Natural Gas Policy Update

Natural gas is back on the DC policy radar screen this week, according to this article from OIl & Gas Journal. In Senate testimony Thursday, the National Petrochemical & Refiners Association advocated removal of restrictions on domestic natural gas exploration. On the other hand, this LA Times editorial advocates conservation and removing barriers to importation of LNG, but not removing barriers to domestic exploration.

Notice the shared nugget in these various positions: government policy at many levels provides barriers to a resilient and robust set of interconnected energy markets.

Note, however, that the natural gas market may be more resilient than the energy Chicken Littles think it is. Increased natural gas storage over the past month has decreased concerns about short-run price spikes in natural gas; however, fluctuations in futures prices do not paint such a rosy picture (according to the Energy Info Source story cited above):

“Although the support of market fundamentals for high gas prices has weakened, ‘street’ support for high gas prices remains strong,” said Tom Woods, senior natural gas consultant at PR&C. “As a result, a price decline in the next few months could be short-lived or more modest than market fundamentals would suggest.”

While concerns about storage fill should lessen in the coming months, this improved outlook is likely to be accompanied by factors that could strengthen perceptions of deteriorating North American gas supply availability, thus putting upward pressures on gas prices. “As a result of this growing tension, we expect gas prices to decline, but that decline is likely to be accompanied by increased volatility.”

So we have seen a pretty robust supply response to the current and anticipated price increase. That’s a good thing. It does not, though, change the fact that we would have less volatility with fewer, and more economically justified, regulatory obstacles to LNG importation, domestic exploration, and fuel use diversification. And that we would consume less energy overall, not just natural gas, if retail electricity markets had an active demand side. Active demand means less wasteful consumption.