We've just passed the 100th anniversary of Lenin's death, so this could be a good time to revive one of his phrases: “Useful idiots.” The place to apply this revived phrase is to the recent announcement that the United States is to pause licenses for new Liquefied Natural Gas (LNG) export plants.
For there is much joy being expressed about how this is a vital part of the fight against climate change and that's not really what it's about at all. But it is a useful smokescreen -- usefully idiotic even -- for what is really happening. Which is a political fight over who gets to make the profits from fracking natural gas.
It's worth going back a decade to a very similar economic and political situation. The US banned crude oil exports many decades back. Then fracking meant that US domestic crude oil production soared. It was legal to export the refined products made from crude oil but not to export that crude itself. The flood of new supply of crude meant that the domestic price of crude in the US was below the global price. But because oil products could be exported they remained at the global price.
So, the situation was that the oil products that Americans actually use -- petrol, diesel and so on -- were at global prices while the price that oil drillers and frackers got was below that global price. Obviously that price difference was going somewhere -- into the profit margins of the refinery owners. This then became a political fight. Those who drill or frack for oil wanted the crude export ban lifted. Those who refined oil wanted to protect their fat profit margins by retaining that export ban.
All sorts of things were said as propaganda for each side, but eventually the refiners lost the battle and the US now exports crude oil again.
Natural gas is slightly different in that we don't have refineries. But we do have a vast industry that converts gas into varied products -- the starting feedstocks for certain plastics, as the initial stage in making fertilizer and so on. It's also more difficult to export natural gas, it needs to be liquefied, turned into LNG, at least if there's no pipeline to pump it along.
So, we've much the same economic set up here. The large companies that use natural gas love the idea that domestic US gas is cheaper -- and significantly so -- because it gives them vast profit margins when they export their production of fertilizers etc. If the new LNG plants are authorized then the gas itself will be exported, the domestic US price will rise. Thus cutting their profit margins and they think that would be a bad idea.
We've thus got a similar political situation. The users of gas don't want the new export terminals licensed. The drillers for gas, and obviously the guys who want to build the terminals, want the licenses to be issued. Which is exactly where we are today and it's the gas users who are winning this time.
Sure, it's possible to make a claim that not exporting gas will have something to do with climate change. It's not a very good argument -- if Germany doesn't get LNG then it will burn more lignite, which is even worse for the climate -- but it's good enough to throw around in politics.
Note one side point here, if arguments that are somewhere between not very good and untrue are good enough to change political policy then political policy is a really bad way to run things.
So, given this economic fight going on we would expect people to be using any political argument they can. To insist that everyone opposing LNG exports is a paid hireling of the US gas users would be to be too cynical. To think that absolutely none of them are, would be not cynical enough. An appropriate observation would be that this ban on new licenses has come at the beginning of an election year. So those affected by it will be willing to spend a lot of money on electoral politics in order to get it changed.
But then this is just one of those things about politics. The correct question is always “Am I being cynical enough?”
Tim Worstall is a senior fellow at the Adam Smith Institute in London.
