Wednesday, July 25, 2012

Manufacturers Complain To Congress About Natural Gas Prices

Now that manufacturers have discovered inexpensive natural gas, they want to hog it all for themselves by keeping the price low.  This week, several representatives of the manufacturing industry testified before Congress in an effort to slow the adoption of new demand sources for natural gas, including CNG vehicles and LNG export.

While it is wonderful that we are seeing a "manufacturing renaissance" in the U.S., I certainly hope it is not based on $2.50/MMBtu.  That's just plain stupid.  Any business plan for an investment of hundreds of millions of dollars should at least be built on  a commodity price that allows producers to drill new wells for a reasonable profit (one can argue the definition of "reasonable").  That figure certainly is above $4/MMBtu for most production and even higher if we want to see the full production potential of natural gas.  You shouldn't bellyache to Congress if you can't make reasonable investment assumptions.

As I've said before, touting natural gas as a cheap solution is a mistake because users will set their price expectations too low.  It's clean; it's domestic; we have a large supply that should lower price volatility.  Cheap for now, yes, but that won't last forever.

We will have ample natural gas supply for decades if there is a reasonable price for the commodity.  That hasn't been the case for the past three years.  In fact, there hasn't been any "steady state" situation since the shale gas boom began in earnest five years ago.  Gas prices will impact the bottom lines of manufacturing businesses, but urging Congress to squelch the business opportunities for natural gas is not how a free market economy works.  I am sure manufacturers will point out subsidies that enhance the competitiveness of CNG, but if they want to complain about the breaks given to that industry, they need to look hard at breaks they also receive.

No comments: