Energy is an essential component to modern life, so it's not all that surprising that there are heated debates over energy policy. In years past, the United States has seen debates over energy efficiency (and the extent to which the government should require/force it), renewable energy, whether to subsidize biofuels, whether and where to build more refineries, whether to drill in protected areas, whether to permit fracking and so on.

Now a new debate is heating up and pitting industry against industry. The question is whether the U.S. government should place any limits on exports of natural gas in the form of liquefied natural gas (LNG). Potentially billions of dollars are at stake and the resolution of this question will go a long way toward determining just who claims those billions.

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The Problem and Potential in Brief
Not widely appreciated before advanced drilling and stimulation techniques (including fracking) became commonplace, the U.S. is rich in natural gas reserves - according to the U.S. Energy Information Administration (EIA), America's reserves of natural gas are the fourth-largest in the world.

While the U.S. is also the largest consumer of natural gas in the world (and a net importer), the day is in sight where the U.S. could be a net exporter, and potentially a large one at that. Natural gas can be super-cooled and liquefied, allowing it to be shipped via LNG tankers to countries like Japan that are big consumers of natural gas but lack domestic reserves. Natural gas currently goes for about $3.32/MMBtu in the U.S., but imported LNG is currently quoted at $16.49/MMBtu in Japan (inclusive of freight) - suggesting substantial profit potential for natural gas producers, terminal operators and others in the LNG export value chain.

The idea here is basically a simple arbitrage, and that's part of the problem. While opening up the gates to widespread LNG exportation from the U.S. would indeed likely allow producers and terminal operators to realize higher prices, that would also likely lead to higher natural gas prices in the U.S. With the U.S. industrial base heavily dependent upon natural gas (about 28% of U.S. natural gas usage is from industry) and a large percentage of electricity generated from gas, the counter-argument is that the gains to those in the LNG export value chain would come at the expense of U.S. industry and consumers - ultimately leading to lower profits, lower job growth and so on.

In This Corner, the Pros
Not surprisingly, large energy companies like Exxon Mobil (NYSE:XOM) are in favor of natural gas exports, and the National Association of Manufacturers is behind them. Those in favor of exports not only argue against the undue intrusion of the U.S. government into private business, but also claim that exporting LNG could add as much as $47 billion to the U.S. economy by 2020.

To that end, the U.S. Department of Energy is reviewing at least 18 applications to build export terminals, and companies like Chicago Bridge & Iron Company (NYSE:CBI) and Chart Industries (Nasdaq:GTLS) would have much to gain. Not only that, but expanding production of natural gas is likely to create jobs not only in the energy service sector, but also in a host of supporting/ancillary markets like construction and manufacturing. Moreover, a report commissioned by the DOE suggested that the impact to U.S. users may not be as severe as some may suppose - under a variety of scenarios, the increase in natural gas prices could range from 22 cents/MMBtu to $1.11/MMBtu (or 7 to 34%).

SEE: A Natural Gas Primer

And in the Other Corner, the Cons
Not surprisingly, open exportation of LNG is not universally accepted as a good idea. In particular, those industries that benefit from cheap natural gas - chemical companies and utilities in particular - want to see exports restricted and want cheap U.S. natural gas to stay both cheap and in the U.S.

This side, too, has tried to marshal cost arguments in their favor. Not only have the opponents of LNG exports rejected the analysis of the potential benefits to the U.S. economy, they have instead argued that such exports could raise costs by 36% to more than 54%, with consumer electricity costs potentially increasing by 2 to 9%.

The anti-export group has also attempted to position their side as pro-environment. Much as it strains credibility to listen to chemical and coal companies talking about sparing the environment, they may have a point. For the U.S. to produce enough natural gas to not only meet internal demand but also leave enough for meaningful exports, there will have to be a significant increase in drilling and fracking activity, and fracking in particular has mobilized activists and concerned citizens for its potential harm to the environment.

By no means do I want to pick on companies like Dow Chemicals (NYSE:DOW), Alcoa (NYSE:AA), or Nucor (NYSE:NUE) for advancing their own interests. Moreover, their position is not entirely bereft of legitimacy. Relying upon natural resource exports can be very problematic for an economy (leading to so-called Dutch Disease) and these companies have a point when they say that the U.S. may be better served by exporting more advanced finished goods to other countries, goods that could be more competitive on price if U.S. natural gas prices stay low.

SEE: 7 Countries' Surprising Top Exports

The Bottom Line
Unless the U.S. government (or enough state governments) takes action to halt or severely limit fracking and shale gas development, greater exploitation of the America's substantial natural gas reserves seems like an inevitability. The U.S. may presently lack an infrastructure geared to make full use of natural gas, but that is already starting to change. While the question of where U.S. gas goes may be up in the air, it seems nearly certain that there will be more of it going around.

I believe that at the end of the day the question is really about who gets to enjoy the benefits of those natural gas reserves. Not surprisingly, producers like Exxon Mobil and Chesapeake (NYSE:CHK) are in favor of getting the best prices possible for their reserves, and it's difficult to ignore the LNG export opportunity when prices in Japan are five times the U.S. Henry Hub price. Equally unsurprising, major consumers of natural gas like Dow Chemical and electrical utilities want to keep their input costs as low as possible.

Unfortunately, it doesn't seem that either side is playing entirely fair or honest. I think it's difficult to argue that Exxon is any more likely than Dow Chemical or Nucor to take the profits reaped from the natural gas/LNG debate going their way and return them to Americans in the form of more jobs, higher wages, and so on - at least no more than is necessary to achieve their own needs. It may also prove to be the case that the attempts of industry groups to keep natural gas prices low are doomed to fail anyway - today's prices are such that many energy companies have stopped drilling for natural gas, and without higher prices there is little incentive to increase production.

Restricting the export of a natural resource for the benefit of domestic industry also smacks of the same sort of protectionism that U.S. industry groups excoriated the Chinese for in regards to their policies with rare earth metals.

As Winston Churchill once said about Americans, we usually do the right thing once we've exhausted all of the other possibilities. To that end, there may be increased legislation/regulation regarding fracking and perhaps higher regulatory burdens on terminal facilities, but it seems hard to believe that the U.S. won't ultimately look to monetize its natural gas resources and send them to Japan in LNG tankers if that is where the highest returns are to be made.

At the time of writing, Stephen D. Simpson did not own any shares in any company mentioned in this article.

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