Fracking’s Only Drawback: Rampant Rent-Seeking

by William Yeatman on May 26, 2011

in Blog, Features

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As readers of this blog are no doubt aware, I’m a big fan of ‘fracking,’ a.k.a. hydraulic fracturing, the American-made technological miracle in natural gas production that has roughly doubled known North American gas reserves in only the last five years. In previous posts, I’ve defended fracking from nonsensical attacks launched by ill-informed environmentalists. Quite contrary to what the alarmists would have you believe, we’re lucky for the fracking revolution. Not only has it dramatically increased our domestic supply of natural gas, but now it’s being used to extract oil, too, and it could prove just as revolutionary for that industry.

Fracking does, however, have one major drawback: it has caused rampant rent-seeking. While gas supply has exploded, American consumption increased only 9 percent from 2005 to 2010. The sagging economy has further increased this disparity between gas supply and demand. For consumers, this is great, as it should usher in a period of relatively stable, low prices in the historically volatile gas market. For gas producers, it could be great. The low prices should make their product more attractive relative to other forms of energy. In turn, this could lead to whole new sectors of demand.The problem is that a couple major players in the gas industry refuse to wait for market forces to work their magic.  Instead, these impatient industry titans are trying to convince politicians to enact policies that force Americans to use natural gas.

Consider, for example, Chesapeake Energy CEO Aubrey McClendon, who is leading a nationwide charge to force Americans to use more gas for electricity. As I’ve explained, McClendon has been traveling around the country trying to convince eco-friendly governors to switch from “dirty” coal to “clean” gas. So far, he’s scored one major success. In Colorado, Governor Bill Ritter pushed through a law requiring fuel switching from coal to gas for almost 1,000 megawatts of electricity. If McClendon gets his druthers, other states will follow suit. As I understand it, McClendon’s next targets are Texas and Arkansas.

Then there’s natural gas mogul T. Boone Pickens. He’s trying to get the Congress to enact H.R. 1380, a.k.a. the “Pickens Your Pocket Boondoggle Bill” or the “T. Boone Pickens Earmark Plan,” which would have taxpayers finance the use of natural gas as a transportation fuel, in particular for the trucking industry.

At the very least, these policies are special interest rip-offs. But they could be much, much worse, due to unintended consequences typically wrought by such massive market manipulations.

It’s a welcome development that fracking has increased gas supply; it’s an equally unwelcome development that it has also increased rent-seeking.

 

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