The Case for Natural Gas

A strong case can be made that natural gas is poised to overtake the electrical generation market rendering the Obama Administration’s assault on coal-fired power plants yet another unnecessary government intrusion into American commerce. 

The two major advances in petroleum drilling technology of horizontal drilling and hydraulic fracturing, known in the industry as “fracing,” have allowed the industry to tap shale gas deposits and positioned the United States as the “Saudi Arabia” of natural gas with the largest proven reserves in the world. These shale gas formations include the Bakken Shale in North Dakota, the Haynesville Shale in Northwest Louisiana, the Barnett Shale in Fort Worth, Texas, the Marcellus Shale in Pennsylvania, and the Utica Shale in New York. This map details the locations of these and numerous other smaller shale gas plays being produced across the country.

The Obama Administration has focused its energy policy on promoting alternative energy schemes involving wind and solar power to satisfy its environmental supporters. This misguided policy has resulted in the waste of billions of taxpayer dollars funding the likes of Solyndra, Beacon Power, Evergreen Solar, Inc., and SpectraWatt along with federal research aimed at further development of alternative energy technologies and tax breaks targeting the purchase of green technologies.

Obama has made it no secret that he intends to drive up the cost of energy to make alternative sources viable in the marketplace. Solar and wind power lack the infrastructure of traditional fossil fuel sources in producing and distributing their energy and remain uncompetitive in the market. Massive government subsidies are required to achieve cost parity and the alternative energy business model remains unviable without them. To remedy this situation, the Obama Administration has launched a full-scale assault on traditional energy to drive up its cost. The Administration continues to drag its feet in issuing new drilling permits in the Gulf of Mexico in response to last year’s Deepwater Horizon Spill even after federal judges have ordered the lifting of the moratorium imposed in its wake. The EPA under Lisa Jackson just released new regulations requiring coal-fired power plants to install prohibitively expensive scrubber technologies to achieve marginal incremental gains in air quality. The real impetus behind these rules is the forced closure of coal-fired power plants to eliminate the cost advantage of cheap coal as a power generation source. This map shows the locations of existing coal-fired power plants in the U.S.

With the development of new technologies to tap the vast reserves of natural gas trapped in shale formations across the U.S., natural gas prices have plummeted to new lows and made it one of the most affordable energy sources going. Natural gas is clean-burning with no harmful emissions and has a massive network of distribution pipelines and other infrastructure in place to further enhance its affordability, making it an environmentally friendly and cost-effective choice for electrical generation. The energy sector is already making plans to further exploit natural gas as a cheap source of energy. Natural gas terminals on the coast originally constructed to import natural gas before the explosion in shale gas production have been converted to export shale gas to other countries. America has once again become an exporter of energy.

The abundance of cheap natural gas is also being recognized by utility companies interested in replacing their aging coal-fired power plants with long-term affordable energy sources. This conversion process has been underway for quite some time proceeding at an affordable pace as capital equipment wears out and is scheduled for replacement. Proponents of alternative energy are pressuring Obama to speed up this conversion process through government intrusion such as the EPA’s recently released rules. This government intrusion would force utilities to spend massive amounts to replace coal-fired plants that are currently operating profitably with years of useful life that are scheduled to be replaced according to sustainable capital replacement plans. The result is exorbitantly higher utility bills for consumers in the midst of an economic depression resulting from Obama’s misguided economic policies.

Utility companies are already converting to natural gas due to its abundance and lower cost making government intervention unnecessary. Natural market forces are accomplishing what environmentalists and the Obama Administration seek through government intervention. This government interference is unnecessarily inflating consumer costs that utilities seek to mitigate through careful and deliberate capital replacement planning. The blind devotion and obedience to environmental purity clouds the judgment of the environmental lobby who fail to grasp the economic and business principles involved in the transfer from one energy source to another by the utility industry. What they perceive as intransigence on the part of utilities in moving away from coal as an abundant and cheap supply of energy is actually careful planning to avoid the consumer price hikes necessary for the instant conversion they demand. Government bureaucrats in the Obama Administration have even less understanding of utility industry economics than the environmentalist lobby they seek to placate with burdensome and unnecessary rules and regulations.

Government regulations such as the EPA’s recent ruling are precisely the sort of thing that businesses complaining of uncertainty fostered by unclear government policy are talking about. The EPA has warned of these coming regulations for months and finally pulled the trigger on their release. Utilities have no way to plan for rules they know are coming but on which they have no details, so they plan for the worst and hope for the best. This means conserving their capital and delaying improvement projects until they get a clearer picture of the coming regulations. It also means that utilities ask for rate increases to offset the coming regulations. By interfering with natural market forces and threatening business with the heavy hammer of regulations, government has actually slowed progress on the conversion away from coal as an energy source, thereby harming the utility industry and forcing consumers to pay higher prices. The market was already accomplishing the conversion away from coal in a sustainable manner, albeit more slowly than the green crowd could stand.

When you are shocked by the high cost of your utility bill, remember that these higher prices were brought to you courtesy of the environmental lobby and their stooges in the Obama Administration, not by the utilities themselves who are heavily regulated and whose price structure is controlled by state regulators. These state regulators approve the price increases in response to the additional costs imposed by the federal government through the EPA. You have a right to be angry at higher utility prices, but direct your anger to the proper parties responsible for these higher costs: government regulators and environmentalists.

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One Response to The Case for Natural Gas

  1. vesalia says:

    i’m sorry i read this. what’s worse is i had my students read it, too.

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