By Paolo von Schirach
May 6, 2013
WASHINGTON – US energy companies, sitting as they are on their vast reserves of domestic natural gas, are looking for new export markets. It all makes perfect sense. Thanks to the shale gas revolution, America has vast supplies of domestic gas. There is so much gas that prices and therefore profits have collapsed. If this is so, then why not sell American gas to Europe or Japan where it would fetch higher prices?
Export our gas?
While this makes sense, this move into foreign markets is a little complicated. Energy trade is considered strategic and it has to be authorized by the Federal Government. Besides, exporting gas requires upfront costly capital investments. Gas needs to be transformed into LNG (Liquefied Natural Gas) before it can be loaded on tankers. But LNG plants are quite expensive. We are talking billions of dollars a piece.
A smart energy policy
That said, let’s step back a moment and consider how the American national interest would be best served through a smart energy policy. America consumes a lot of oil. Luckily for us, now we import less, in part because we use less, (on account of energy saving measures), and in part because we have discovered more oil at home, (Bakken oil fields in North Dakota, for example). Still, we keep importing about 50% of what we consume, and that is a lot.
Get more oil from friends
As we have to import oil, it would make sense to get most of it from friendly neighbors, as opposed to sourcing it from far away countries with unstable politics. Again luckily for us now we have the opportunity to get more of the oil we need from Canada. Down the line we may get some more from Brazil. Clearly, from a national security point of view, as we need to import a primary energy source, it makes sense to get it from neighbors with whom we have ongoing, diversified trade and investment relationships, as opposed to sending our dollars to Africa or to the Middle East.
New use for natural gas as transportation fuel
But what does natural gas have to do with any of this? Plenty. US natural gas is used primarily as fuel for power generation. However, it can also be used as transportation fuel. The technology is old, tried and tested. Therefore it would make sense both from an economic as well as from a national security stand point to use the American excess gas that our power plants cannot utilize to power at least a big chunk of America’s vehicles.
Experts argue that we should start by converting heavy vehicles from diesel engines to engines that use LNG or CNG (Compressed Natural Gas). As trucks consume a lot of fuel, while they are constantly on the road, fleet owners would quickly absorb the cost of buying new trucks and then start saving money on their operations because LNG/CNG cost a lot less than diesel. This is about the economic gains.
Economic and national security rationale
From a national security/energy security stand point, by converting heavy trucks –we have about 9 million of them– to gas we would eventually cut down our oil imports by almost 3 million barrels a day. That’s a lot of oil we would no longer need to import, not to mention billions of dollars that will stay at home instead of being transferred to oil producing states.
The point of all this is that it would make a lot more sense to use our abundant natural gas supplies to power another sector of our economy rather than to sell it to Japan or China. I am certainly not against free trade. Energy producers should be able to sell their product to willing buyers.
Still, if we look at energy as a strategic resources and if we believe that it is in America’s national interest to become less dependent on energy imports, then let’s use at home as much of the energy we have, as long as this makes economic sense.