Congressman
John E. Peterson

Natural Gas: A Crisis Entirely of Our Own Making

By Congressman John E. Peterson
July 20, 2005

It’s tough to pick up a newspaper these days without being reminded of the profound impact high gasoline prices are having on the U.S. economy – and for good reason. After all, the price of gasoline has gone up almost 90 percent since 1990, and studies have shown that for every cent increase in the aggregate price of gas, the U.S. consumer class is docked an additional $1.4 billion.

But as difficult as a 90 percent increase in gasoline prices is to swallow, we can, in the very least, point to several aggravating factors beyond our control that have contributed to this explosion – the cost of imported crude oil, an obvious one that comes to mind.

When it comes to natural gas, however, we just can’t say the same. The price for natural gas hasn’t just doubled over the past 15 years – it has gone up an outlandish 550 percent. And what’s worse, there are no far-way oil cartels to blame for the mess we’re in; it’s wholly the consequence of our own ill-conceived energy policy – a policy that has for over a generation put under lock and key reliable domestic supplies of natural gas.

To understand how we got to where we are today, it’s important to first understand the basic elements of supply and demand at play in this equation. On the one side, U.S. demand for natural gas has been rising precipitously over the past several years, mostly because new power plants have shifted from coal to clean-burning natural gas in the production of electricity. Because of this shift, the Department of Energy expects natural gas demand to continue rising sharply – by as much as a 50 percent over the next 15-20 years.

With domestic demand for natural gas booming – news that should be hailed by environmentalists and consumers, alike – gas producers have had to scramble to provide the domestic supply necessary to keep our nation’s energy equation in balance. But that supply won’t be around forever, and, in fact, has already started to drop-off dramatically.

Experts have told me that the natural gas basins we’ve traditionally relied upon all across North America are beginning to dry up. Natural gas production in the Gulf of Mexico – the only area along the Outer Continental Shelf (OCS) available for exploration – has declined almost every year since 1994. And while some point to the growing number of gas drills in operation as evidence that production is on the rise, the fact is that as current reserves are being drained – even with more operating drills – we are finding less and less natural gas.

The growing disconnect between the supply and demand of natural gas in this country is not without serious historical consequences. As the chasm between the two continues to widen, the price of domestic natural gas continues to rise correspondingly – just this month crossing the $8.50 per/million Btu Rubicon, up from $2.95 in 2002 – and the cost of doing business in America continues to grow more prohibitive by the day.

But that’s not even the half of it.

Unlike oil, which is priced on the global market, natural gas is a local commodity. When the price of oil crosses the $60/barrel threshold, it’s a problem for the United States – and Europe, and South America, and China, because all of these regions pay roughly the same amount for a barrel of oil.
 
But when the United States pays $8.50 for a local commodity like natural gas, we pay a different price than any other country in the world. And it just so happens that our price is drastically higher, chasing thousands of businesses from the U.S. each year, and putting the ones that stay at a huge disadvantage with their international competitors.

To give you some idea of just how much more we pay for natural gas than our friends around the world, consider that today a polymer plant in Pennsylvania has to shell out over $8.50 per/million Btu. But its competitor in China only pays $4.55; its counterpart in the United Kingdom, only $5.65; $1.60 in Argentina, $0.95 in Russia, and a startling $0.80 in North Africa.

It doesn’t take an economist to recognize that small businesses in this country have been put at a severe disadvantage because of our government’s inability, unwillingness even, to put them on a level playing field with their international competitors. But it does take someone who listens – and I’ve been doing plenty of that lately. I’ve been listening to fertilizer producers, who can no longer afford to use natural gas as a feedstock in the production of ammonia. I’ve been listening to clay and tile producers, who can no longer afford to pay their workers while gas is over $8.00. And I’ve been listening to homeowners, renters, families on fixed incomes, and elderly folks, who can no longer afford to use natural gas to heat their homes in the winter or cool them down in the summer.

Our government continues to encourage Americans to increase their natural gas usage, but it fails to accompany that encouragement with its logical policy consequence: If demand is to be increased, the supply of natural gas must be increased as well – not kept locked up by government decree.

If not from traditional outlets, where are we to find this supply? One suggestion we’ve all heard plenty about is to increase natural gas imports through Liquefied Natural Gas (LNG). My view has always been that LNG is a small piece of the puzzle, but it’s also pretty clear that LNG will do nothing to unfetter our ties to foreign, and often times, unfriendly sources of energy – it will, in fact, only strengthen that dependence.

I believe that if we’re serious about adequately meeting this nation’s growing need for natural gas, this Congress must have an earnest discussion about the possibility of lifting the generation-old OCS moratoria on domestic exploration. All research points to significant deposits of natural gas locked within that shelf – more natural gas, I’m told, than we will ever need. And every bit of research has shown that natural gas can be harvested and transported safely and efficiently.

Of course, the problem with the natural gas debate in Washington is that there is currently no debate. Over the next several months, I’m going to make it my mission to make sure there is.