The hand-wringing over what to do to help Ukraine has had a very positive impact on the U.S. oil and gas industry. Politicians like Sen. Lisa Murkowski (R-AK) are seizing on the crisis to call for a lifting of the ban on U.S. oil exports — the better to counterbalance Russia’s petro-influence. While the Wall Street Journal this morning wrote that western politicians are working on a variety of options to help “loosen Russia’s energy stranglehold on Ukraine” including “larger exports of U.S.-made natural gas.”
Nevermind that the U.S. currently exports no natural gas in the form of LNG because new liquefaction plants won’t be completed until late 2015. The bigger point was made by economist Ed Yardeni in his morning note today: “By invading Crimea, Russian President Vladimir Putin may have succeeded in resolving the debate in the U.S. about whether or not we should export natural gas and crude oil.”
From an efficiency perspective, any ban on exports is a bad thing. While domestic consumers of natural gas benefit from lower domestic prices, those lower prices come at a costs--the hiogher prices domestic producers could receive on the world market. A basic result in the economics of markets is that any restriction on price or quantity will come at a net cost to society. I am not saying that we should remove the export restriction just becaues it benefits domestic producers, but rather, the export restriction causes a loss to domestic producers (and world consumers) that outweighs the benefit to domestic consumers. In other words, the net benefits from natural gas production are lower with the export restriction than without--regardless of who gains and who loses.
If we (in the collective) are happy with accepting a smaller pie because we like the way the pie is divided, then by all means, keep the export restriction. But we need to recognize that it comes at a cost. And by leaving the export restriction in place, we are making a subjective judgement. Personally, I don't like making that judgement for others.
I'd rather let the market sort it out.
And yes, I know that's a judgement too.
But at least I can back it up with economics.