Tariffs Are A Barrier To American Energy Dominance
Thursday, May 23, 2019
Politicians often support tariffs with the misguided belief that they are protecting the American economy and reducing our trade deficit. In reality, tariffs are a cap on our economic potential, and nowhere is that more apparent than in America’s rise as an energy superpower.
In response to U.S. tariffs, China recently announced it would be raising tariffs on U.S. liquefied natural gas (LNG) to 25 percent. This restricts U.S. access to a major economy that is hungry for natural gas, at precisely a time when the United States is emerging as a major player in the global LNG market.
China is one of the world’s largest importers of natural gas. A trade war does not mean China will stop importing LNG; it means it will import less LNG from the United States. Others in the global market will fill the demand, while the United States may lose an opportunity — perhaps for good — to capture a leading share of one of the key global growth areas for natural gas.
To understand what the United States could be losing because of new trade barriers, it’s useful to review how the U.S. energy industry has been handcuffed by trade barriers before, and the massive economic opportunities those barriers held back.
From 1977 to 2015, federal law effectively prohibited the export of crude oil. Proponents of the ban argued that it was essential to American energy security and that its removal would harm the economy.
In 2015, Congress lifted the crude oil export ban, and suddenly it was apparent how much the ban was holding America back.
With an open market, the energy industry ramped up production to meet global demand. Crude oil production in the U.S. Permian Basin alone increased 183 percent from 2015 to 2018. Over the same period, crude oil exports nearly quadrupled from less than 500,000 barrels per day to nearly 2 million barrels per day.
Additional domestic production means more U.S. jobs, more royalties paid to families, and additional tax revenue to pay for schools and other public services. In Texas, oil production has increased by more than 1 million barrels per day since the oil export ban was lifted. Last year, the oil and gas industry paid roughly $14 billion in state and local taxes and state royalties, which was 27 percent higher than the year before. That comes out to approximately $38 million every day that went to Texas education and first responders.
As for the trade deficit, lifting trade barriers was better medicine than protectionism. In December 2015, when the oil export ban was lifted, our petroleum trade deficit was more than $18 billion. By December 2018, it had fallen to $7.5 billion. For a few moments last year, the United States was actually a net exporter of oil and petroleum products for the first time in 75 years.
Simply put, the crude oil export ban was preventing America from reaching its full energy potential.
It was a similar story with natural gas. In 2012, the Federal Energy Regulatory Commission (FERC) granted approval for the first LNG export terminal in the lower 48 states. Export terminals take years to permit and construct, but in February 2016, the terminal along the Gulf Coast in Louisiana shipped its first volumes of LNG. Since 2016, U.S. LNG exports have increased by approximately 480 percent. In 2018, total U.S. natural gas exports were the highest on record, and the United States was a net exporter of natural gas for the second year in a row.
The two largest export markets for U.S. natural gas are Mexico and Canada, and most of the gas we ship to these countries is via pipeline. Every year since 2015, U.S. pipeline exports of natural gas have hit a new record. This surge in natural gas exports would not have been possible without free trade between these three countries.
Protectionists and other critics of natural gas exports warned that authorizing natural gas exports would harm American manufacturing, particularly petrochemicals, which rely on natural gas as a feedstock. But over the past decade, the U.S. competitive advantage with low-cost natural gas has attracted hundreds of billions of dollars in new manufacturing investment, even as we have become a net natural gas exporter.
Since 2010, 334 new chemical manufacturing projects have been announced in the United States, with a cumulative value of $202 billion. Approximately two-thirds of these projects are foreign-direct investment, meaning instead of the United States sending jobs abroad, countries around the world are creating manufacturing jobs in the United States. These projects are also major exporters that benefit from open markets.
America’s rise as an energy superpower was made possible by removing trade barriers, not enacting new ones. If the United States truly wants to achieve energy dominance, then we must push for increased access to world markets. As history shows, tariffs and other trade barriers only hinder our ability to reach our full potential.
• Steve Everley is a spokesman for Texans for Natural Gas.