NCPA - National Center for Policy Analysis

Government Policies Disrupted U.S. Natural Gas Markets

January 3, 2001

Demand for natural gas has soared over the past decade. But supplies have been dwindling. As a result, prices of natural gas futures have nearly quadrupled over the past year and consumers are paying as much as 50 percent more.

Experts blame today's imbalances on federal policymakers who tout clean-burning natural gas as a way toward a cleaner environment, but do little to encourage more production.

  • The U.S. now consumes more natural gas than it produces -- relying on Canada to make up most of the shortfall.
  • Natural gas is now used to heat about 53 percent of U.S. homes and generates about 16 percent of the nation's electricity.
  • Soaring prices are contributing to the meltdown of California's electricity markets.
  • Since natural gas is a critical raw material in making products ranging from fertilizers to plastics to synthetic fibers, today's high prices may soon boost costs to consumers for food and manufactured goods.

Government edicts that reshaped the gas-pipeline business discouraged greater drilling and production in the 1990s. Meanwhile, the Environmental Protection Agency cracked down on coal-fired electricity-generating plants, stimulating more demand for natural gas.

These and other ill-considered policies have left some experts warning that the impending natural gas crisis could be more severe than the oil shocks of 1973 and 1979.

Source: Alexei Barrionuevo, John J. Fialka and Rebecca Smith, "How Federal Policies, Industry Shifts Created a Natural Gas Crunch," Wall Street Journal, January 3, 2001.

 

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