energy dependency. But at the same time obituaries for the hydrocarbon era were being drafted, a silent revolution was taking hold. Newfangled techniques such as hydraulic fracturing and horizontal drilling were tapping previously inaccessible deposits of natural oil and gas, transmuting base metals into effulgent gold.
As my colleague Mark Perry has been covering for some time now, the explosion of these new sources has been nothing short of remarkable, upending conventional wisdom and expert opinion alike. Much of the good news from the energy sector can be chalked up to natural gas. Since 2008, when hydraulic fracturing began unlocking resources on a large scale, domestic natural gas production has increased by 16.1%. The International Energy Agency even projects that the US will shortly overtake Russia as the world’s largest producer of natural gas.
All of this raises an important question: Should we export it?
While the debate about exporting natural gas has focused on the economic impacts, the geopolitics merit equal attention. In a recent piece for The Weekly Standard, my colleague Gary Schmitt outlined some of the strategic benefits that would accrue to the US if the Obama administration approved several pending applications for export licenses. They include, inter alia, strengthened relationships with formal allies and security partners (read: Japan, which lost 30% of its power supply after shuttering its nuclear reactors post-Fukushima); closer partnerships with emerging economies (read: India, which could be dissuaded from extending the Iranian pipelines from Pakistan); and greater leverage vis-à-vis regimes with illiberal tendencies (read: Russia, whose influence could be blunted by weaning Europe off of Gazprom). For a more in-depth analysis, I highly recommend his article.
My reading of the tea leaves suggests that the Department of Energy will approve at least some LNG export facilities. A Moody’s report released last Wednesday suggested as much, President Obama’s Energy Secretary nominee seems game, and the House Energy & Commerce Committee took up the matter at a hearing this morning.
But as Gary cautions, inaction entails real opportunity costs: “Billions are required in upfront infrastructure investments to drill, liquefy, and ship. Companies are not sitting on their hands waiting for the Obama administration to get its act together when they can find other gas reserves to tap into just as readily.”
From a strategic point of view, the Obama administration can’t act fast enough.
For more on the economic implications, AEI held an event on the topic this morning (America’s natural gas: Should exports be restricted?) featuring an address by Nirupama Rao, the Indian Ambassador to the United States. You can find a recording of the event here.