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More fossil fuels is fossil foolish

Posted: March 2, 2012 - 12:10am

Can major new investments in American oil, gas and coal production send our economy soaring?

President Barack Obama seems to think so. He forecasts sunny job growth in the natural gas sector, in particular. Natural gas jobs could number as many as 600,000 by decade’s end, the president proclaimed in his 2012 State of the Union.

That news may come as a surprise to shale drillers in parts of Pennsylvania and West Virginia. Several companies plan to extract less gas in 2012 than in 2011.

Why? Natural gas prices are near 10-year lows and some wells are losing money. Breakthroughs in gas extraction — in particular, hydraulic fracturing or “fracking” — have made gas cheap and abundant. Gas inventories are piling up, and if reserves go unsold, expect prices to fall further.

The natural gas glut has repercussions in other parts of the energy sector. Comparatively expensive solar has lost its luster and cheap gas could knock the wind out of wind — especially if Congress allows tax credits for wind energy to expire. Dirtier parts of the national energy portfolio are suffering, too. Cheap gas is partly to blame for recent layoffs in Appalachian coal mines.

Fat inventories of natural gas and plunging prices hurt energy jobs, but shouldn’t any industry that depends on fossil fuels feel blessed? And what about manufacturers of products made directly from cheap fossil fuels?

Consider, for example, that natural gas contains ethane which can be converted into ethylene — a compound used in thousands of products.

In the natural gas-rich Marcellus Shale Formation — concentrated largely in New York, Pennsylvania, Ohio and West Virginia — big plans are underway to crack ethane into ethylene, promising thousands of temporary construction jobs and hundreds of hires in chemical production. All of this sounds good for the economy, but there are some important caveats.

Cheap energy for the ethylene industry — or any industry — is wonderful, so long as there is sustained consumer demand.

If the chemical industry produces too much ethylene, it risks the same predicament that natural gas drillers have today: prices drop, producers go into a funk, and line workers see pink slips.

What ails the economy isn’t solved by new investments in coal mines, oil fields, and gas wells unless people are consuming.

Post-recession personal consumption has badly lagged the previous two economic recoveries. Stubbornly high unemployment rates are a big part of the problem. So is a deflated housing market and feeble levels of residential investment.

Past economic recoveries were led in large part by housing construction. Not this time. Current stocks and flows of energy are adequate to meet the needs of a slowly awakening housing sector.

Meanwhile, prospective full-bore development of American offshore oil won’t have a major dampening effect on gas prices nor will the modest additions to our crude oil supply from TransCanada’s currently-stalled Keystone XL pipeline project.

Drill all you want, baby. But don’t be a cry baby when gas prices stay high. What works to make natural gas affordable currently doesn’t work the same way for oil. Gas injection and other enhanced oil recovery methods are more complicated and costly to deploy than fracking.

Let’s assume for the sake of argument that a big burst of investment — public, private or both — in fossil fuel production really shifts our economy into high gear in 2012.

Can’t complain, right? Wrong, once the long-term costs are accounted for. A fossil-fuel intensive economic recovery may generate jobs in areas we never really intended: experts at repairing groundwater fouled by fracking, doctors skilled at treating asthmatics, idled fishermen donning hazmat suits, scrubbing oil off the beaches, and so on.

Fossil fuels are the engines of our economy. We are dumb to develop and bring these fuels to market in the absence of robust demand. We are dirty and dumb if we extract and burn these fuels without anticipating the public health and environmental consequences.

• Auer is dean of the Hutton Honors College and professor at the School of Public and Environmental Affairs at Indiana University.

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