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James Glassman: Obama Has Been Dealt A Spectacular Energy Hand

James K. Glassman, Forbes

President Obama’s supporters sometimes complain about the bad hand he was dealt when he came to office. The truth is that history, technology, and plain old luck deal all presidents bad hands – and good ones, too. The test of leadership is how well the hands are played. The President is now looking at some of the best cards in the deck – thanks to American imagination, capital, and perseverance. The question now is whether he will squander his good fortune and continue to constrain economic growth in the process by keeping a lid on a once-in-a-century energy revolution.

A few years back, a Texas pioneer named George Mitchell, the son of Greek immigrants, discovered over the course of more than two decades how to combine horizontal drilling and hydraulic fracturing, or fracking, to capture natural gas efficiently from shale formations, which abound in the United States in such unlikely places as Pennsylvania. New technology has also helped extract oil that was inaccessible a short time ago.

The vast majority of this energy bonzana will be consumed at home, but some of it is ripe for export – if the Administration allows it. The Energy Department on Friday [May 17] did give a conditional OK to a U.S. firm to export gas to Japan – the second such approval ever – but 26 other proposals are still awaiting action, and the department said it would make case-by-case reviews “to assess market impacts of each export decision…to ensure American consumers are not harmed by large-scale exports.”

Fear of exports? It would seem Adam Smith settled the export question more than 200 years ago when he showed that everyone gains through trade with low-cost producers. The U.S. government, however, currently has a freeze on natural gas exports to countries without a free-trade agreement, including major markets like Japan, China, India, and much of Europe, and a 37-year-old ban on exporting nearly all crude oil as well. […]

“I’ve got to make a decision, an executive decision broadly about whether or not we export liquefied natural gas at all,” said President Obama on May 4. Judging from the hand he has been dealt, that should be one of the easiest presidential decisions of all time.

Yes, there are foes, including some environmentalists who detest fossil fuels on principle – even a fuel that produces half the CO2 emissions of coal —  and chemical companies that use gas for both feedstock (raw materials for making plastics and other products) and energy to drive their plants and believe that restricting sales abroad would keep prices low at home. (What if the same argument were applied to polyethylene the U.S. exports?) But, for an administration that set doubling total exports as one of its major goals, the natural gas boom would seem a godsend.

Just a decade ago, Fed Chairman Alan Greenspan was warning that a natural gas shortage was wrecking U.S. industry and that LNG import terminals were essential. Now, businesses want to retrofit those terminals for exports, but, so far, the government has approved just two, limited to shipping a total of 3.4 billion cubic feet a day of gas, or less than 5 percent of current U.S. production.

There is no excuse for any more delay in approving all gas export applications – just as there is no excuse for the ban on exporting crude or the long-running drama of approving the Keystone XL pipeline between Canada and Nebraska,now at four years and counting. These steps will not merely boost the U.S. economy but also serve our national security interests by making other nations less dependent on Middle East and Russian petroleum.

Fracking is creating “the biggest change in energy in almost 100 years – a revolution,” says Philip Verleger of the Peterson Institute for InternationalEconomics. Production of shale gas has exploded five-fold in just four years. And that’s just a taste of what could happen if imagination, technology, and capital are unleashed by the man in Washington, who, sitting on a royal flush, can’t seem to play his cards.

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