Here's a fascinating NYT story about hands-on economic policy that doesn't involve the abstractions of macroeconomics. In short, should the U.S. start to quickly export its new wealth of natural gas to the manufacturing giants of Asia, or should the feds restrict natural gas exports to rebuild our manufacturing base by nurturing an American advantage in manufacturing that requires cheap power?

Foreseeing Trouble in Exporting Natural Gas

By CLIFFORD KRAUSS and NELSON D. SCHWARTZ

MIDLAND, Mich. — As Dow Chemical’s chief executive, Andrew N. Liveris has made himself into something of an outcast among his fellow business leaders.
The reason? He is spearheading a public campaign against increased exports of natural gas, which he sees as a threat to a manufacturing renaissance in the United States, not to mention his own company’s bottom line. But many others say such exports would provide far more benefits to the country than drawbacks, all part of a transformation that promises to increase the nation’s weight in the global economy.

The debate has grown personal. In the words of Charif Souki, an energy industry executive promoting a new natural gas export facility, Mr. Liveris is both “self-serving” and a “hypocrite.”

Now it seems that one constituency where Mr. Liveris had gained a sympathetic ear, the federal government, may also have turned against him. Last week, the Energy Department approved another planned project to export natural gas, the second such proposal it has accepted since May.

The battle over natural gas exports reflects just how starkly the nation’s economic landscape is being reshaped by newfound energy supplies — much of the discoveries in the form of oil and gas being freed up by unconventional methods like horizontal drilling combined with hydraulic fracturing.

As environmentalists and industry advocates debate the merits and risks of fracking, as the practice is frequently called, its consequences are increasingly visible. Last week, the government reported a sharply improved trade balance for June, largely because of lower oil imports.

By 2020, new oil and gas production could increase the country’s economic output by 2 to 4 percent beyond what it otherwise would be, add as many as 1.7 million jobs and perhaps reduce the bill for energy imports to zero, according to a report by the McKinsey Global Institute.

... To nurture the nation’s good luck, [Liveris of Dow] says, the government needs to plan an energy policy that carefully balances the interests of the oil and gas companies that want to freely export natural gas with those of industries like Dow Chemical that fear that an export boom could outpace domestic gas supplies and bring higher energy prices.

An Australian by birth and citizenship, Mr. Liveris has emerged as the principal opponent of unfettered natural gas exports.

... After spiking in the last decade, natural gas prices in the United States have hovered between $3 and $4 per million B.T.U.'s this year. That is down from a high of $12 before the recession, and a fraction of what it costs in Asia and Europe.

The last time I bought some propane and propane accessories for my barbecue grill, the price had fallen 30% from last year.

That price differential is one reason exports are so appealing for domestic energy companies, who are willing to spend billions to build export facilities to ship liquefied natural gas in tankers in the hopes of selling it overseas.

On the other hand, cheap domestic supplies mean Dow — one of the biggest private consumers of natural gas in the country — and other chemical companies are now paying much less than their foreign competitors for the raw material they turn into products like plastic, raising profit margins. It could also bring back jobs to the United States as manufacturers that use natural gas for energy benefit, Mr. Liveris says, although that renaissance is just in its infancy.

... In an interview, Ken Cohen, an Exxon Mobil vice president, said that having a major business leader like Mr. Liveris supporting “protectionism” is so incongruous that “it’s almost like man bites dog.”

Isn't it weird how "protectionism," which, prima facie, sounds okay — "protect" is good, right? — has become an invective? But knowing that "protectionism" is a swear word is the symbol that you got at least an A- in Econ 101: You remember that Protectionism Is Bad. (Remembering about supply and demand, however, is wholly optional in status terms: if you want to be taken seriously as a pundit, never point out that "Shortages of Farmworkers" or "Shortages of Programmers" are, in economics terms, gibberish.)

... But there is increasing pressure to move more quickly, because Canada is planning to build a few export terminals on the Pacific Coast, which could compete for Asian markets.

In the United States, roughly 15 proposed gas projects await regulatory approval; if all were approved they could export the equivalent of more than a third of the domestically consumed natural gas. Along with an expected future increase in natural gas consumed by vehicles and industry, such an export boom would undoubtedly push prices up.

