Historic mistakes should guide US on LNG exports

Political opposition to LNG exports by the US brings to mind monumental energy mistakes of the past.

The opposition comes from officials arguing that exports would raise the price of natural gas. It’s motivated, to some degree, by industrial gas users naturally want the commodity to stay cheap.

In a market with constant supply, new demand indeed would raise price. For now, however, US gas supply can expand to accommodate new consumption. Indeed, supply now tends to overreact to indications of demand growth as many producers respond to any uptick in price.

These conditions won’t last forever. The delivery system has physical limits. At some point, demand will push against those limits and raise price enough to stimulate capacity expansion.

Meanwhile, in a period of readily expandable supply and consequently suppressed price, gas users naturally want to preserve their comfort by foreclosing competing uses. Politicians shouldn’t help them.

Politicians make messes when they regulate consumption.

They did so in 1978 when Congress passed the Powerplant and Industrial Fuel Use Act, or FUA.

The law restricted the burning under industrial and utility boilers of oil, to lower imports, and natural gas, to preserve a commodity thought to be scarce for what were then called “higher uses.”

The preferred boiler fuels were coal and nuclear energy. FUA was passed before the Three Mile Island nuclear accident and the spread of fear about global warming.

The assertion of gas scarcity grew out of delivery curtailments created by market controls but assumed to relate to geology. The assertion and assumption could not have been more wrong. The misguided law they fostered was repealed during market decontrol in the 1980s.

Then the official worry was not that gas might be used for low purposes but that its price would “fly up.” That expectation was wrong, too.

What this history means for LNG is that politicians should let the market decide how much of it, if any, the US exports.

(Online Jan. 11, 2013; author’s e-mail: bobt@ogjonline.com)

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