Should Government Get Involved in the Natural Gas Boom?
In just a few years the U.S. natural gas industry has seen an epic boom in production. Though prices have plunged, volatility is a fraction of what it has been in the past.
The kicker is that this boom came not from a Manhattan Project-styled government initiative, but from private industry's development of ground-breaking fracking technology to tap previously unreachable gas reserves in shale formations.
But should it stay this way? After all, other countries have invested billions in alternative fuels, from Brazil's government-sponsored ethanol push to France's headlong expansion of nuclear power after the oil shocks of the 1970s. Should the U.S. do the same?
The answer, from a wide range of experts, whether the Heritage Foundation or the Natural Resources Defense Council, surprisingly enough is no.
In short, support for a domestic, industrial pro-gas policy is hard to find, and what there is, is tepid. In fact, industry, energy, and public policy experts say that not only has natural gas thrived without a massive government push, but such support could prove counter-productive.
“I think natural gas is doing really well right now, and prices have dropped a lot because of new supply,” says Dina Kruger, head of Kruger Environmental Strategies and former director of the climate change division at the Environmental Protection Agency. “It’s hard to see the price volatility people had been concerned about in the 1990s and the first part of the 21st century. Natural gas is in a pretty good position, and has been competing effectively in the framework we have.”
Even if there was some political will, Kruger says that in an era of big federal deficits and the near-term prospect of a fiscal cliff, it’s hard to envision a scenario in which the government would work to make an already cheap, abundant, energy supply even more so.
After all, prices have been bouncing at record lows and are now a quarter of what they were at their 2008 peak.
No one knows how much gas there is in the U.S., but experts say the amount recoverable —thanks to hydraulic fracturing or “fracking,” among other technologies — is staggering. Some say 100 years on an existing use basis; other less.
“Shale gas reserves are so large that on the basis of what we know today, we have 50-75 years of gas available at current production levels, and probably higher,” says Charles Ebinger, director of the energy security initiative at the Brookings Institution.
Tax Credits and Subsidies
Ebinger, however, is wary of trying to support the boom through tax credits for gas producers and the like, fearing such maneuvers could lead to unintended consequences.
He does say one area where natural gas drillers benefit from government intervention is in the form of the ability to write the depreciation on capital investments at an accelerated rate.
This puts cash in drillers’ hands sooner, allowing quicker funding for more wells. Such benefits could be important, but he is not sure how important.
"If you abolish those accelerated write-offs they will probably drill less wells," he said. "Whether that would have a dramatic impact on supply or not is not easy to calculate."
Dan Lashof, director of the climate change and clean air program at the Natural Resources Defense Council, is also against a pro-gas push.
“Federal policy should be fuel neutral,” he says. “The policy we need to focus on is to ensure that amidst the rush to produce natural gas, that we minimize the adverse environmental consequences of that rush.”
Nick Loris, energy policy analyst with the Heritage Foundation, also opposes subsidies.
“We should allow the market to work,” he says. “We can create an energy boom, and jobs around the country, if it makes economic sense to develop it.” As for regulation, Loris believes this should be done at the state level, as they best understand their terrain.
Pipeline Push
As the natural gas boom continues, it is almost certain that this will engender at least hundreds of miles of new pipeline, says Ebinger.
