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The Case Against Gas Dependence

Greater reliance on gas-fired power implies serious economic, technological, and national security risks.
Fortnightly Magazine - April 2004

innovation, and disseminates new technology throughout the economy. The average manufacturing job creates 4.2 jobs directly and indirectly throughout the economy, whereas the average service and retail job generates about one other job, directly and indirectly.

The manufacturing sector uses 40 percent of the natural gas consumed in the United States, and virtually every manufacturing industry is heavily dependent on natural gas as a fuel, feedstock, and, increasingly, as a source of electricity generation. Price spikes in the cost of natural gas and electricity in the fall of 2000 precipitated the current manufacturing recession. During the past three years, this sector has been severely affected, losing more than 2.5 million jobs. 21 The current manufacturing recovery is slower than the first year of any recovery in 40 years. 22 Manufacturing is suffering from intense global competition and cannot pass though increased energy costs via product price increases.

Reliance on low-cost natural gas has been an often-unrecognized factor in the U.S. manufacturing sector's global competitiveness, and an ample supply of reasonably priced natural gas is critical to its competitiveness. This sector is bearing the brunt of the energy impacts of the natural gas crisis and is suffering from a triple whammy: High natural gas prices are causing industrial electricity prices to increase, the cost of natural gas as a feedstock and fuel is greatly increasing manufacturing costs, and industrial operations are the first to be cut off from natural gas supplies when winter emergencies occur. The natural gas crisis has become a matter of exporting profits and jobs to countries with cheaper natural gas.

Thus, the impact of high natural gas prices is, indeed, to destroy the U.S. industrial sector. However, instead of viewing this as an effect that will serve to moderate future natural gas price increases, this must be viewed as a very serious problem resulting from high natural gas prices. To the extent natural gas demand and prices are being driven by the increasing use of gas for electric power generation, the solution should be to substitute other fuels, such as nuclear and coal in this sector, and not to accept demand destruction in the nation's industrial sector.

The case against natural gas for electricity generation is quite clear. Specifically:

  • The use of gas for electricity generation is forecast to more than double by 2025, and, according to both EIA and industry analysts, this demand increase may not be achievable. Natural gas imports are forecast to increase dramatically over the next two decades and, at a time when we are concerned about the nation's increasing dependence on imported oil, America is becoming increasingly dependent on imported natural gas from the same politically unstable regions that contain most of the world's oil supplies.
  • The increasing use of gas for electric power generation is placing strains on natural gas supplies and the gas transmission and distribution infrastructure, and this will further hinder the provision of adequate gas supplies.
  • This increasing use is causing the price of natural gas to increase and to become more volatile. Increased prices and price volatility are having