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The Big Lie on Natural Gas Exports

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Last week the Department of Energy gave approval to the Freeport LNG export terminal. Combined with an earlier approval at Sabine Pass, the U.S. has now committed the first 2.4 billion cubic feet of natural gas it produces each day over the next 20 years to foreign consumers -- because under these LNG contracts exporters will be able to offer higher prices than any domestic user, regardless of the price of gas that results. These two terminals alone will divert enough energy to replace a half million barrels a day of oil.

You may find these facts surprising, even implausible. I don't blame you. You have been massively misled.

The current media conversation about whether oil and gas exports are in America's interests makes the lead up to the Iraq War look like public policy on truth serum. All informed participants know -- and almost all conceal -- that the primary purpose of building export infrastructure like the Keystone Pipeline or LNG terminals is to raise energy prices in North America. What is mystifying is why almost all of America's political class is willing to support a set of policy decisions whose outcomes will be to impoverish most Americans and weaken the nation.

Without policy permission to build out massive export infrastructure -- Keystone and the Sabine Pass LNG Terminal being only the first -- North America's increased production of oil and gas will, as economic theory would predict, yield cheaper prices. Globally, however, OPEC cartel power will keep prices up. Oil and gas interests in North America want to share in the windfall profits created by the OPEC cartel and its prices. They can only do this by raising U.S. prices to OPEC levels. OPEC is a cartel. It profits from price-fixing which would be illegal if it took place within the U.S. (or Canada or the EU.) Why should we raise U.S. oil and gas prices to OPEC levels? Why should North American producers benefit from manipulated prices which would be illegal if set by oil and gas companies themselves?

Increased U.S. production of light tight oil from formations like the Bakken and Eagle Ford have created surplus oil in Central U.S. Wholesale oil prices have fallen 20 percent below global oil levels. Combined with greater fuel efficiency and fuel competition from electrification, natural gas and biofuels, genuine U.S. oil independence could be achieved in the next decade.

Abundant natural gas has brought down heating bills, encouraged the re-industrialization of the U.S., reduced coal dependence and pollution in the electrical sector. Natural gas offers a fuel source which could replace a third of U.S. oil imports in uses like home heating, chemical feed-stocks and trucking.

Gas in the U.S. now costs one-fourth the price of OPEC imported oil, and one-third the cost of natural gas in Europe and China. OPEC prices no longer control U.S. markets.

That's a good thing. We are about to throw it away.

As Boone Pickens has pointed out, even the oil endowed and market skeptical Iranians have figured out that instead of burning expensive oil at home and exporting cheap natural gas, it makes sense to burn cheap natural gas to back out oil.

If you take seriously the claims by export advocates that U.S. gas prices will rise "only a little" in response to converting U.S. gas to LNG, the economics just doesn't work. At $6 mcf, (the peak price of U.S. gas promised by export supporters), the gas shipped by Freeport and Sabine pass would sell for $120 million a day. The oil this gas could have displaced will cost the U.S. $350 million. You can't help our economy exporting cheap gas and replacing it with expensive oil.

If instead the U.S. used overall projected increases in gas production to back out 3 million barrels of oil by 2020, the decrease in demand would drive down the price of oil by $20/barrel, which would cut the US oil bill by another $400 million/day, in addition to saving the $350 for the oil saved. That's the real price of gas exports -- not getting off oil.

Of course, U.S. oil companies don't want to see the price of oil drop by $20, and they are delighted to profit both ways -- on LNG exports and greater oil imports. But it's hardly good for the U.S. as a whole.

Why don't the studies the media are relying on reveal this? Because, quite simply, they ignore inconvenient truths. The official government study on the basis of which these LNG exports were approved completely ignores the benefits of using natural gas to replace oil, saying it simply isn't an option -- even though countries from Iran to Pakistan and Argentina have already done it. These studies also fail to account for the cheaper oil which results from lower demand -- because they assume lower demand is impossible.

This obfuscation extends throughout the conversation. The official DOE study on the basis of which the U.S. government approved these terminals dealt with the issue or price increases by promising that we will export primarily incremental natural gas -- gas we would not otherwise have produced.

But when challenged on the possible environmental impacts of this increased gas production, the government declared that it didn't need to study them, because such production increases were too speculative! (For the record, Freeport and Sabine pass will export as much gas as the entire state of Pennsylvania produced from the Marcellus Shale in 2012.) Evidently billions of cubic feet of natural gas for export will simply be conjured up in the White House press office.

Natural gas export advocates should have to use real numbers to back up their arguments, and they shouldn't get away with hand waving references to "free trade" and "jobs." It's all about higher prices -- they know it -- we ought to make them admit it.

A veteran leader in the environmental movement, Carl Pope spent the last 18 years of his career at the Sierra Club as CEO and chairman. He's now the principal advisor at Inside Straight Strategies, looking for the underlying economics that link sustainability and economic development. Mr. Pope is co-author -- along with Paul Rauber --of Strategic Ignorance: Why the Bush Administration Is Recklessly Destroying a Century of Environmental Progress, which the New York Review of Books called "a splendidly fierce book."

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