Natural gas and the Republican Party

 

April 18, 2012 at 3:29 PM

Now the Republican Party is criticizing the Obama administration for "over-regulating" the natural gas drilling industry, and claiming that this over-regulation is responsible for the drop-off in natural gas drilling starts.  Unfortunately, this flies in the face of reality. 

 

Unlike what's happening in petroleum, this really is a problem of supply and demand.  Specifically, way too much supply and lack of demand.  American natural gas developers have become so good at tapping shale gas deposits, and have put so much natural gas on the market, that the price has dropped.  Between shale gas wells, and associated natural gas coming out of oil wells, natural gas supply has outstripped demand by a large margin.  Storage facilities are full.  Prices of natural gas are at historic lows.  The price of natural gas has fallen so low that it is below the cost of production.  Because of these factors, the market that the Republicans claim to love so much has had its effect, and development efforts have dropped off. 

 

The majority of the American domestic natural gas reserve consists of shale gas.  It costs around $3/MBTU to develop a shale gas well.  The price of natural gas on the open market at the moment is around $2/MBTU, and is not expected to rise much above that in the near future.  Natural gas development starts have dropped off for the simple reason that the fossil fuel industry has no incentive to develop a product they would have to sell below cost.  The fossil fuel industry is, after all, in business to make money. 

 

But somehow, in the minds of Republican commentators, this is President Obama's fault.  Well, if this historic overabundance of natural gas, and the historic low price of natural gas, are the Obama administration's fault then perhaps they should own it and shout it from the rooftops. 



Comments
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  Alan Petrillo The Republican Party is now also bloviating about the closure of coal mines, and blaming that on President Obama as well. Which is the same kind of utter bullshit as their bloviating about natural gas. The problem is related to natural gas. So much cheap gas has become available for electricity generation that it has displaced King Coal for much of our capacity. This has depressed the price of coal. It has also produced a severe glut of coal on the domestic market. Storage facilities are full, and the only ones still accepting coal shipments are those with "accept or pay" contracts. Again we have a situation in which the price of a commodity has fallen below the cost of production. Why would coal companies want to continue to mine coal when they would have to sell it below cost? The marketplace has worked its magic, and market loving Republicans apparently don't like it one bit.
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  Robert Luis Rabello Blame IS better to give than receive . . .
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  Alan Petrillo Hell, if I were President Obama then I'd be more than happy to take the blame for natural gas prices being at historic lows. Coal prices too.