Ship, Baby, Ship! Trading Oil, LNG, Coal With China, Japan, SK, and Taiwan

For Stoa debaters researching the Asia trade policy topic, U.S. exports of oil, natural gas (LNG), and coal to China and other Asian countries are policies worth investigating. Current federal policies block oil exports entirely, slow approval of Liquid Natural Gas (LNG) export facilities, and slows or stops coal export proposals with state and federal environmental litigation and regulation.

“We can’t just drill our way to lower gas prices” said President Obama in 2012 (at 1:30 in the video below).

This is image, actual video below.

In a sense he was right. I don’t know how to drill for oil, and neither does the President (Sarah Palin doesn’t either). So “we” can’t. But it turned out that the oil industry could and did. High oil prices from 2011 to 2014 (over $100 a barrel), stimulated rapid innovation and investment in shale oil and gas exploration and extraction across the country. Production soared, rising so rapidly that shale oil production was the major factor pushing down world oil prices by half last summer.

(Sarah Palin’s argument has been that federal regulations prevent most off-shore oil exploration and drilling as well as restrict drilling on federal lands, which are one-half of the western United States. Shale drilling became possible because shale deposits were found on private land in property-rights friendly states like Texas, Montana and Pennsylvania.)

Saudi Arabia in the fall of 2014 decided not to cut their oil production to compensate for fast-rising U.S. shale oil production. Had Saudi Arabia cut production to keep oil prices from falling, U.S. shale oil investment and production would have continued to expand rapidly, putting more pressure on prices and Saudi production. So the Saudis had to bite the bullet and let oil prices collapse in hopes the fall would slow or reverse U.S. shale oil production.

Oil prices since last summer have dropped by half, and gasoline prices have dropped a lot (except in California where state regulations keep them high as explained in “Sky-High California Gas Prices Have a Green Additive“).

Oil prices were over $112 a barrel in June, 2014. Then prices fell by half to $60, then fell further to $50, rose to $60 again in early 2015, and have recently fallen back below $50. (There are always two oil prices, West Texas Intermediate (WTI), and Brent Crude (CB). These are oil exchange prices for oil markets in the U.S. and Europe.)

As mentioned above, current federal policies block oil exports entirely, slow approval of Liquid Natural Gas (LNG) export facilities, and help tie-up coal export proposals in state and federal environmental litigation and regulatory delays.

The oil export ban made little sense when domestic production was low, and it is definitely not a good idea now that we’re awash in the stuff. Yet the antiquated rule still has plenty of defenders in Congress. Getting rid of the ban would benefit the economy, create jobs, and do nothing to raise gas prices, which is the ostensible reason for the ban in the first place.

Would allowing U.S. oil to be sold to Asian (and other) consumers raise oil and gasoline prices here? Brannon argues no:

An end to the oil export ban would not increase domestic gasoline prices in the slightest. In fact, there’s empirical evidence suggesting it could reduce prices in the short run by putting further downward pressure on the price of Brent crude oil, an important global oil index that domestic gasoline prices tend to track much more closely than any domestic oil price index. The reason for that, suggests Adam Sieminski, administrator of the Energy Information Administration, is that we effectively participate in a global oil and gasoline market despite all wishing to the contrary, and lower global oil prices translate to lower oil—and gasoline—prices domestically.

For Stoa debaters researching trade policy with Japan, China, South Korea, or Taiwan, U.S. regulations that restrict exports of oil, coal, and liquefied natural gas should be an attractive target for reform.

Exports of cleaner Wyoming and Montana coal to China would reduce pollution there and create income and jobs here. Federal approval of Liquefied Natural Gas (LNG) export facilities would reduce pollution overseas and create income and jobs here. And exports of shale oil from the U.S. to Asian and other world markets would benefit the U.S. as well as buyers and their customers overseas.

State and federal environmental and other regulations are blocking nearly all new energy exports. In the case of coal exports to China, the claimed problem is apparently fish:

In denying Ambre’s request, Oregon officials cited tribal fishing rights along the Columbia, saying that a “small but important long-standing fishery” at the project site would be harmed.

Four of six planned Pacific Northwest coal export terminals have been terminated.  [Source]

There are plenty of posts and articles by environmental groups arguing against exporting coal to China, and against exporting oil from Texas (and from Canada’s oil sands regions). In the end though, coal from the Western U.S. is less polluting than coal currently mined, imported and burned in China (and is mined more safely in the U.S.). Coal exports from the U.S. would displace Chinese coal  and dirtier imported coal, and reduce pollution from Chinese industry.

Natural gas exports from U.S. to China, Japan, etc. would also encourage wider use of natural gas, which is much less polluting than energy produced from coal or oil. Not as “clean” many argue as solar and wind power, but each of these is way, way more expensive to produce and manage (since each is dependent on the sun shining or wind blowing). (Wind and solar power costs are complex and controversial topics, with a great many claims online both for and against. Here is an overview post from Brookings Institution, not a conservative source, explaining the high actual costs versus lower and often-cited “rated capacity.”

Much more research to do on U.S. trade policy and oil, gas, and coal exports to Japan, China, South Korea, and Taiwan.  It is almost always the case though that increased international trade benefits consumers and most producers. U.S, energy producers produce valuable goods (oil, gas, coal) in high demand in Asian countries. Current U.S. trade policy blocks most efforts to export these natural resources.

Update: This Federal Energy Regulatory Commission (FERC) page lists LNG terminals proposed, approved, and under construction. The proposed LNG terminal list is a long one. The separate page of FERC-approved LNG export terminals now shows give approved and under construction.