Increased supplies of natural gas, combined with the slow economic recovery from the Great Recession, have dramatically reduced natural gas prices in the United States. Competition from that cheaper natural gas also has put downward pressure on domestic coal use by electric generators, leading to reduced coal prices and the layoff of workers at many mines including those in Montana and Wyoming.
Oil production in the United States, including that associated with the Bakken oil fields in North Dakota and Montana, has also dramatically increased, boosting U.S. oil production to levels not seen for over two decades and turning around a relentless decline in U.S. oil production that began 40 years ago after peak production in 1970. But oil and gasoline prices have remained stubbornly high. Something seems wrong with the working of supply and demand when that increased domestic oil production doesn’t put downward pressure on the price we have to pay for oil and gasoline too.
But if we step back a bit, these divergent price paths for oil and natural gas make some sense. The natural gas we produce is largely landlocked because it is costly, and, some would say, dangerous, to liquefy that natural gas and load it on huge tankers to ship to Asia or Europe. The price that natural gas could fetch in Japan or Germany would be four times what it sells for in the U.S. But first it has to get there, and the U.S. doesn’t really have the gas liquefaction and port capacity in place to try to take advantage of those very high international price differences.
It is not surprising that American natural gas producers want to break out of their landlocked situation and ship their gas overseas to enjoy the higher prices there. In fact, the oil producers in the Bakken oil fields want the Keystone Pipeline for the same reason: The Bakken oil is being produced far from the markets that can use it. It represents a large local supply of oil that can drive down the price buyers are willing to pay because of the high costs of getting that oil to market. The Keystone Pipeline would allow Bakken oil to be shipped straight to oil refineries on the Gulf coast where it can then flow into international markets and claim a price that fully reflect world oil prices.
That brings us back to why oil and gasoline prices have not come down despite dramatic increases in U.S. oil production. The infrastructure for the shipping of petroleum from isolated locations like Saudi Arabia or the North Slope of Alaska to the rest of the world has been in place for a long time. There is a worldwide oil market off of which we as a nation have lived for a long time. That worldwide oil trade sets the value of oil in the U.S. as well as elsewhere in the world. We have no choice but to pay that world price if we want to import that oil and our oil producers can also use that world price to set the price they demand for domestic production.
We have all grumbled at times about being “over the barrel” (pun intended) when it comes to oil and gasoline prices and having to pay whatever the world demanded of us so that we could continue to feed our oil habit. But now, strangely, our political and business leaders are telling us that we should also commit ourselves to a worldwide market for natural gas. Those “leaders” repeatedly tell us about all of the jobs that will be created by building the infrastructure so that we can move that natural gas to port cities for export. They also remind us of the higher prices our domestic natural gas producers will be able to get if we facilitate that export.
What they do not tell us is that what is good for natural gas producers is not good for the rest of us. We currently have the benefits of natural gas at a relatively low price. That reduces the costs of operating our households. It is also attracting manufacturing activity back to the U.S. because that plentiful natural gas supply at a very low price gives us a competitive advantage.
Natural gas is also a relatively low carbon fuel. As a result, the increased production of natural gas in the U.S. could provide us with a transition fuel as we seek to maintain our economy while reducing our greenhouse gas emissions. Purposely linking the price of natural gas in the U.S. to the higher prices people elsewhere around the world have to pay for natural gas is a strategy to undermine the American economy and sabotage even further any hope of our getting our massive greenhouse gas emissions under control.
There is something strange going on here. The natural gas industry previously argued that expanding natural gas exploration and development to almost every acre of land in the nation where natural gas might be found would help us rebuild our energy independence and boost our energy security. Now they are urging us to ship these resources away and embrace higher natural gas prices in the U.S., leaving us exposed to the same market forces that most of us cursed when oil prices were sky-rocketing.
There appears to be no limit to the economic, social, and environmental damage that some folks seem to think is justified because a tiny minority can make a financial killing off of it. It is time to push back against the cynical use of “jobs” to justify almost anything and everything without regard for what it actually does to our nation.