- The Washington Times - Thursday, November 10, 2005

A conversation with neighbors recently about the high costs for energy, whether oil, gasoline or natural gas, prompted some digging and lots of questions that centered on a simple premise: Why are costs so high? This will be the central question for millions of Americans in the Northeast this winter, as well as those across the Great Lakes and the Western Plains. Sure, volatile energy markets, vagaries of Middle East politics, spot prices for crude, the falling dollar and many other factors play into the energy-cost equation.

But so too do politics and a failure of leadership in Congress to rise above partisan or special-interest whims to deal with the fundamentals of energy policy.

Consider natural-gas supplies: As more states push public utilities to burn cleaner fuels, natural-gas consumption has soared, which, in turn, has jacked up the price due to limited domestic supplies. Utilities generally pass these costs along to customers.

But other consumers of natural gas, including manufacturing and chemical companies, can only pass along so much in the free marketplace where cheaper imports generally are better sellers. One consequence of American firms having to buy American-produced natural gas at $14 p/MMBtu, which translates to about $7 per gallon of gasoline (compared to less than $4 virtually anywhere else in the world) has been a loss of more than 100,000 jobs in the chemical industries in just five years. Another consequence of state-sponsored overdemand vis-a-vis supply of natural gas is that farmers are paying 50 percent more for fertilizers — assuming they can get them. This leads to economic hardships that reduce tax revenues and boost federal and state expenditures. It also results in higher food prices.

When reviewing such data, some members of Congress were recently stupefied at the substantial economic impact of high natural-gas prices.

For example, byproducts from natural gas include siding used in homes and absorbent liners in diapers and shampoo ingredients. They also include lotions, toothpaste, laundry detergents, dishwashing liquids, milk and water jugs, and bottles and containers for products ranging from mustard to ketchup to honey to sour cream. Prescription and over-the-counter drugs also rely on components derived from natural gas such as the coating on pills.

Farmers have known and tried for years to scream about higher fertilizer costs, as have carpet and plywood and insulation manufacturers, to name but a few. Makers of tires, car parts, brake fluids, contact lenses and eyeglasses, not to mention printed-circuit-board dealers, also have become aware of this, as costs keep climbing but profits do not. This has occurred because they have held down prices due to foreign competitors who can make the same goods at far less cost. This has led to plant closures, lost jobs and greater reliance on imports of goods once produced in America.

No matter how it’s sliced or diced in polite company, Hurricanes Katrina and Rita are not the cause of the current and looming energy crunches. To be sure, production and distribution capacities have been stifled as a result of these storms because facilities mostly exist along the Gulf Coast. But a key reason for such geographic concentration lies with failures by Congress to enact real energy policies that promote exploration, renewable energy innovations, and conservation and commonsense production.

Curiously, many members of Congress whose areas will be most hard-hit by higher prices often are the same legislators who oppose loosening up exploration, production and distribution channels necessary to protect America’s national security when it comes to ensuring that critical energy needs are met. And many are calling for windfall-profit taxes and further punishments for “greedy” oil and natural-gas companies “at fault” for high prices.

One doesn’t need to carry water for these industries to appreciate a set of simple facts: Our country needs to expand production and refinery capabilities to help drive down the costs of Mother Nature’s abundant supplies of fuel in America.

This cause and effect of constrained markets, outdated regulatory rules and goofy environmental policies has come home to roost. A graphic illustration to bring attention to such a point involves years of warning by the General Accounting Office and safety experts pleading with Congress to require stronger cockpit doors on planes at a cost of about $1,000 per door. The horrific consequences of failing to do so became clear on September 11.

Indeed, public policy can have immense consequences — good and bad. And elected leaders should consider their actions not only on short measures but also on the broader implications of what lays downstream. Folks in New Orleans went thirsty, for instance, because of a shortage — not a lack of water, but a lack of water jugs and bottles. Guess where these come from: Yes, from pellets derived from natural gas. Go figure.

Stunningly, House leaders on Wednesday dropped a provision in the budget-reconciliation bill that would have helped promote natural-gas exploration. The provision was called the Oceans State Options Act and it would have allowed states on their own to open up natural-gas fields along coastlines. Congressional leaders continue to shoot their constitutients in the foot.

Paul M. Rodriguez, the former managing editor of Insight magazine, is a media and public-policy consultant in Washington. He can be reached at pmrodriguez@mac.com

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