Potential And Peril

New Mexico has the opportunity to help its own economy, AND the nation’s trade imbalance; but self-interested industries seeking protectionism now jeopardize our potential.

Several factors have converged to put New Mexico in an excellent position to improve our weak economy, and to help the U.S. balance of trade situation as well.

How is that?

Well, take a look up toward northwest New Mexico, around Farmington. That whole

English: Map of San Juan Basin, Colorado-New M...

English: Map of San Juan Basin, Colorado-New Mexico, USA (Photo credit: Wikipedia)

area is one of the most robust natural gas basins in the nation – the famed San Juan Basin. For many years, the San Juan’s production of natural gas, coupled with the oil pumped from the Permian Basin in the southeast corner of the state, have been the largest single contributor to the state government’s general fund.

That fund is what pays for our state’s schools, colleges, highways, public health services, state police and many other functions we are accustomed to. (Unfortunately, because most of the population – i.e., the recipients of this oil and gas industry largesse – is located along the central New Mexico corridor two hundred miles from either basin, many citizens are unaware of the vital role this industry plays in our economy and financing our public services.)

Now, how does the San Juan Basin stand to help us even more – and the nation as well?

As many people know, the widespread deployment of two innovative drilling techniques has resulted in America now being poised to reach massive new petroleum deposits that previously were inaccessible – even to the point that the U.S. can fairly soon surpass Saudi Arabia as the world’s largest petroleum producer.

These techniques are “horizontal drilling” and “hydraulic fracturing.” For the first time, drillers now have an option other than drilling straight down with one drill stem. Now, they can go drill horizontally, and via many drill stems at once – all from a single rig. Hydraulic fracturing is known as “fracking” and it involves pumping fluids into tight shale formations to release natural gas that otherwise would have been stuck there.

In the short-term, the huge increase in U.S. natural gas production resulting from these two techniques has caused prices to go down. That has really hurt the production companies, including those in the San Juan (and thus the state government general fund as well). Almost no new gas wells have been drilled in recent years in the San Juan due to the greatly depressed prices.

How all this comes together is that now, American natural gas, in liquefied form (known as LNG for liquefied natural gas) can be EXPORTED to eager markets overseas. Given the long-standing balance of trade problems that America has been afflicted with for many years, LNG exports offer the chance to finally lift our country into being a net exporter, and not an importer. This would help not only the natural gas sector but, more broadly, the American economy.

It is a neat idea to think that New Mexico’s own San Juan Basin could be an important player in this positive turn of events.

But the “peril” I alluded to in the headline of this post comes about because some huge American companies are trying to prevent this from happening – for their own self-interest.

Below I am going to quote from a Wall Street Journal editorial that explains more. It seems obvious that Congress should not go along with these protectionist-oriented companies, whose interests are contrary to the beneficial theory of free trade and contrary to the American economy’s overall interests.

It is fortunate that our new U.S. Senator, Democrat Martin Heinrich, already has come in on the side of the San Juan Basin, America, and free trade. As a U.S. House member, Heinrich signed a pro-LNG exports letter along with 16 other House colleagues on September 25, 2012. (Current northern district House member Ben Ray Luján also opposes the export restrictions.) What is not clear is how does Senator Tom Udall of New Mexico stand? Readers of this blog might want to ask him. HERE

Here’s an excerpt from the Wall Street Journal editorial about the protectionist effort:

The self-interested campaign to bar LNG sales abroad.

Everyone loves American exports, or at least claims to, so it’s worth highlighting the big business lobbying underway to limit the export of U.S. natural gas. Couched in the usual language about “energy security,” and domestic jobs, the effort is as pure a special-interest play as you’ll find.

The lobbying goes under the flag of America’s Energy Advantage, which is led by Dow Chemical, with an assist from the likes of steel and aluminum producers. Now that America’s shale-gas boom has reduced the domestic price of natural gas … which manufacturers use as a feedstock and to power their plants—these companies want the Obama Administration to limit or block exports of liquefied natural gas.

Specifically, they want the White House to limit the number of LNG export terminals. The U.S. currently exports no LNG, although 16 proposed facilities are seeking Department of Energy approval. A December report commissioned by the Energy Department found that exports would provide net economic benefits in more jobs, tax revenue and investment.

The group is hitting Capitol Hill hard, and one result was Senate Energy and Natural Resources Chairman Ron Wyden’s (D., Oregon) Tuesday hearing to vilify gas exports. Dow CEO Andrew Liveris also carries insider clout as a member of President Obama’s Export Council, of all paradoxical memberships. 

Dow’s role is especially notable given its relatively recent rededication to production in America. When U.S. gas prices began to climb in 2000 (hitting nearly $11 per thousand cubic feet in 2008), Dow spent a decade relocating its manufacturing to the Middle East and Asia. That made perfect business sense at the time.

Amid the hydrofracking boom that has cut U.S. natural gas prices to $3.35, however, Dow has since decided to commit as much as $4 billion to U.S. production. With so much capital at risk, Mr. Liveris wants to limit exports to guarantee what is in effect a price ceiling on his feedstock.

Or at least sometimes. Dow’s lobbying secret is that it supports LNG exports when it suits its bottom line. Dow has a 15% equity stake in the proposed Freeport LNG terminal in Texas, which has already signed export contracts with Japanese utilities and British Petroleum.The Freeport project is at the front of the Energy Department approval queue. And because it began as an import facility—and thus is mostly built—it will be able to export more quickly than other competitors. Sound like a “quick buck”?

Dow Vice President George Blitz tells us the company is “pro-free-trade” and is simply looking for the “sweet spot” in the export market. He means sweet for Dow but sour for everyone else. Dow recently withdrew in a huff from the National Association of Manufacturers because NAM to its credit continues to support gas exports. The American Chemistry Council is also sticking to its free-trade principles on exports.

The last thing American business needs is politicians deciding when and where companies can sell their goods. U.S. gas supplies are vast, and production was increasing so rapidly a year ago that prices fell to $2 due in large part to an unusually warm winter. If demand for U.S. LNG takes off, natural gas prices will rise, which will lead to more production.

Dow and friends would do more good for themselves and U.S. job creation by lobbying Mr. Obama to stop his EPA from trying to regulate shale-gas drilling to death. Their plea for government limits on exports is short-sighted—and embarrassing.

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2 thoughts on “Potential And Peril

  1. Great article hope the locale legislators and general public read this in the local papers (old town criers)

    Sent from my iPhone

    • We (US) as individuals stand the best chance of sending the word to our friends, elected officials and government rule making entities.

      Thanks for posting.

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