To un­der­stand nat­u­ral gas mar­ket, fol­low the money

The Covington News - - OPINION -

Why is it that nat­u­ral gas sells in the United States for $3.94 per 1,000 cu­bic feet and in Europe and Ja­pan for $11.60 and $17, re­spec­tively?

Part of the an­swer is our huge sup­ply. With high­tech meth­ods of ex­trac­tion and with the dis­cov­ery of vast gas-rich shale de­posits, es­ti­mated re­serves are about 2.4 quadrillion cu­bic feet. That trans­lates into more than a 100-year sup­ply of nat­u­ral gas at cur­rent us­age rates. What par­tially ex­plains the high Euro­pean and Ja­panese prices is the fact that global nat­u­ral gas mar­kets are not in­te­grated. Wash­ing­ton has strin­gent ex­port re­stric­tions on nat­u­ral gas.

Nat­u­rally, the next ques­tion is: Why are there nat­u­ral gas ex­port re­stric­tions? Just fol­low the money.

Ac­cord­ing to OpenSe­crets.org, The Dow Chem­i­cal Co. “posted record lob­by­ing ex­pen­di­tures last year, spend­ing nearly $12 mil­lion, and is on pace to eclipse that num­ber this year.” The com­pany has spent hun­dreds of thou­sands of dollars con­tribut­ing to the po­lit­i­cal cam­paigns of con­gress­men who sup­port ex­port re­stric­tions.

Nat­u­ral gas is a raw ma­te­rial for Dow. It ben­e­fits fi­nan­cially from cheap gas prices, which it fears would rise if Congress were to lift ex­port re­stric­tions. Dow ar­gues, “Con­tin­u­ing opti- mism for U.S. man­u­fac­tur­ing is founded on the prospect of an ad­e­quate, re­li­able and rea­son­ably priced sup­ply of nat­u­ral gas.”

Of course, Dow and other big users of nat­u­ral gas get sup­port from en­vi­ron­men­tal­ists, who are anti-drilling and an­tic­i­pate that ex­port re­stric­tions will serve their ends.

Big nat­u­ral gas users and en­vi­ron­men­tal­ists have for­eign al­lies, sug­gested by the state­ment of Saudi Prince Al­waleed bin Talal, who told Saudi Ara­bia’s oil min­is­ter, Ali al-Naimi, that ris­ing Amer­i­can shale gas pro­duc­tion is “an in­evitable threat.”

Nige­ria’s oil min­is­ter, Diezani Ali­son-Madueke, agrees, say­ing that U.S. shale oil is a “grave con­cern.”

In light of th­ese for­eign “con­cerns” about U.S. en­ergy pro­duc­tion, one won­ders whether for­eign coun­tries have given fi­nan­cial aid to U.S. politi­cians, en­vi­ron­men­tal­ists and other groups that are wag­ing war against do­mes­tic oil and nat­u­ral gas drilling. It would surely be in their in­ter­ests to do ev­ery­thing in their power to keep the West de­pen­dent on OPEC na­tions for oil and gas.

Nat­u­ral gas pro­duc­ers would like to ex­port some of their prod­uct to Europe and Ja­pan to take ad­van­tage of higher prices. One ef­fect of those ex­ports would be to raise nat­u­ral gas prices in the U.S. and lower them in the re­cip­i­ent coun­tries.

In­dus­trial gi­ants such as Dow, Al­coa, Ce­lanese and Nu­cor are mem­bers of Amer­ica’s En­ergy Ad­van­tage, a lob­by­ing group that says it is un­pa­tri­otic to al­low un­lim­ited nat­u­ral gas ex­ports.

It ar­gues that ex­port re­stric­tions keep nat­u­ral gas prices low and give U.S. man­u­fac­tur­ing com­pa­nies a raw ma­te­rial ad­van­tage, which al­lows them to pro­duce goods at lower prices.

I’d like to ask Dow, Al­coa and other com­pa­nies that lobby against nat­u­ral gas ex­ports whether their ar­gu­ment ap­plies to them. Af­ter all, they ship a lot of their do­mes­tic prod­uct over­seas. For ex­am­ple, Al­coa ex­ports tons of alu­minum.

Ex­port re­stric­tions on alu­minum would lower do­mes­tic alu­minum prices, thereby ben­e­fit­ing the air­craft in­dus­try, as well as mak­ing other alu­minum-us­ing man­u­fac­tur­ers more com­pet­i­tive. Un­for­tu­nately, I doubt Al­coa would see it that way.

In gen­eral, it is poor eco­nomic pol­icy to en­cour­age do­mes­tic Amer­i­can in­dus­try through costly and in­ef­fi­cient meth­ods such as ex­port re­stric­tions.

But there’s an­other ef­fect of the nat­u­ral gas ex­port re­stric­tions. The huge sup­ply and re­sult­ing low prices have be­gun to act as a de­ter­rent to fu­ture en­ergy ex­plo­ration and pro­duc­tion.

Ac­cord­ing to a Wall Street Jour­nal ar­ti­cle by Dr. Thomas Tun­stall, re­search di­rec­tor for the In­sti­tute for Eco­nomic De­vel­op­ment at the Univer­sity of Texas at San An­to­nio, ti­tled “Ex­port­ing Nat­u­ral Gas Will Sta­bi­lize U.S. Prices” (May 29, 2013), nat­u­ral gas pro­duc­tion at three ma­jor shale oil fields in Texas has flat­tened out at 2012 out­put lev­els.

Tun­stall con­cludes, “Over the long haul, mar­ket dy­nam­ics — which in­clude the abil­ity to ex­port with­out un­due un­cer­tainty or re­stric­tion — will best man­age global sup­ply and de­mand curves for nat­u­ral gas.”

I agree.

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