Ever get the feeling that America’s greatness is slipping away? Ever feel like it’s impossible to get anything done in this country? That it’s a lot easier to stop things from happening than to make them happen?
You might be right in having that feeling. Because no matter what it is that people want to do to make a buck in this country, there will be somebody trying to put a stop to it.
If you’re looking for an example, we give you Massachusetts Democrat Ed Markey and his pals in the House of Representatives, who are now trying to stop facilities which would produce exports.
Democrats led by Congressman Jared Polis of Colorado and Maurice Hinchey of New York called on the Energy Department to conduct an environmental impact statement before approving more LNG export deals or LNG terminal permits, according to the Hill.
“We are concerned that exporting more LNG would lead to greater hydraulic fracturing, or ‘fracking,’ activity thus threatening the health of local residents and jobs,” the Democrats wrote in a letter to Chu. “For instance, increased natural gas production in communities across the nation could negatively impact farmers, residents and local property values.”
On top of the environmental concerns that more exports would accelerate fracking in the U.S., Democrats have argued that exporting more LNG could raise electricity prices on consumers and manufacturers.
“Exporting natural gas will do one thing: raise prices,” Democratic Congressman Ed Markey of Massachusetts, a major opponent of exporting more LNG to other countries, wrote in the National Journal.
“In fact, that is just what the oil and gas industry wants,” he continued. “But if that happens, natural gas consumers will be exposed to higher prices and greater market volatility — in much the same way that the global oil market routinely rips off consumers at the pump.”
According to Markey, eighteen applications have been received by the Energy Department in order to export 40 percent of the country’s natural gas consumption. Thirteen applications have been approved so far and five are still pending.
Markey’s op-ed in National Journal is a trip into the rabbit hole…
Natural gas prices have decreased by 66 percent since 2008. Coal’s gotten 17 percent more expensive during that time. It is cheaper to produce new electricity from natural gas than from coal. This isn’t a conspiracy, it’s competition.
Low price natural gas is driving an American manufacturing renaissance. The competitiveness of American steel, fertilizer, and petrochemical industries that use huge amounts of natural gas for fuel and feedstock has surged. Many of the 500,000 U.S. manufacturing jobs created since 2010 are a direct result of low natural gas prices. Pricewaterhouse Coopers estimates we’ll create another 1 million jobs by 2025 as a result of abundant, low-cost natural gas.
Exporting natural gas will do one thing: raise prices. In fact, that is just what the oil and gas industry wants. By shipping American made natural gas to Japan and Korea, they can fetch prices 6 times higher than ours. In Europe, prices are 3 times higher.
Ultimately, some natural gas producers may hope to create a global natural gas market that maximizes their profits. But if that happens, natural gas consumers will be exposed to higher prices and greater market volatility — in much the same way that the global oil market routinely rips off consumers at the pump.
Eighteen applications have been submitted to the Department of Energy seeking to export 40 percent of our current natural gas consumption. Exporting less than half that amount could send domestic natural gas prices skyrocketing by more than 50 percent, according to the Department. If all 18 or more are approved, and if electric utility demand and home heating demand continue on their current course, we could again see a huge price spike in natural gas.
This would be painful for American consumers and catastrophic for the fertilizer manufacturers, the chemical and plastics producers, and the steelmakers that rely on low-priced natural gas. It would make it harder to convert our heavy- and medium-duty trucks and buses onto natural gas, which has the potential to reduce our oil imports by 2.4 million barrels per day.
But don’t take it from me, billionaire Texas oilman T. Boone Pickens had this to say about exporting natural gas: “If we do it, we’re truly going to go down as America’s dumbest generation. It’s bad public policy to export natural gas.”
I agree. That is why I believe we need a time out on approving additional LNG export terminals so that we can think through the consequences of expanded LNG exports for our own domestic prices and economic growth. We’ve had 5 votes on the House floor in the past year and half on exporting American energy resources. Republicans have voted in favor of exporting every time.
Because there’s a finite amount of natural gas production available in this country, right? Because the current price of gas doesn’t represent an oversupply, right?
Sure. When the Haynesville shale drops off from 186 working rigs to a couple dozen, this is exactly how you run an industry, right?
Arguably, the Haynesville is the economically marginal field in the U.S. natural gas supply “merit order” and its volume dynamics can be viewed as a barometer of the aggregate gas supply direction. Indeed, if production from a very large economically marginal field (that accounts for close to 9% of total Lower 48 production) is not showing signs of decline, it is difficult to expect volume contraction from more economic fields. In this regard, the EIA report indicates that as of June, the inflection point in the U.S. natural gas fundamentals was yet to be achieved. The report yields no empirical evidence in favor of an imminent price recovery thesis. In June, the market continued to be very well supplied, and therefore the sub-economic price remained necessary to incentivize supply contraction. EIA’s data comes with a two-month lag. However, given the large storage surplus combined with a massive backlog of shut-in production and wells waiting on completion or tie-in, two months would not have been sufficient to turn the situation around. In my opinion, the report supports the view that weak natural gas price environment may persist, most likely through the end of the year.
