Keep the State of the Energy Sector Strong

BY MARGO THORNING

President Obama recently released his fiscal year 2015 budget proposal. In it, he calls for greater investments in natural-gas production. This comes shortly after the surprising news of a favorable administration environmental report on the proposed Keystone XL oil pipeline, a planned $7 billion project that would deliver 800,000 barrels of oil per day from Canadian tar sands to Texas refineries.

On the surface it seems as though the administration may be finally coming to terms with the energy bounty beneath our feet and the economic boon it represents. Now, though, the president must show that his administration will follow through.

That is not a given. After all, during his first term, his administration repeatedly put off action on Keystone XL while simultaneously increasing environmental regulations that discouraged domestic production — policies which hampered economic growth.

With a boom in natural gas production under way in the United States, lower energy prices are attracting manufacturers. That’s good for American workers and the environment. The use of fracking technology, which opened up our country’s rich stores of shale gas, has driven average prices of natural gas down by more than half over the past four years.

Manufacturing is highly sensitive to energy costs. All things being equal, factories will locate where prices are lowest. Cheaper natural gas is what’s behind a multi-billion dollar Royal Dutch Shell chemical plant and a $1.1 billion Allegheny Industries metals facility, both going up in a once depressed section of Western Pennsylvania. It’s also the motivation for a $1.4 billion fertilizer plant being built by an Egyptian company in Iowa. And it’s saving consumers thousands of dollars.

Because domestic natural gas supplies can substitute for more carbon intensive fuels used overseas, like coal in China, we should also be working to make these supplies available for export. China’s main source of power is low-grade and inexpensive coal, which adds far more carbon dioxide to the atmosphere than sources of power like natural gas.

Natural gas has to be liquefied to be shipped abroad, and to make that happen, the government must approve the LNG export permits queued up at DOE, as well as green-light new pipelines, ports, and shipping facilities. Again, this has been an area where so far, the administration has been slow to act.

With his smart words on encouraging domestic energy production, President Obama has found an area with huge potential for bipartisan support. Environmental groups and business leaders should all be able to agree on the advantage of more use of natural gas in manufacturing. The administration now needs to follow up by ensuring that federal regulations promote responsible development and use of our energy resources both at home and abroad.

Margo Thorning is Senior Vice President and Chief Economist for The American Council for Capital Formation (ACCF)