“Some molecules are painted with a no export sign. Other molecules are painted with the OK to export sign, and there doesn’t seem to be any rhyme or reason as to why some molecules are OK and some aren’t.”
– Rusty Braziel, RBN Energy LLC, quoted in “Crude export ban no match for lightest U.S. shale oil,” Fuel Fix, February 26, 2013.
“It’s not often you get to participate in a paradigm shift in an industry, and I think we are doing that now.”
– Anders Ekvall (Shell LNG), quoted in Harry Weber, “Natural Gas Industry Expects Big Things,” Houston Chronicle, April 20, 2013.
At the LNG 17 mega-conference in Houston last week, more than 5,000 industry professionals from 80+ countries, and thousands more visitors enjoying 200,000 square feet of exhibits, plotted to make natural gas a global commodity not unlike oil. Fast forwarding this future were the International Gas Union (IGU), American Gas Association, Gas Technology Institute (GTI), and the International Institute of Refrigeration (IIR).
Gas suppliers are ready. Gas demanders are ready. Liquefied natural gas infrastructure is prime-timed and ready. Only government intervention, fueled in part by misplaced cronyism from the U.S. side, stands in the way.
The Burden of Proof
Import and export regulation of oil and gas has long created a surreal world of can do, cannot do, and superfluous entrepreneurship to profit-maximize under political constraints. 
“Pernicious” and “peculiar” might be the best terms to describe regulation resulting from special-interest pleading. There is no quantitative science for the do’s and don’ts–only a qualitative scientific case for free trade (gains from trade; law of comparative advantage) that goes back to the early economists Adam Smith and David Ricardo.
In The Wealth of Nations (1776), Smith explained:
It is the maxim of every prudent master of a family, never to attempt to make at home what it will cost him more to make than to buy… If a foreign country can supply us with a commodity cheaper than we ourselves can make it, better buy it of them with some part of the produce of our own industry, employed in a way in which we have some advantage.
Smith’s timeless case for open international trade has three steps:
Ricardo later explained how each trading partner can maximize the whole by specializing in its area of comparative advantage. In other words, if each (political) jurisdiction produces those goods that it is relatively better at, all win. Don’t worry about some having all the work and others having none–there is plenty to do and always comparative advantage for the “weaker” party.
To the same end, beware of government protecting an “infant” industry. “The infant industry argument is a smoke screen,” Milton and Rose Friedman warned in Free To Choose (pp. 5–6). “The so-called infants never grow up. Once imposed, tariffs are seldom eliminated.”
The good news from common-sense economics is that there is always something that can be produced without government intervention between trading regions. Each side must find out what they are relatively better at and then use the free market to maximize free trade. In the process, land, labor, and capital should be free to leave and enter markets at will (creative destruction).
Dow Chemical’s Liveris
A peculiar case for restricting international trade–in this case the exports of natural gas in liquefied form–was presented by Dow Chemical CEO Andrew Liveris in the Wall Street Journal, titled Wanted: A Balanced Approach to Shale Gas Exports (Rushing to sell natural gas to Europe and Asia risks damage to the U.S. economy).
The cleverly designed, PR-perfected op-ed asked for government fill-in-the-blanks favor with a litany of catch phrases: “sound and balanced energy policy” … “measured approach to natural-gas policy” … ” stable and affordable domestic supply of natural gas” … “the national interest” … ” faithfulness to current law” … ” rules-based free trade” … “the nation’s best interest” … “clear federal rules” … “real economic progress and energy security” ….
Letter rebuttals soon followed, the lead one being by yours truly:
Dow Chemical CEO Andrew Liveris’s vague, almost apologetic case for restricting U.S. natural-gas exports is disappointing. It brings to mind Milton Friedman’s statement: “The two greatest enemies of free enterprise in the United States . . . have been, on the one hand, my fellow intellectuals and, on the other hand, the business corporations of this country.”
Domestic gas producers are entitled to their free-market price. Dow Chemical isn’t an infant industry in need of reverse protectionism. Dow should applaud and encourage America’s super-achieving gas industry, not penalize it for short-term parochial gain. If concerned about future prices, Dow is free to lock in future supply by buying reserves in the ground.
