Today’s Wall Street Journal carries a front-page story by Ann Davis and Russell Gold on the surge in natural gas prices. The subtitle reads, in part: “Further gains likely despite 93% spike.”
Davis and Gold begin with this cheery prognostication:
Americans feeling the pain of record gasoline prices now face the likelihood of another fuel shock, from natural gas. Prices in the U.S. have risen 93% since late August as power-hungry nations like South Korea and Japan compete in a global natural-gas market that scarcely existed a half-decade ago. Still, U.S. prices are as low as half the level of some overseas markets, suggesting they have much further to rise.
High natural gas prices are a big deal. “Natural gas heats half of U.S. homes, generates 20% of the country’s electricity and is used to make everything from fertilizer to plastic bags,” note Davis and Gold.
They believe even higher prices are likely. Thanks to the development of methods for super cooling and transporting the fuel across the ocean in liquefied form, natural gas is now a global commodity. Other things being equal, this helps moderate U.S. gas prices, by increasing the supply available for domestic consumption. But it also means that U.S. prices now reflect not only U.S. demand but also fast-growing demand in India and China. In addition, competition for liquefied natural gas imports in the global marketplace means that high prices in Japan, for instance, exert upward pressure on prices in the United States.
Now, contemplate this fact: “Overall, gas demand from the U.S. power sector grew by 10% last year, according to the Energy Information Administration,” even though Congress has not enacted a Kyoto-style cap-and-trade bill. Cap-and-trade would penalize electricity generation from coal, further ramping up demand for natural gas. A “moratorium” on the construction of new coal-fired power plants, as advocated by Al Gore and just about every environmental group on the planet, would inflate gas prices even more dramatically.
If natural gas prices skyrocket because Congress enacts cap-and-trade or bans new coal plants, stagflation could have a very big future. Are any of the three main presidential contenders even aware of this risk?