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Focus on Regulation

LNG Exports: A Big Benefit for the US and Global Economy

On Dec. 5, the Department of Energy released a long-awaited study on natural gas exports.  The bottom line was not surprising: exports of natural gas (importantly including LNG) would be a net benefit to the US economy, and the net positive benefit will increase as exports increase.  Basic economic theory supports this conclusion.  So does basic international trade policy, which forms the basis for WTO rules on trade.While certain interests have favored restrictions on LNG exports, they do so for specific reasons, and generally do not assert that export restrictions would make us richer as a country.  If there are concerns about LNG exports, they center on other interests: the competitive position of particular industries, or environmental concerns.  From a policy standpoint, these other concerns should be addressed in a way that does not shrink our national pie more than necessary.

The export report makes it more likely that natural gas production for domestic use and for exports will continue to expand.  Export restrictions, should they be adopted, would not only reduce our national wealth, but could run afoul of global trading rules.  The General Agreement on Tariffs and Trade specifically allows most WTO members to impose export restrictions in the form of duties and taxes—but not through other means, such as quotas or minimum export prices.  On the other hand, the Energy Department’s authority to license exports allows for quantitative and arguably price restrictions, but does not allow export taxes or duties. Were DOE to impose meaningful quantitative limits on LNG exports, however, it would not only hurt the US economically; but it may also violate US international obligations. 

For more information, please contact a member of Hogan Lovells’ Energy or International Trade and Investment groups.