Blog Post

McKibben, Liquid Natural Gas, and the Economy

Jan 31, 2014 | Alan J. Krupnick

Bill McKibben makes an impassioned argument in Politico about the dangers to the economy and the environment of building a facility for liquid natural gas (LNG) exports at Cove Point, MD. His case, however, rests heavily on the inaccurate assumption that the benefits of the exports will be limited only to the natural gas industry while the rest of us will foot the bill, both financially and in terms of environmental damage. In fact, the economic costs of the facility are zero to the American public, as they are covered by buyers of gas abroad through long-term contracts. Indeed, large tax revenues (larger than the Ravens Stadium he references) would be generated. Any incremental environmental costs will be small as well, since the footprint of this existing facility, built to import rather than export gas, is not to be expanded. Furthermore, the idea that natural gas prices will rise significantly if exports of LNG are permitted doesn’t hold water. Respectable studies of the effect of adding exports to US demand show that price increases would be minimal, because of both highly elastic gas supply and limitations on how much LNG the US can export in light of world supply and demand. And remember, it is the shale gas revolution that cut prices dramatically in the first place. So our cheaper home heating and electricity bills are owed to that. Indeed, McKibben’s stated agenda in the article of keeping the gas in the ground is what would dramatically raise domestic prices.

There are other benefits from converting Cove Point (and other plants) to LNG export. At the moment, these plants are close to useless because they were built on the premise of a growing US dependency on foreign natural gas. Aside from additional tax revenues from LNG exports and greater production, cheaper gas abroad reduces prices worldwide, including on energy-intensive goods we import. While domestic prices may rise a bit, increased prices for natural gas stimulate more drilling, which actually increases the supply of natural gas liquids (which are sometimes found along with the natural gas), and it is these liquids that companies use as feedstock to make chemicals and other products. So more drilling lowers the price of feedstock, which benefits feedstock-dependent domestic manufacturers. In addition, to the extent our exports make gas prices in Europe and Asia lower, that may enable more fuel substitution away from coal, lowering greenhouse gas emissions.

McKibben’s best argument for limiting exports, indeed, for keeping the gas and oil in the ground in the first place, is the effects on climate change. Here, let me focus only on his claim that the lifecycle emissions of natural gas (including most importantly, fugitive methane emissions) make it equivalent from a global warming perspective to the coal it is replacing. The fact is that nobody knows yet how this comparison will turn out. But, unlike coal, which would need complex and expensive technology to get greenhouse gas emissions down, stopping leaks is mainly what is required for natural gas. Between future regulatory actions and the companies’ own best practices, it is safe to say that fugitive methane leaks will be headed down, maybe even to where the environmental community will see gas as a bridge to a low carbon future.

Greenhouse gas emissions need to come down. But fighting exports of gas and oil is way down the list of actions that will be effective and economically sensible.