Evan Soltas
Aug 16, 2012

Natural Gas and 'National Interest'

One of the most disappointing trends over the last few years has been a backsliding of official U.S. trade policy into protectionism and "strategic trade." I continue to remain optimistic about the future of free trade, both in the U.S. and abroad, but the pace of advance has indeed slowed. Moreover, the Obama administration has been making it worse -- consider the disturbingly protectionist tone of the 2012 State of the Union, the disconcerting one-upmanship of Romney on protectionism, recent countervailing tariffs to protect politically-important industries, and evidence of backdoor restriction of trade in other countries.

It's time to add another disappointment to the list, unfortunately.

What is going on in natural gas is, in my opinion, the single best and most important piece of news since the end of the recession. Since 2009, the price of natural gas has dropped in nominal terms; more importantly, the relative price of natural gas against oil has dropped 60 percent over the same time frame. An enormous expansion of supply has sustained the decline in natural gas prices -- the U.S. now is trying to shrink a glut of natural gas. Natural gas also has true promise as a transitional energy source between higher-pollutant fossil fuels -- coal and oil -- and even-cleaner alternative energy over the very long term. (Reading recommendation: Mark J. Perry of the "Carpe Diem" blog is the single best source of information on energy I use.)

Given surplus in the U.S. and higher natural gas prices in Europe and Japan, American producers of natural gas would like to export some of their production as LNG. And yet government is standing in the way.

Only one firm, Cheniere Energy Partners, has received approval to export LNG to countries lacking free trade agreements with the U.S., according to The Wall Street Journal. "Nearly 10 other proposals are pending before the Energy Department, but the agency says it won't approve any additional projects until it finishes a comprehensive review of the exports' impacts on the U.S. The Energy Department is expected to complete that review later this summer." The Energy Department is using discretionary powers of review to effect a de facto moratorium on LNG exports, reports Bloomberg.

This has been long coming. For the last decade, there has been a slow creep of strategic protectionism by regulatory fiat over the energy industry's ability to participate in global trade.

Since 2004, President George W. Bush signed Executive Order (EO) 13337, which decreed that all proposals for energy-related facilities which cross U.S. borders must receive government approval. More specifically, it made it the prerogative of the Departments of Energy and State, through the Office of International Energy and Commodity Policy, to receive, consider, and approve or decline permit applications for "for the construction, connection, operation, or maintenance, at the borders of the United States, of facilities for the exportation or importation of petroleum, petroleum products, coal, or other fuels to or from a foreign country." The Office is responsible for determining whether any proposed energy facility "would serve the national interest...in such form and with such terms and conditions as the national interest may in the Secretary’s judgment require."

Translation: All energy trade facilities, proposed or operational, exist by the grace of the federal government.

National interest determination is the new face of protectionism in the United States. In the long run, the national interest is best served not by empowering the Energy and State Departments to restrict energy trade in its name, but rather through strong and consistent American support for trade liberalization. Executive Order 13337 should be rescinded immediately.