Alone in the Foxhole
What the Biden LNG export pause means for primary energy producers.
“In the absence of justice, what is sovereignty but organized robbery?” – Saint Augustine
A poorly kept secret of the Western economies is that, when push comes to wallet, there are few capitalists among the captains of industry. Whether conservative or liberal, rare is the corporate leader who passes on the opportunity to bend the awesome powers of government to their financial advantage. Is consumer demand not materializing for your new product? Get Congress to subsidize it. Are input costs too expensive? Coax a senator to investigate your suppliers for price gouging. Have upstart companies been disrupting your nice oligopoly? Work with regulators to build artificial barriers to entry and then hire a few of them afterward. Frankly, funding political graft is among the highest return-on-investment options on the corporate menu today.
Producers of primary energy, with their outsized role in the economy, are naturally keen to keep a watchful eye on such shifting governmental pressures. This is especially true in the US, blessed as it is with both the world’s most prolific primary energy industry and a robust manufacturing base. Unique among the energy superpowers, the US economy is home to motivated interests from nearly all downstream participants to secure cheap and abundant energy for themselves, seizing the prize otherwise derived by energy producers.
Consider the chemical industry, which is but a single value-added step from the energy sector. Since the advent of shale, chemical companies and other heavy consumers of oil and gas have been lobbying the government to limit exports of this bounty. In particular, they have fought the construction of liquefied natural gas (LNG) export terminals at every step, hoping to trap the glut of domestic methane for their own margin expansion. In mid-2017, with US natural gas production booming and domestic prices hovering under $3 per million BTU, the Industrial Energy Consumers of America (IECA), an industry trade group that lobbies for the big chemical companies (among others), sent a letter to Rick Perry, Trump’s energy secretary at the time. In it, they practically begged him to halt the LNG buildout. Here is a key passage (emphasis added throughout):
“The DOE’s mandate under the Natural Gas Act (NGA) is to determine whether an LNG export application for shipment to NFTA countries are in the public interest. The fact is that utilizing natural gas in manufacturing, as compared to exporting it, creates eight times more jobs, twice the direct value added per year and 4.5 times the direct construction jobs. Yet, none of the three DOE public interest studies made this comparison. One of the studies describes the significant negative impact of LNG exports when it stated, ‘it raises energy costs and, in the process, depresses both real wages and the return on capital in all other industries,’ while another study states that exporting LNG increases domestic prices and reduces natural gas prices for foreign buyers of LNG. The combined net effect is that US manufacturers lose relative global competitiveness.
We urge you to act quickly to implement five public interest policy recommendations, which includes establishing prudent common-sense safeguards to protect consumers, the economy, and which encourages manufacturing companies to continue to invest and create jobs.”
Nearly seven years later, with US natural gas prices still under $3 per million BTU and production continuing the soar, the IECA was back at the trough, this time pleading with Energy Secretary Jennifer Granholm to put the screws to its members’ suppliers:
“As LNG exports increase, so do reliability and price risks for the natural gas and electricity markets. The hallmark of a sound and reasoned energy policy is that it should not have a negative impact on domestic consumers of energy. This administration should ensure that its LNG policy protects U.S. consumers from the accelerating risks that come with increased LNG exports. LNG exports have market power over U.S. consumers. Therefore, we urge you to implement the IECA LNG Inventory Policy, which would insulate the U.S. market from much of the risk that is described in this letter. Importantly, the policy would not cost taxpayers. Given the increasing risks to reliability, we urge you to pause the approval of new LNG export facilities.”
As has been widely reported, President Biden has indeed paused LNG export approvals, citing concerns over climate change. Although the conservative media has hyped up the alleged role TikTok influencers and environmental extremists played in convincing Biden to intervene, many so-called free market Republicans are quietly celebrating behind the scenes. Just how significant is this bipartisan pillaging of US primary energy producers? What are the short- and long-term impacts of this momentous decision both at home and abroad? Let’s sort the winners from the losers.