The Haynesville production data also manifests a striking breakdown in the relationship between production volumes and active rig count that traditionally has been an important leading indicator in natural gas supply models. The Haynesville volumes have remained mostly immune to the dramatic reduction in drilling activity. The field’s rig count peaked two years ago at around 186 rigs and currently stands at 30 horizontal rigs, according to Baker Hughes’ latest (September 7) report. By some estimates, the rig count may in fact be even lower. EXCO Resources (XCO) estimated the number of active rigs at 25 as of August, and at least one scout report put the rig count at 23 as of last week.
Given the steep hyperbolic decline typical of shale wells, one would expect the sharp cut backs in drilling to have already caused the field’s production to roll over. Surprisingly, this has not been the case. The Haynesville volumes did contract by approximately 0.6 Bcf/d during the months of January and February, mostly as a result of massive production shut-ins by Chesapeake Energy (CHK) and EnCana Corporation (ECA), two very significant operators in the field. However, by June half of the lost output appears to have been restored. Additional production volumes are likely to return online during the second half of the year.
Based on my analysis of several operators’ field development economics in the Haynesville, including EnCana, QEP Resources (QEP) and EXCO Resources, it appears that a NYMEX price of $3.0-$3.25 per MMBtu is currently the cost-of-capital breakeven range at the well level within the field’s core. While development economics are improving due to declining service costs in the area and possible proliferation of the longer lateral wells, a higher natural gas price is clearly required to revive drilling activity in the field. In my analysis, development economics become compelling above $4.00 per MMBtu in the field’s best areas.
Markey seems to think that natural gas prices have no effect on production, and that production isn’t elastic.
And that natural gas exports don’t have any effect on the trade deficit and as such the value of the dollar.
Mostly, he thinks he’s going to be taken at face value in saying it’s not economic to export natural gas. He thinks T. Boone Pickens, who blew whatever credibility he had as a leader in energy policy when he enlisted Nancy Pelosi as a stockholder in a rent-seeking wind energy company and then tried to monetize the program through federal subsidies for wind – and then went the extra mile by attempting to get the federal government to subsidize the conversion of vehicles to natural gas with the NAT GAS Act – is going to be persuasive when he says exporting gas is bad policy.
Markey’s pals gave away the store with the letter he signed on to. They don’t care about saving the American consumer money; they want to stop fracking. They think they can strangle the natural gas industry by stifling the development of its uses.
America doesn’t lack for fuels for our power grid. Before gas came along we were in decent shape there, because we have more coal than we know what to do with. Four years ago coal represented 50 percent of our electric power. It’s down to 35 percent now thanks to the Obama administration’s attacks on that industry. Sure, the advancement of cheap natural gas has a lot to do with that, but when the EPA is forcing power companies to shut down coal-fired power plants it tends to be a big kick in the pants to force the issue.
And while Markey is correct that natural gas is cheaper than coal, you’d expect to see electric rates come down overall, right?
Not exactly. USA Today, from December…
Electric bills have skyrocketed in the last five years, a sharp reversal from a quarter-century when Americans enjoyed stable power bills even as they used more electricity.
Households paid a record $1,419 on average for electricity in 2010, the fifth consecutive yearly increase above the inflation rate, a USA TODAY analysis of government data found. The jump has added about $300 a year to what households pay for electricity. That’s the largest sustained increase since a run-up in electricity prices during the 1970s.
Electricity is consuming a greater share of Americans’ after-tax income than at any time since 1996 — about $1.50 of every $100 in income at a time when income growth has stagnated, a USA TODAY analysis of Bureau of Economic Analysis data found.
So while it’s cheaper to get power from natural gas, the cost of disrupting the power grid to adjust for gas to provide an increasing share of the supply has eaten up those savings. At some point the rates might go down, but Markey’s lying when he says he just wants us to save money by trapping natural gas as a cheap fuel for the power grid and use it for nothing else. We’re switching to natural gas instead of coal and the rates are up, not down. So his argument doesn’t hold water there.
But there’s more to it than that. You could export 40 percent of current natural gas production, use those exports to slash the trade deficit and thus strengthen the dollar and find that your production would increase tremendously.
Natural gas is trading at about $2.50 bcf. It needs to be double that to really make it economic to reopen all those wells in the Haynesville Shale. As the excerpt above notes, EnCana and Chesapeake have been shutting in gas wells because the price is so low it’s a bad investment to produce out of them. How much natural gas production is being stifled as a result of the insufficient demand?
Markey might be a dolt, but he’s aware of this fact. It’s not just the Haynesville Shale where production is softer than it would otherwise be.
What he wants is to deflate production. He wants the word to get out that natural gas is a loser of an industry.
If Markey is correct that American natural gas which costs $2.50 bcf here could be sold in Japan at $15 bcf, and he actually opposes American companies being able to make those kinds of profits on the world market, he sure doesn’t have the same idea about what’s good policy and what isn’t the rest of us do, does he?
What’s worst about all this is that Markey and his pals, who don’t have the same concept of basic economics as the rest of us do, do have the ability to stand in the way of those basic economics being applied so as to cut the trade deficit, increase natural gas production, strengthen the dollar, goose corporate profits and grow the economy.
That’s atrocious. And it’s a reason why if you feel like it’s becoming more and more impossible to get anything done in this country thanks to the rampaging idiots on the scene who can stop progress without rational justifications, you might just be right.