Export Licensing Systems Slow Energy Growth

February 28, 2013

The shale gas revolution has the potential to boost exports of liquefied natural gas (LNG) and crude oil and drive economic growth for decades to come. Unfortunately, outdated federal regulations restrict exports, distort domestic energy prices and deter investment. The archaic licensing systems that impose these regulations are holding back the development of America's cast energy resources, says Scott Lincicome, an adjunct scholar with the Cato Institute.

  • Advances in hydraulic fracturing and horizontal drilling have driven domestic gas and oil prices below international market prices, which makes exporting a profitable endeavor.
  • Prices in Japan, the world's largest natural gas consumer, were five times U.S. prices, and European prices were three to four times higher.
  • With America set to become a net natural gas exporter by 2020 and virtually self-sufficient in energy by 2035, fossil fuel export restrictions and pending applications are limiting U.S. energy producers.

Under the current regulatory market, all natural gas exports must be authorized by the Department of Energy (DOE) and must "be consistent with public interest." Exports to free trade agreement (FTA) countries are quickly approved because they are in the public interest, but exports to non-FTA countries have been restricted due to the DOE's decision-making process.

Crude oil exports are regulated by the Bureau of Industry and Security (BIS), under authority granted to it by the Energy Policy and Conservation Act of 1975. The BIS uses its own discretion in determining whether exports meet U.S. national interest.

  • The DOE also exercises complete discretion in examining natural gas export applications and has only approved one of the 17 total applications since 2010.
  • Economically, limiting exports could depress domestic prices, discourage investment, destabilize the domestic energy market, and cost significant jobs and profits.
  • Legally, export restrictions could cause to United States to violate trade agreements.
  • Current policy is at odds with the National Export Initiative and its goal of doubling U.S. exports between 2009 and 2014.

The opaque export licensing systems of U.S. LNG and crude oil are hindrance to American progress. To fix them, President Obama should order the immediate approval of all pending licensing applications and then push for more transparent and consistent export licensing mechanisms for all energy sources.

Source: Scott Lincicome, "License to Drill: The Case for Modernizing America's Crude Oil and Natural Gas Export Licensing Systems," Cato Institute, February 21, 2013.

 

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