... Not surprisingly Mr. Liveris has become a lightning rod among economists and business leaders, particularly those in the oil and gas drilling business, who say he is espousing protectionism merely to promote the interests of his own company.

“He is coming across as a hypocrite and a self-serving person,” said Mr. Souki, chief executive of Cheniere Energy, which won the first permit to export gas, from its Sabine Pass, La., terminal. “He wants free trade for everything he manufactures but no free trade for anybody else.”

Mr. Liveris concedes that the interests of his company coincide with his views. But he says that as the chief executive of Dow Chemical he also represents the interests of energy consumers at large, and he understands better than most what high gas prices can mean for the economy.

He says he remembers the impact of escalating domestic natural gas prices between 2001 and 2005, when the company was forced to cancel plans to build a $4 billion chemical plant in Texas.

“I’m protecting my shareholders,” he said, adding that $5 billion to $6 billion in new Dow Chemical investments were depending on the continuation of low gas prices “and not repeating the ‘01-to-'05 movie.”

“What would make that repeat movie occur?” he asked rhetorically. He pointed to his native Australia, which he said exported 90 percent of its gas. That has caused, he said, “the collapse of the manufacturing sector — and, by the way, the retail sector’s paying through the nose. We’re paying Japanese electricity prices in Australia, yet Australia is gas-rich.”

When natural resource exports drive up the price of your currency too high to make your manufacturing or tourism affordable, that's known as the Dutch Disease, which refers, interestingly enough, to a post-war Netherlands boom in natural gas drilling.

Now, Australia has a lot of natural resources per capita, so Australia's decision to concentrate on serving the Chinese economic dragon can make sense, even at the expense of an unbalanced economy. America still has a fair amount of natural resources per capita, too, although Senators Schumer and Rubio are working hard on solving that problem.

Dow Chemical has assembled a list of more than 120 manufacturing projects, representing investments of $100 billion, that are being planned or are already under construction in the United States at least partly because of lower gas prices.

The beginnings of the manufacturing renaissance Mr. Liveris imagines for petrochemicals, fertilizers, steel, aluminum, pulp paper and cement can be seen at its giant complex of plants in Freeport, Tex., the largest of its kind in the world.

The complex is a wonder of chemical engineering that has 6.5 million miles of pipe, employs more than 8,000 people and consumes enough electricity to power a city of three million people. And it is growing bigger.

The company is investing $4 billion to build a ethylene plant to manufacture a vital building block for adhesives, plastic packaging and sealants; a propylene plant that will produce a chemical used to make mattresses, toys and shampoo; a chlorine plant; and a herbicide plant. More could come — if prices for natural gas, the vital feedstock for all the chemicals, remain low.

Peter Schaeffer told me a few years ago that one area where America retains a comparative advantage is in giant scale manufacturing — off-shore oil rigs, huge turbines, that kind of thing. These vast chemical plants might fall in that area, too.

Mr. Liveris says that he also favors free markets, but that energy, like defense and food, requires special care to protect the national interest. Exporting natural gas is fine, he says, but not at the price of importing it back in the form of goods made with cheap gas elsewhere.

“The paint ingredients need the paint can,” he said. “The paint supply chain needs trucks. The trucks go to warehouses. Warehouses go to retail. I’m not importing finished goods. I’m making them in the United States of America.”

I'm in over my head here, but my vague hunch would be that the U.S. should not rush to export its new natural gas bonanza by shipping it to the Chinese, but should instead use it to capture a larger share of more value-added businesses than just natural resource exports.

One reason is that I'm not in that big of a hurry to use up the newly available domestic energy supplies. The future is long, the supply of fossil fuels is, ultimately, finite, and alternative energy sources are not making edifying progress — witness the shuttering of the San Onofre nuclear power plant on the Pacific next to Camp Pendelton after 50 years.

Nor at present does there seem to be any particular strategic reason to go for the quick bux: it's not like Washington must, say, goose the domestic economy in the near term to show Third World peasants that Capitalism is better than Communism. And, while the economy, is bad at present, it's not horrible. So, we seem to be at a point where we can take steps for the long term national interest, rather than just do whatever is easiest in the short term.

Moreover, slowing the exploitation of frackable resources a few years until domestic industry can make better use of them, rather than just sell it to China as fast as possible, ought to allow technical improvements in domestic fracking to make it less environmentally dubious.