Natural Gas Boom – Too Much of a Good Thing?

By Cynthia A. Arcate 28 January, 2012

So just when we were finally getting comfortable with the joys of lower natural gas prices, a recent Energy Information Administration (EIA) report bursts our bubble.

Recent reports have touted the fact that the U.S. is rapidly becoming an exporter of both gas and oil. The glut of natural gas has caused proposed liquefied natural gas terminals to be converted from intake capability to export capability – essentially liquefying instead of solidifying the gas. All of this not only because of the glut in the U.S. from shale extraction, but because the price of gas elsewhere in the world, particularly Asia and Australia, is three or four times the price here.

Other reports have questioned whether producers would continue extracting natural gas at these currently low domestic prices given that they aren’t making any money. It’s clear that producers continue because of the export potential, and the ability to export is feeding the production machine in the U.S., to the benefit of domestic consumers.

But, last week, the EIA issued a report suggesting that exportation would increase prices to American consumers by tightening up supply. The most pessimistic scenario had prices increasing 54 percent by 2018. So the question is, what, if anything, can or should be done about it?

At a clean technology conference this week in Boston, keynote speaker U.S. Rep. Edward J. Markey declared that he would introduce legislation barring the export of domestically produced natural gas, thus, theoretically preserving its benefits for domestic use. But, will it have that effect? It’s an interesting take from a thoughtful energy leader but probably not the solution to this issue. Producers could simply curtail production.

Congressman Markey and others ought to look back to decades of attempts to regulate fuel commodity. Such action is reminiscent of the Fuel Use Act of 1978. That law prohibited the use of natural gas for electricity generation. In those days, there wasn’t enough gas for heating homes because there was little or no gas exploration. Natural gas was simply a byproduct of oil extraction.

But rather than burn if off, as was done in the old days, developers figured out it could be sold for home use at a profit. But the other effect of the Fuel Use Act was to drive the electric industry to coal and nuclear, since the industry was still feeling the effects of two Arab oil embargoes.

We should be cautious in trying to manage any fuel market. It’s a delicate balance and we must be sure of the effects – intended and unintended – before being too quick to pass laws that could backfire. The U.S.’s natural gas industry is booming—do we really want to tamper with its success?

It seems obvious to say, but it gets forgotten, we’re in a global energy market, and we isolate ourselves at our peril.

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