Podcast: Natural Gas Economics and Energy Policy
What Happens When They Don’t Agree?
with Ed Hirs, University of Houston | DJ Resources, Inc.
Can natural gas become a substitute for crude oil dependence in the United States?
We as a nation have been asking this question for decades. Here’s a sad truth: The world’s greatest economy does not have the infrastructure to distribute natural gas to make this goal a reality.
As painful as it may be, we need to look at how the U.S. trails such small economies as Pakistan and Brazil. These countries each have more than a million vehicles fueled by natural gas. The U.S. today has fewer than 200,000. Our national energy policies leave us no way to fuel a national transportation fleet.
Governors and other leaders across the United States are complaining about the high prices of natural gas. Commodity brokers counter that because crude oil prices are up, natural gas has to stay in step.
That’s not entirely accurate. Natural gas and crude oil have not been substitutes, or redundant fuel sources, in the United States for decades. Furthermore, while regions such as the Rocky Mountain States may be flush with natural gas and are even suppressing drilling operations, there is no economical way to get this gas to Eastern states. So we have stranded gas. Starved communities.
Let’s take a look at the current administration’s stated goals for our natural gas policies:
- To improve electricity transmission
- To double supply of renewable energy
- To eliminate carbon emissions
- And to establish an efficient natural gas transmission system, thereby eliminating dependence on foreign crude
Natural gas is vital because it’s considered to be a bridge fuel - the primary energy source to replace coal for electricity generation until the U.S. can develop more renewable fuels and perhaps more nuclear plants. The greater use of renewable energy poses an interesting opportunity for natural gas because of the intermittency of solar energy and wind. One source needs the other.
U.S. policy began to shift in the late '70s when a string of very cold winters in the Northeast led Congress to begin to deregulate the natural gas industry. The deregulation created different levels of pricing to incent new development, new wells, and new supplies.
Here is where intended policy and reality begin to collide.
- The deregulation, while it was well-intended, is far from complete. The pipelines remain constrained by licensing issues and price caps that plug the delivery system. Pipelines must be built to get the product to market.
- The producing markets on the Gulf Coast and in West Texas have no efficient conduit to the consuming market in the Northeast.
- Current rates of return are barely a return on capital. Where is the incentive to open new markets for consumers and producers?
Natural gas today is replacing some coal-fired power to reduce carbon emissions and to help reach the goals of current energy policy. But without a determination to develop methods of transmission, the economies of regulation will be a roadblock to production and self-sufficiency.
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