(Nov. 7, 2005) — The U.S. government estimates that home heating bills could be 48 percent higher this winter — and that actually could have a silver lining for the plastics and chemicals industry. The resulting political clamor might force Washington to finally come to grips with a major shortcoming in U.S. energy policy that causes real economic pain for the plastics industry.
That shortcoming is how we treat natural gas. Besides being key to making plastic, it's become the fuel of choice for most of the new power plants built in the United States, because it's seen as relatively environmentally friendly. Yet government policies have put too many restrictions on drilling for more natural gas and opening up supplies.
The resulting supply-demand imbalance feeds price increases for natural gas, which in turn feed significantly higher resin costs, which make the U.S. industry less competitive around the world.
Since 2000, for example, when natural gas prices started rising from $2.34 per million Btu to more than $14 per million Btu earlier this month, the U.S. chemical sector has lost $50 billion in business and more than 100,000 jobs, according to the American Chemistry Council. (That $14 is a price spike, but the long-term price is still several times historical levels.)
It all matters to plastics because natural gas is the feedstock of choice for much of the North American resin industry, while other parts of the world rely more on oil. U.S. natural gas prices, the highest in the world, have risen much faster than oil prices.
In Washington, where eyes turn for some assistance, there's one piece of legislation worth watching. The House of Representatives has included language in its budget bills that would open up drilling in the Outer Continental Shelf, including in the Gulf of Mexico. There's nothing comparable in the Senate's budget plans, but industry lobbyists hope to resolve that when leaders of the two chambers meet behind closed doors and craft a common budget.
Opening up OCS is controversial. Environmentalists oppose it, and the topic is so charged that Congress essentially ducked it when it rewrote U.S. energy policy in August. But there are signs of new flexibility among political leaders in Florida and other coastal states who have opposed drilling. Combined with higher heating bills, that flexibility could change the political landscape.
Opening the OCS is not a quick fix. Chemical industry analysts say it would take several years to bring out more gas. But, they say, congressional action would calm markets hit hard by speculators. There's no strategic natural gas reserve to act as a damper when prices spike, unlike with the strategic petroleum reserve, which can serve to limit speculators.
Opening the OCS is by no means a sure bet. In fact it may be a bit of a long shot to survive all that parliamentary maneuvering.
Plus, frankly, the record profits of oil companies make it harder in the public mind to argue that we need more drilling, even for natural gas. The legislation easily could be seen as another giveaway to profit-mongering oil giants, and the less-sexy issue of U.S. industrial competitiveness unfortunately gets lost in the noise.
That would be a shame. Right now, the United States treats natural gas like a shop-aholic treats credit cards: We love the benefits; we just don't want to pay the bills. For the industry's long-term economic health, that's not good.