October 23, 2012

FREE TRADE IS SHOVEL-READY STIMULUS:

The Real Stimulus: Low-Cost Natural Gas : The impact of the U.S. energy revolution is only beginning. It is already providing a foundation for a domestic renaissance in manufacturing. (DANIEL YERGIN, 10/23/12, WSJ)

An unconventional oil and gas revolution is under way in the United States, but its full ramifications are only beginning to be understood. The basic facts are clear enough. Half a decade ago, it was assumed that the U.S. would become a large importer of liquefied natural gas; now the domestic natural gas market is oversupplied, thanks to the ability to produce shale gas through hydraulic fracturing and horizontal drilling technologies. [...]The increase in domestic oil production over the past five years will reduce our oil-import bill this year by about $75 billion. The growth of shale gas will save the U.S. from spending $100 billion a year on imported LNG, which was the likely prospect five years ago.

There is also a geopolitical dimension. The increase in U.S. oil production since 2008 is equivalent to almost 80% of what was Iran's export level before the imposition of sanctions on the Tehran regime. Without the additional oil coming from the surge in U.S. oil output, the Iranian oil sanctions could not have worked as well as they have.

Domestically, growing natural gas supplies provide a foundation for a manufacturing renaissance, at least for industries for which energy is an important feedstock or where energy costs are significant. Chemical companies have been leaving the U.S. for years in the search for lower-cost countries in which to operate. Now they are planning to invest billions of dollars in new factories in this country because of inexpensive and relatively stable natural gas prices. The price of natural gas, which averaged $2.66 per thousand cubic feet in the first nine months of this year, is less than half of what it was five years ago.

This holds out a tantalizing prospect that the U.S. could regain market share among the world's manufacturing exporters. That prospect preoccupies companies around the world, from Europe to China. When I was in China recently I heard much talk about how China's historical advantage in cheap labor (which is becoming less cheap) could in the years ahead be offset by cheap energy in the U.S.

We're also beginning to hear a debate about the U.S. role as an exporter of liquefied natural gas. LNG exports to countries with which the U.S. has free-trade agreements require no government approval. Approvals are needed, however, for exports to a long list of countries with which we have no such agreements, including Japan, Britain, India and many others. But an investment in building export facilities for this trade won't make sense unless producers have the flexibility to ship to diverse destinations as markets change.

Posted by at October 23, 2012 3:36 PM
  

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