The Natural Gas Act: Another Washington Boondoggle

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With gasoline fast approaching $4 a gallon and heading toward $5 this summer, it's no surprise that politicians are panicking.

In Washington D.C., everything is an emergency. Legislation is always the antidote.

So now politicians are pushing the Natural Gas Act as a solution to high gas prices, rather than allowing the market to work.

Of course, none of them want to take the time to understand the true reasons why gas is going to $5 a gallon.

That would require a basic understanding of business or economics, something few in Congress seem to have.

Instead, what you can expect is the typical Washington response-a task force to investigate speculation in the oil futures markets.

U.S. President Barack Obama announced one last week without recognizing the futures markets actually improve liquidity and oil production certainty.

It's how Washington works. The Natural Gas Act is just more of the same.

The Natural Gas Act: The Typical
Washington Response

The Natural Gas Act offers incentives worth between $3.4 billion and $5 billion to companies producing long-haul trucks that convert from the traditional combustion engine to those that operate on natural gas.

It's a big-business, big-government solution to subsidize natural gas projects in transportation and critical infrastructure.

But here's the problem.

The Natural Gas Act is a poorly written, rushed, crony attempt to provide a politically convenient solution to Washington's own four-decade failure to provide a sound, long-term energy policy.

The consequences of this bill are just as potentially crippling as other past failures in government adventurism.

But over the last 15 years, Congress has pushed through a swath of poorly written bills that have essentially sunk our economy, suffocated real private investment, and benefited the connected few on the backs of taxpayers through trillions of dollars in new debt.

Whether it's the Sarbanes-Oxley Act of 2002, or more recently Dodd-Frank and the Affordable Healthcare Act, all policy has consequences-especially vague, poorly written bills that lead to Congress abdicating its power to regulate or deregulate markets.

Unfortunately, bad policy has profoundly worse impacts on the lives of Americans and the markets.

Its proponents argue that it should be put on a fast track and passed for the purposes of amending it later. You may remember this was a central tenet of the healthcare boondoggle.

So it begs the question, why not spend the time to get it right and prevent any long-term consequences that will surely evolve as a response?

Didn't we learn anything from the healthcare bill?

While Congress is attempting to "amend" the Affordable Healthcare Act, we've already spiraled into an out-of-control social liberty debate that was never part of the original package, seen costs explode by more than double the original estimates, and found out more and more about what was in this bill after it was rushed through a floor vote.

More Fuzzy Math

We're seeing even fuzzier math in the rosy projections of this bill.

Those supporting the bill claim it will only cost taxpayers $5 billion. The Wall Street Journal, however, dug a little deeper and found that real cost could be as high as $100 billion.

So before we rush the Natural Gas Act out in reaction to the "crisis of $5 gas" and spend more money we don't have, Congress needs to ask itself a handful of questions.

First, why does it require $3.4 billion of incentives for natural gas transportation initiatives?

It shouldn't. Here's why.

Natural gas is considered a cornerstone to any future energy policy in the United States, but we've been hearing this for the better part of a decade.

If natural gas is going to be a viable source, the free market will embrace it when the cost-benefits are truly realized, or entrepreneurs place their money and risk where their ideology is.

And we've already seen how regulatory adventurism negatively impacts the energy markets.

Over the last two years, subsidies for solar power – a form of energy we've been told since the 1970s is immensely beneficial–have produced few benefits, millions in bonuses to lobbyists and corporate treasury raiders, and left billions of dollars on the taxpayer tab.

We then have to ask whom this bill really benefits?

Of course, Congress will sell the idea that the American people win in the end, without mentioning the crony nature of this bill.

The Natural Gas Act provides billions of dollars to companies backed by George Soros, T. Boone Pickens and a handful of other industrialists and companies that have a knack for privatizing short-term capital gains and socializing the risks.

And let's not forget that Congresswoman Nancy Pelosi is a shareholder in one company poised for a huge boost from the passage of this legislation.

Pelosi owns stock in Clean Energy Fuels Corp. (Nasdaq: CLNE) worth $50,000 to $100,000, according to The Washington Examiner. It seems like it was only yesterday that we were talking about Congressional leaders and their conflict of interest when it came to massive taxpayer-funded bills.

But it appears that such outrage has fallen out of the news cycle.

The Fallacy Behind the Natural Gas Act

Some in Congress are also trying to push for this bill because "natural gas prices are low right now."

Sure, natural gas prices may be extremely low right now, but that's not a reason to force through massive subsidy plans.

Let's face it; natural gas is not going to stay at this price level forever.

To believe so suggests a total lack of understanding of market fundamentals, economics, and overall expectations of this "breakthrough" energy source.

As I've written before, prices are low due to a severe glut in gas due to a lack of pipeline infrastructure, an unseasonably warm winter, and a technological boom that has enabled us to access resources that not long ago were unobtainable.

Over time, natural gas prices will rise as we convert retired coal plants to natural gas power, and begin to export liquefied natural gas to an energy-starved world.

If this infrastructure and plants are going to revolutionize our economy, then the spoils should go to the companies that invest in the infrastructure and are able to charge for its usage.

It should benefit the companies that privatize the risk, not those that socialize it.

Simply put gentlemen: Do it yourselves.

What you have are large-scale corporations looking for a handout, a cheap route to bonus money that leaves the rest of the long-term costs on the backs of an already out-stretched budget.

