The U.S. Government Shouldn't Allow Crises to Force Poor Decisions

Low domestic natural gas prices have helped boost U.S. industrial competitiveness. Drillers, however, want to send more gas overseas to take advantage of higher prices around the world. The government has slowly been granting exceptions to natural gas export restrictions in an attempt to please all sides. Russia's land grab in the Ukraine, however, could change that dribble into a steady flow.

Advantage U.S.A.
According to Southern Company (NYSE: SO  ) CEO Thomas Fanning, "...if we continue on the right kind of national energy policy, we can provide America with unassailable advantage in manufacturing, growing jobs, growing personal incomes." He means limit natural gas exports.

Dow Chemical (NYSE: DOW  ) CEO Andrew Liveris agrees, noting that, "Companies from around the world are rushing to invest in the United States to take advantage of affordable natural gas, helping to grow our economy and create jobs..." Anti-gas export group America's Energy Advantage, backed by Dow, projects that exporting natural gas could drive the domestic price up as much as 50%.

Steel giant Nucor (NYSE: NUE  ) , another America's Energy Advantage supporter, points out the risk. Jennifer Diggins, director of public affairs at the company stated that historically low gas prices have, "...helped us continue to build and expand..." through the economic downturn. Her case in point was the $750 million Nucor spent on a mill in Louisiana. "We would not have ever been able to make an investment like that if the price of natural gas had stayed where it was six or seven years ago."

It's hard to argue with more jobs and higher income when the U.S. economy is still recovering from a deep recession. That's part of the reason why the U.S. government has been trying to appease all sides by slowly granting exemptions to export restrictions instead of declaring open season. In fact, Nucor, Dow, and Southern aren't saying we shouldn't export natural gas, just that we should take a measured approach.

Baby with the bathwater
The thing is, we tend to take big steps in this country, often precipitated by some event. And the natural gas export camp just got their "event" in the form of Russia taking over Crimea. This could be the poker hand that beats the anti-export camp's economy card.

According to the U.S. Energy Information Administration, 16% of the natural gas consumed in Europe flows through the former owner of Crimea, Ukraine. Russia, meanwhile, accounts for around 30% of Europe's total gas supply. As the world debates action against Russia, the country's ability to use gas exports as a lever hasn't gone unnoticed.

That's why U.S. leaders are debating opening up the natural gas spigot. "The last thing (Russian President Vladimir) Putin and his cronies want is competition from the United States of America in the energy race," Senate Energy Committee Chairwoman Mary Landrieu said at a hearing on the topic. That may not be as exciting as Ronald Reagan's cold war rhetoric or George W. Bush's "axis of evil," but it might be enough to get the two dozen or so export terminals awaiting approval into the fast lane.

That would be a boon for natural gas drillers and could help salvage the investment that industry giants ExxonMobil (NYSE: XOM  ) and Shell (NYSE: RDS-B  ) made in U.S. shale assets at the peak of the market. Shell would be particularly happy to see the market open up since low prices and poor drilling results have forced it to take write downs and sell assets. U.S. natural gas is one of several things that's left the company looking like an energy industry also ran. Exxon, meanwhile, would love to see the $30 billion purchase of XTO Energy pay off sooner rather than later.

Unintended consequences
Clearly Russia didn't take over Crimea to speed up U.S. natural gas export terminal approval times. And, at this point, the negative impact that exporting more gas will have on Russia and domestic gas consumers like Nucor, Dow, and Southern is just as unclear as the positive impact it may have on Exxon or Shell. But a lot is happening quickly right now. Keep an eye on this, it could impact you more than you think.

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