THE US ENERGY REVOLUTION

Fox News on July 25, 2013, published an article by Gary J. Schmitt and Adam Kennedy quoting President Obama gaving an address on the U.S. economy at Knox College in Illinois in which he argued that the future looks much brighter for the country in part because the energy revolution in natural gas taking place right under our feet. But, disappointingly, neither the president nor Congress are making the most of this revolution and, hence, are reducing the economic benefits that would come from more drilling and more exports of this now abundant resource. Excerpts below:

The fact is, America today is awash in natural gas.

Through technological advances in tapping into shale rock formations, the amount of recoverable natural gas reserves has grown by nearly 800 percent over the past seven years, with estimates that the United States has more than a century’s worth of supplies on hand.

The result has been a sharp and sustained decrease in the price of gas and, with that drop in energy prices, the prospect of a revitalized American manufacturing base and the jobs that will come with it.

Indeed, America’s natural gas reserves are so great that one study after the other has concluded that the U.S. can export natural gas with only marginal increases in prices here at home.

Not only would exporting gas abroad help reduce the country’s trade deficit and create additional jobs, but it would also have the strategic benefit of reducing the energy dependence of friends and allies on Putin’s Russia and states in the unstable Middle East—and, in turn, creating new and deeper ties to those same friends and allies.

Countries such as Japan, South Korea and India are lining up to become long-term buyers of American natural gas if only the U.S. government would clear the path for American companies to build the necessary infrastructure to liquefy the gas and make it exportable globally.

But here’s the rub. Under U.S. law, the decision to license natural gas exports rests with the Department of Energy and, for a license to be issued, the department must determine that those exports are in the “public interest.”

The only exception being that, for countries with which the U.S. has a free-trade agreement, it’s assumed that gas exports meet that standard. Allies who have not signed an FTA with the U.S. (such as Japan, the United Kingdom or Lithuania), or strategic partners (like India and Taiwan) must face a higher hurdle before a license can be granted.

Over the past two years, the Energy Department has granted just two separate authorizations to export domestic-sourced natural gas to non-FTA countries, and other approvals have been slow in coming…

The problem with this slow pace of approvals and the more restrictive guidelines for non-FTA countries is that, when it comes to natural gas, “you snooze, you lose.”

Importing states have potential alternatives, such as acquiring gas from Australia, Canada, Nigeria and Russia. And once companies make the billions in investments necessary to bring that gas online and transport it, they have even less incentive to make similar investments here in the United States.

Moreover, there are real questions about whether the U.S. laws governing the export of natural gas run afoul of our commitments under the General Agreement on Tariffs and Trade (GATT), whose governing body is the World Trade Organization.

Under Article XI (“General Elimination of Quantitative Restrictions”) of GATT, the United States and other signatories have pledged not to adopt measures that would curtail the export of any good, with the key exception being the “conservation” of some good or commodity demonstrably in critical shortage. However, given the glut of domestic gas reserves…it’s hardly plausible that the administration could use this GATT exception to justify the current law or policies.

So, today, when it comes the export of natural gas, U.S. policy is at odds with what’s economically sound for the country, contrary to America’s longstanding free-trade commitments, and runs against its larger strategic interests.

Gary Schmitt co-directs the Marilyn War Center for Security Studies at the American Enterprise Institute and Adam Kennedy is an economics and national security researcher living in Washington, DC.

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