Monday, February 25, 2013

Dow's Opinion and Mine

Dow Chemical CEO Andrew Liveris wrote an op/ed piece in today's Wall Street Journal entitled  "Wanted: A Balanced Approach to Shale Gas Exports."  It should have been called simply, "Don't Export Natural Gas."  Here's a link to my handwritten comments, so I'll avoid a long point-counterpoint synopsis of the article.  I tried to de-snark the comments, but that didn't seem to improve my handwriting.

But the bottom line is that the battle between the manufacturing industry and the energy industry comes down to who bears the risk  of the commodity price, buyers (manufacturers) or sellers (producers).  Manufacturers like Dow see a golden opportunity to come home and expand their businesses very profitably and are looking to keep gas prices down.  It's a natural approach for a business, but instead of closing the door to gas exports, maybe they should follow the lead of Nucor in its partnership with Encana and invest in gas on the front end.  Dow took a crack at it years ago with an investment in an LNG import facility, an investment in retrospect that might seem unfortunate.  

Liveris aims for the high road in the article by teaming up with consumers against the evil energy industry and scaring the reader with talk of unlimited exports of "massive quantities of natural gas" as well as foreign governments and businesses setting "the rules."  Definitely a few logical flaws in the piece, but that's par for the course on the opinion page.

The unresolved thread that runs throughout this conversation and the whole debate is the question of free markets versus natural interest.  Each side claims both for their team when in fact the entire argument is based entirely on self-interest.  

I'm not unsympathetic to Dow and other manufacturers.  As with everything, the truth in this debate lies somewhere in the middle.  Ultimately the best case for shale gas (and the national interest) is not so much low prices as it is stable and dependable supply that yields fair commodity prices with low volatility.  But that doesn't work without strong and consistent demand and healthy companies generating supply.  Unlimited gas export is a bad idea, but creating perpetually weak suppliers by artificially capping commodity prices makes the gas producers indentured servants to the customers.

Like I said, the truth lies somewhere in the middle.  

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