Naked cronyism should be vigorously refuted—even shamed. Having government determine what is “balanced,” “stable” and “affordable” for buyers and sellers of the same commodity is a recipe for intractable politicization, not rationality and the wealth of nations.
Marlo Lewis of the Competitive Enterprise Institute got his two cents in as well:
Mr. Liveris ignores two fundamental problems. First, restricting exports of natural resources to boost the competitiveness of domestic manufacturers is illegal under GATT. Second, restricting exports is confiscatory, compelling targeted firms to sell their products at below-market prices.
An Unnecessary, Expensive Fight
Why has Dow Chemical (as well as Alcoa, Celanese, Eastman, Huntsman, and Nucor) chosen such an expensive, controversial, uphill political fight? 
It costs a lot of money and time (including explanatory, even apologetic, op-eds by executives) to go against domestic natural gas producers. And there is a lot of badwill by violating basic free-market philosophy in international trade.
One can surmise the political activism was encouraged by the environmental lobby that has responded to the domestic drilling boom with a frontal agenda to block exports of oil and gas, not only coal. The goal is to reduce demand to depress prices to limit drilling—not good news for consumers or companies like Dow Chemical that need greater supply and lower prices, tomorrow, not only today.
If anti-market environmental groups promised behind-the-scenes support for Dow Chemical et al, it is yet another example of political capitalism (cronyism) begetting more political capitalism/cronyism.
 For a history of U.S.-side oil and gas import and export regulation, see my Oil, Gas, and Government: The U.S. Experience (1996), pp. 711–65 (oil imports); 766–74 (oil exports); 961–70 (natural gas and LNG imports and exports).
 The manufacturers, joined by the American Public Gas Association, have formed the trade group American Energy Advantage, which is critically reviewed here.
I believe we should recognize this is an imperfect world, and we should use gas exports to negotiate away other free trade barriers.
Maybe a resource depletion tax initially that gets negotiated away. Remember when a US company tried to acquire Dannon, and yogurt was declared a national treasure? Or when the EU signed Kyoto not because of warming concerns but because it would damage the US most and have little effect on Europe due to the shutdown of CO2 emitting Eastern Europe (they would have to increase CO2 to meet Kyoto!).
I had hoped that our clever president would find ways to be as slick as the euros in masking economic warfare under the environmental banner. Instead he has repeatedly slicked us.
Mr. Obama reached an understanding with Russia’s Mr. Putin regarding global natural gas markets. Mr. Putin kept his side of the bargain, and Mr. Obama aims to abide by his own.
Rob, the WSJ gave me space for two cents but the other $0.98 was left on the cutting room floor. The point I most wanted to make is this. Liveris’s chief rationale for restricting gas exports — the claim that gas used as a feed stock in domestic manufacturing adds more value to the economy than gas exported overseas and low gas prices make U.S. chemical companies more competitive — would also justify curbing Dow’s exports of chemicals, plastics, and electronic components to lower prices and help domestic value-adding manufacturers of paints, cosmetics, pharmaceuticals, cell phones, laptops, and other finished goods compete for global customers.
Liveris would undoubtedly scream bloody murder if Congress decided to give Dow a dose of its own medicine and restrict its exports in the “public interest.”
He’d probably argue — correctly — that the proposal is short-sighted and self-defeating. Restricting U.S. chemical industry exports might create a temporary glut and lower prices, but the policy would boomerang. As Dow, Celanese, Eastman, and Huntsman lost sales, profits, and market share, they would also lose asset value and investment, and production would decline. U.S. paint, cosmetic, pharmaceutical, and fertilizer companies would find themselves more dependent on imported chemicals. The imports would be pricier not only because of transport costs but also because foreign suppliers would face less competition from Dow and other U.S. chemical manufacturers.
The same logic, of course, applies to coercive restraints on exports of U.S. natural gas. If increased gas production benefits chemical companies, then they should be the first to oppose any policy that reduces gas companies’ incentive to produce. Limiting the oil and gas industry’s ability to compete in the global marketplace would do exactly that.
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