Natural Gas is Useful but Complex Resource

Shale gas will likely turn out to be a valuable resource for many countries, but on the basis of present evidence, not as valuable as sometimes believed. For instance, China, Poland and France also possess large deposits of this resource, but as far as I know the decision makers in those countries have not informed their foot soldiers that they are on the fringe of a shale gas bonanza that - at the very least - will restore the shine to their macroeconomic expectations.

China, for instance, is considered by a majority of genuine experts to have a much larger amount of shale gas than the U.S., but still - as many readers of this contribution are undoubtedly aware - that country is paying court to every stone-age community supposedly endowed with oil and gas that can be made available by putting a few dollars in the pockets or pocketbooks of the prevailing political elite.

What many readers - and non-readers - do not appreciate is that the Chinese leadership understands perfectly that energy and technology are the key to industrial success, or maybe I should say industrial hegemony. I happen to believe that a majority of engineers and managers in countries like the U.S., Sweden, France and Canada understand this also, but too often their political masters have found it preferable to operate on cloud nine. If this were not the situation, and realism prevailed, then in the U.S. Dr Chu would have been given his walking papers years ago, while the Swedish energy minister would have been transferred to Brussels or New York, where her short-sightedness in energy matters would go unnoticed in the gratuitous display of incompetence that characterizes the more refined levels of international bureaucracies.

A NEW DEBATE

As a teacher of energy economics, I can remember finding it depressing that a few students have a problem understanding the economics of oil and nuclear energy. The simple truth is that with the right kind of teacher, everyone should be able to handle these subjects with a minimum of difficulty, because there is nothing especially complicated about the economics, and the mathematics that is involved is no more perplexing than the algebra taught beginning students in a Swedish secondary school.

Natural gas is different. Knowing something about thermodynamics and fluid-mechanics may be useful when e.g. examining the chapters on oil and nuclear in my textbooks, but absolutely not essential. When studying natural gas though, it helps to have a modest introduction to these topics, and perhaps more important to be endowed with a disposition that will allow you to give them the attention they deserve. In my energy economics books, things like energy equivalencies always appear, but I have found it unnecessary to emphasize details until the chapters on natural gas. Moreover, the economics of natural gas are not as straightforward as the economics of oil.

The energy grapevine recently informed me that there is now a debate in the U.S. that deals with whether that country would be favored by not exporting natural gas to regions where its price is much higher, but instead reserving it for future domestic use. When confronted with this issue I think immediately of my position on the export of electricity by Sweden to its neighbors. The policy that I proposed to interested parties involves taxing these exports so that Swedish households and industries would not have to continue playing the fool for the kind of sub-optimal economic ventures endorsed by obtuse politicians, and lauded by the bird-brained academic advisers that they sometimes employ in energy matters. 

The same applies for U.S. natural gas. The U.S. president is a very intelligent man, but his belief that the U.S. now possesses 100 years of natural gas (given the present rate of consumption) is almost certainly wrong if the natural gas statistics that I have access to are correct. This is a serious matter, because while it might make economic sense to look kindly on large exports of natural gas if gas is as plentiful as President Obama has apparently been informed, it is quite another thing if the sustainable output of domestic U.S. gas - in terms of present consumption and the expected rate of growth of that consumption - is actually between 25 and 30 years, as claimed by several brilliant students of this market. Although I do not know what is behind the enthusiasm for more exports, I would not be surprised to find out that - as was the case with Swedish electricity - the argument for higher exports was especially attractive to corporate millionaires who felt that they have been cheated out of the incomes they deserved by bungling politicians and semi-literate voters.

The correct approach here for U.S. voters and politicians is to use the unexpected addition to U.S. gas supplies to strengthen the country for the economic struggle with China. The Chinese government of course would never place its valuable energy assets at the disposal of foreigners, although this might be judged advantageous by politicians and economists who have sampled the logic in the kind of textbooks that I once was forced to use when teaching first year economics students in Australia and Singapore.

Here I can cite the modus operandi outlined almost forty years ago by a not so typical president of a major U.S. oil company, and sketched in my book 'Scarcity, Energy, and Economic Progress (1977)'. Thornton Bradshaw insisted that ignorance in energy matters was a clear and present danger, and some contingency planning for the distant future was essential. He was particularly concerned with reducing the dependency of the U.S. on foreign oil, and recognized that for this kind of commitment - with the possibility of high risk and low return - governments and firms should cooperate, and if necessary move ahead on the basis of criteria that were not popular in the discussions taking place in the executive suites of private enterprises.

A CONCLUSION

An association called 'America's Energy Advantage' has come to the conclusion that the large scale exporting of natural gas by the U.S. is a mistake, and the increased domestic production of oil and gas that now seems possible should be a major component in what the brilliant energy journalist Ed Crooks calls "a wider renaissance in the country's manufacturing through the availability of cheap energy.

I think that the correct expression here should be 'cheaper energy', because as yet there is little sign of genuinely cheap energy in the U.S. Instead there is an outpouring of lies and misunderstandings of the type that has led to 110 members of the U.S. Congress signing a letter calling for the approval of more export permits for U.S. gas. My reaction to this is the following: What do they know; and more important, how can their so-called experts be so satisfied with knowing so little about an extremely important topic?

REFERENCES

Angelier, Jean-Pierre (1994). Le Gaz Naturel. Paris: Economica
Banks, Ferdinand E. (2013). Energy and Economic Theory. World Scientific: Forthcoming.
(1987) The Political Economy of Natural Gas. London, New York and Sydney Croom Helm.
Crooks, Ed, (2013). 'Gas export opponents ignite US shale debate'. Financial Times (March 26).

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