Why The Natural Gas Act Is Just Another Washington Boondoggle? (UNG, CHK, FCG, KWK, DVN)
James Baldwin: 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.
Related: United States Natural Gas Fund (NYSEARCA:UNG), Chesapeake Energy Corporation (NYSE:CHK), Devon Energy Corporation (NYSE:DVN), First Trust ISE Revere Natural Gas ETF (NYSEARCA:FCG), Quicksilver Resources (NYSE:KWK).
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