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A Gas Crisis, or Not?

The conclusions made by the NPC gas study raise more questions than they answer.
Fortnightly Magazine - September 2004

the general economy? There seems to be an absence of any hard evidence in the NPC study, other than references to a few industries that have been adversely affected by high natural gas prices. No feedback loop exists, nor was systematic analysis conducted in the NPC study with regard to the theoretical and empirical relationship between natural gas prices and economic growth and other macroeconomic indicators. Theoretically, the effect of high and volatile natural gas prices on the economy hinges on whether prices are anticipated or not, the adjustment cost in response to dramatic changes in natural gas prices, and the responses of suppliers and consumers. Rising and volatile natural gas prices reflect the classic supply-side shock that reduces potential national output, jobs, and productivity, but the pertinent question is, How much? .

The need remains to carry out thorough and sound analyses of energy studies that contain policy recommendations. Even when these studies promote a particular point of view or agenda, which they often do, they should not be rebuffed as long as they incorporate sound analyses in arriving at policy recommendations. Too often in the past, however, bad analyses resulting in bad policies have unduly influenced U.S. energy policy. .

Politicians and government bureaucrats too easily have capitulated to special interests by embracing new policies and actions that are not in the public interest. The recent debate over a national energy bill carries on this despicable tradition. Appeasing competing special interests, which seems to be a hallmark of past U.S. energy policies, may run the risk of harming the overall public interest. .

Consumers should be more active in responding to changing natural gas prices, and the United States should seriously consider new sources of natural gas supplies. But how far the country should go in developing those new natural gas supplies and improving energy efficiency is up for discussion. .

At the least, policy-makers owe it to the general public to engage in a vigorous debate over the NPC study and its recommendations, since it has wide-ranging implications for not only the natural gas industry but for other sectors of the economy as well. They cannot, however, presume that the truth lies solely with the proponents of the NPC's conclusions and recommendations. Good policy requires consideration of the overall effect of those policies on the general public. Anything less will be unacceptable. .

Endnotes

  1. Other studies released in 2003 on the future of the U.S. natural gas industry include those of the American Council for an Energy-Efficient Economy, the American Gas Foundation, House Speaker Dennis Hastert's Task Force on Affordable Natural Gas, the National Commission on Energy Policy, and Stanford University's Energy Modeling Forum.
  2. Overreaction means here the development and implementation of policies that do not correspond to reality.


NPC Study Recommendations Sidebar

Utilities go shopping for deals.

The Midwest ISO (MISO), like all regional transmission organizations (RTOs), is a voluntary organization. The Federal Energy Regulatory Commission (FERC) does not require utilities to join an RTO, except sometimes as part of a market-power mitigation settlement. However, in its April