The United States is facing a problem it couldn't have envisioned in its wildest dreams a few years ago, as liquefied natural gas (LNG) import terminals were being hurriedly thrown up along the coast to plug the nation's energy deficit. The intensifying debate over whether to export the gas resulting from America's most recent energy boom has turned into a political battlefield. On one side stands the giants of gas-intensive industry lobbying for continued low domestic gas prices, and on the other E&P companies seeking to cash in on the international markets. But beyond the bluster, what is the outlook? And will the economists or politicians reign supreme?

The unconventional boom in the U.S. is turning the country's energy infrastructure upside down. A string of LNG import terminals on America's coast lie unused, the legacy of a bet on notoriously volatile energy prices that didn't quite pay off. $750 million in unused buoys and pipes are sitting idle off the coast of Massachusetts, a predicament repeated along the East and West coasts. Now developers are backtracking and looks how best to do a U-turn and quickly transform the idle import facilities into export terminals.

In the same way, the thinking behind the $5.25 billion expansion of the Panama Canal route, which handles 5 percent of global trade, has been turned on its head. Originally intended to soak up the shipping of cargoes of Asian-made products to the U.S. coast, the expanded route is now seeing increased interest from aspiring U.S. LNG exporters looking to ship their goods to fuel-hungry Asian markets.

This rush to put in place export infrastructure hinges on the regional nature of natural gas pricing. The widening gap between Henry Hub prices and gas prices on the international markets has provoked a flood of applications for permits to export LNG as suppliers look to take advantage of the price differential.

The debate has certainly intensified in recent months, as E&P companies try to line up permits for export to non-FTA countries, while gas-intensive domestic manufacturers (petrochemicals and others) lobby for a degree of protection from the higher domestic prices that would result from allowing unlimited exports. Under the Natural Gas Act, the Department of Energy must approve all LNG export permits and as it stands only Cheniere Energy's Sabine Pass facility, on the Texas-Louisiana border, has the "golden ticket" to export to non-FTA countries so far.

Economists have been battling it out over the potential net macroeconomic benefit, or loss, to the U.S. economy of allowing unlimited exports of LNG. A report commission from NERA consultancy by the Department of Energy (DOE) concluded the U.S. was projected to gain a net economic benefit from allowing LNG exports, with export expansion more than outweighing losses from reduced capital and wage income to U.S. consumers.

But others have cast doubt on such predictions. Doing the math on LNG means factoring in not only the costs of liquefaction, but shipping to distant markets and regasification for transport through domestic pipeline networks. A paper by the Baker Institute argues that the long-term volume of exports from the U.S. would not likely be very large in any case, given expected market developments abroad. The paper reminds that these exports would occur in a global setting, and a lot can happen to the international natural gas market in the time it takes to ramp up export infrastructure in the U.S.

Their calculations suggested the average cost of shipping U.S. natural gas to Japan would be $9.05 per million Btu by 2020, when transportation and liquefaction costs are taken into account. This assumes a base U.S. price of $3.98 per million Btu. In the meantime, they predict spot prices for LNG cargoes into Japan and South Korea could fall to $8.08 for the same volume, meaning the price gap no longer looks so attractive.

But, crucially, the DOE is mandated to assess these permit applications on the basis of the "public interest," which is where this debate becomes more of a political question than an economic one. This is where what appears to be an economic debate in fact becomes part of a broader political battle between protectionists, looking to maintain gas prices low enough to repatriate U.S. manufacturing, and those who believe in the sanctity of free markets, free of a heavy regulatory hand. The battle rages on, bolstered by energetic lobbying on both sides, over how to best ensure this ambiguous "public interest."

Those who believe the forces of supply and demand, rather than the government, should dictate gas prices argue the increase in domestic natural gas prices resulting from LNG exports would provoke increased production at U.S. gas plays, where higher prices would make undeveloped reserves commercially viable. This in turn would pull prices downward again, protecting domestic businesses who use the gas as a feedstock. This group of believers is quick to label President Barack Obama as a dangerous protectionist at any mention of restrictions on trade.

On the flip side, others — especially U.S. gas champion Sen. Ron Wyden, D-Ore. — fear America squandering the unexpected opportunity it has been granted to boost value-added manufacturing by keeping domestic gas prices low. And after all, it would not be the first time protectionist policies had been leveraged in the hydrocarbons industry — in 2010 the U.S. spent between $4 billion and $6 billion on oil-related subsidies, depending on who you listen to.

From an international perspective, the potential demand for U.S. LNG exports too is a question of politics. Key markets for any exported gas include Japan, where demand largely rests on political decisions over the continued relevance of the country's nuclear industry. And global competitors are in play — including established LNG producers such as Qatar and emerging East African gas producers such as Mozambique and Tanzania — many of whom have a significant geographical advantage despite the higher oil-indexed prices demanded.

This debate once again proves that not only pure economics can be applied to a strategic commodity like oil or gas. Where there is oil, politics are never far away. The industry doesn't, and never will, work like the chair or garment-making industry. In the meantime, the permit applications keep flooding in to the DOE.