If the prospects for natural gas are so strong, then it's time for the market to embrace them without economic incentives provided by poorly written legislation that turns the power of regulation over to advocates who lack any accountability to the American people.
In the end all we will get is another tragic lesson.

Groucho Marx could have told you that.

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Join the conversation. Click here to jump to comments…

  1. Robin Wester | March 23, 2012

    The Poliricians are cowards or paid off and just don't what to upset big oil intersts! Jimmy Carter did one thing right, in the face of record profits by the oil companies, he put a "wind-fall profit tax", on them. The oil companies were allowed a certain percent of profit, the rest went to taxes, OR could be reivested in oil exploration and other related fields. It created jobs and lowered the price of gas. then things sablized until Regan. I know, I was there, I work in the industry. People need to remember their past and see through all this B S the oil companies are feeding the media, congress, and the american consumer!!!

    • jim albee | March 23, 2012

      Good grief, that is not how I remember the Carter years. I remember gas shortages and long lines at the pump. Great plan, not!

  2. Barbara R | March 23, 2012

    The problem is just as much the politicians getting in the way picking and choosing favorites with their legislation – as the subsidies. I agree totally with the tenet of your article – let the free markets work. The problem is politicians DON'T. If they aren't passing subsidies for their pets, then they are passing legislation to screw the other party's pets. Dubya supported big oil, big pharma and Wall Street. Obama is bought and paid for by enviromentalists (Keystone), tort lawyers (no tort reform in Obamacare) and unions (constantly bashes Wall Street and big business and lets unions direct policy – see NLRB vs. Boeing). While both parties and politicians are being bought and paid for with lobbying money and campaign donations (can we all acknowledge this is criminal bribery) and Nancy Pelosi enriches herself with CLNE and the Visa IPO, the rest of America gets royally screwed. They used to put people in jail for this stuff. Why have they stopped?

  3. Thomas Jefferson | March 23, 2012

    Liquified Natural Gas (LNG)has huge safety issues, but it is the only way to transport natural gas efficiently in international commerce. When an accident or an incident occurs you will see politicians jumping off the natural gas bandwagon faster than rats leaving a sinking ship. An LNG Tanker exploding in Boston harbor would kill more people than Hiroshima and Nagasaki combined.

  4. David R. (Canada) | March 23, 2012

    The conversion to natural gas was going to happen anyway; probably unstoppable.

    Now the Obama administration can take credit for it!

    This proves they're not just a bunch of thieves, they're lying thieves.

  5. pt49 | March 23, 2012

    Thomas Jefferson… you're an idiot. For starters what would a LNG tanker be doing on Boston Harbour, and LNG tankers have sailed over 100 million miles without a shipboard death or even a major accident. Only 3 incidents at LNG plants have been recorded in over 60 years, with the worst being an explosion and fire at a poorly constructed facility built during World War II. The explosion and fire killed 128 people in 1944… yes, just on 60 years ago.

    I wonder how many people died the last 60 years installing solar systems on houses?

  6. Robert in Canada | March 23, 2012

    Funny thing how left wingers support governments who take money from working people and small business and give it to people like George Soros.

    Actually it's not funny. It's sick.

  7. Jim | March 24, 2012

    If the free markets are working, why aren't we seeing a massive transfer over to natural gas, a cheaper alternative to oil. There are many built in incentives for the use of oil and the gasoline engine. There are continuing tax breaks for big oil. The markets aren't really "free," and the writer knows it. Just like silver and gold, the commodities market for oil is massively manipulated by large banks, traders and speculators. There are many things wrong with the markets and government regulation has only a small impact on them.

  8. bill kandravi | March 25, 2012

    I know who Obama's next Solyndria is right now and they already have your taxpayers money. This is not something to come I can prove 3 major companies 2 on the stock market and one of the biggest private companies are already spending your money and he is not going to tell you about it till the elections need to boost his ace in the whole you use it and support it everyday how does that make you feel spending your money and you can do anything about it and nobody cares because it is right in front of them like the book says keep your friends close but your enimies closer like the spelling enimies.

  9. Ken Frantz | May 14, 2012

    I would love to start a company today that installs CNG compressors at every business in my area with more than say 25 vans. However, even with Natural Gas selling at $.42 per gge, by the time you capitalize your investment for the compressor and convert your fleet, that $.42 with taxes and interest and minimal profit soars to over $3.00 per gge. Businesses are just not going to change from gas to CNG unless their is more savings for them to offset the risk. Gas will need to rise to over $4 before I can start this company. However, if all the Federal Government did was eliminate the CNG road tax of $18/gge for say 3 years, I could move forward today. That would cost the Federal Treasury less than 250 million per year. Yes, this is still picking winners and losers. But, there is a good argument on doing such an incentive now to take advantage of low natural gas prices, and business start-up folks like me that are right on the edge.

  10. doubleducks | January 3, 2013

    For a rebuttal of the WSJ article, see the following article from SA.

    http://seekingalpha.com/article/437781-another-setback-for-natural-gas

    No doubt the United States is in need for a cheap, secure surface fuel. Are we not getting tired of depending on Saudi Arabia, Iraq, and Venezuela by now? Do we need to continue to sacrifice the lives of our soldiers and one billion US dollars a day to the Middle East to secure our national transport fuel? What is so hard to understand about leveling the playing field of infrastructure for refueling with gasoline/diesel and natural gas and then let the market decide?

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