China Ramps Up Coal Exports, Creating U.S. Natural Gas Opportunity

China is financing the construction of a growing number of coal power plants in foreign nations, building a future market for more Chinese coal exports. The demand for Chinese coal, however, demonstrates an even greater opportunity for U.S. natural gas exports.

China is by far the world’s largest producer of coal, producing five times as much coal as the United States. With Chinese citizens demanding cleaner air to alleviate heavy air pollution, Chinese coal consumption has been declining since 2014. China’s answer to this challenge, as reported by Foreign Affairs magazine, is to prop up its coal industry by financing more foreign coal plants and exporting more coal to operate them. Particularly in the growing Asian energy market, U.S. coal producers have a difficult time outcompeting Chinese coal on its Asian home turf.

Image courtesy of Pixabay.

Image courtesy of Pixabay.

While American coal producers face difficult hurdles supplanting Chinese coal – as well as coal exports from the world’s leading coal exporters, Australia, Indonesia, and Russia – American natural gas producers are well positioned to displace Chinese coal. Many of the nations building Chinese coal plants and importing Chinese coal face growing air pollution of their own. However, there are few affordable alternatives to coal power outside the United States. Russia leads the world in natural gas exports, yet Russian natural gas is significantly more expensive than coal. By contrast, U.S. energy producers can produce and sell natural gas at half the price of Russian natural gas. As a result, natural gas is rapidly displacing coal power in the United States.

American natural gas producers are currently constrained by a lack of export facilities to send clean, low-cost American natural gas to nations that demand it. The Obama administration and left-leaning state and local governments along the U.S. east and west coasts have blocked the construction of natural gas export facilities. That is beginning to change, however, as several new export terminals are being built, primarily in Gulf Coast states. Additional export facilities along the east and west coasts would further facilitate exports to European and Asian nations demanding affordable, clean-burning natural gas.

Some have argued that the lack of American export terminals has kept U.S. natural gas prices low by limiting demand for plentiful domestic natural gas. In reality, as documented by the U.S. Energy Information Administration, it is the efficiency of American production – greatly assisted by recent advances in hydraulic fracturing (fracking) and directional drilling technologies – that have brought domestic natural gas prices so low. Many American energy producers, who produce oil and natural gas simultaneously, consider natural gas almost a nuisance byproduct of oil production. Dramatic growth in U.S. natural gas exports will do little if anything to put price pressure on such plentiful American natural gas resources.

Even if, for the sake of argument, American natural gas exports brought tangential increases in domestic natural gas prices, the economy-wide benefits of natural resource exports would more than compensate for the negative impact of higher domestic natural gas prices. For confirmation, just look at the economic benefits Saudi Arabia and other Middle Eastern nations have accrued by exporting oil rather than keeping it domestic. Sure, oil and gasoline prices in these nations might be somewhat lower without oil exports, but the benefits of moderately lower-priced oil would pale in comparison to the economic benefits these nations have accrued through oil exports.

Opportunity is knocking for American energy exports and the American economy. When opportunity knocks, let it in.

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