Monday, September 9, 2013

Fracking and the Poor: The natural gas boom may be America's best anti-poverty program

The natural gas boom may be America's best antipoverty program.

WSJ.COM 9/6/13: By now even the Obama Administration has recognized that the natural gas drilling boom has led to more high-wage jobs, more secure energy supplies and lower manufacturing costs. But one of the biggest benefits from fracking and other new drilling technologies is often overlooked: the windfall to American consumers, especially the poor.

A new study by the Colorado-based energy broker Mercator Energy quantifies the multibillion-dollar annual savings to American households through lower utility bills from the fall in natural gas prices.

From 2003-08, shortly before the fracking revolution took hold, the price of natural gas averaged about $7.20 per million BTUs. By 2012 after new drilling operations exploded across the U.S.—from West Texas to Pennsylvania to North Dakota—the increase in natural gas production had slashed the price to $2.80 per million BTUs.

EPA

Opponents of fracking join a rally outside the White House in August.

Mercator examined Department of Energy data on natural gas usage to find out how this 61% price decline translated into lower home-heating and electricity bills. According to the federal Energy Information Administration, American households use about 7.4 billion MMBTUs for home heating and residential electricity each year.

Thanks to the lower price for natural gas, families saved roughly $32.5 billion in 2012. (That's 7.4 billion MMBTUs of residential use of natural gas times the $4.40 reduction in price.) The windfall to all U.S. natural gas consumers—industrial and residential—was closer to $110 billion. This is greater than the annual income of all of the residents in 14 states in 2011.

Mercator's most notable finding is that the income group helped the most by this bonanza is the poor because energy is a big component of their family budgets. Data from the annual report of the federal Low Income Home Energy Assistance Program (Liheap) show that poor households spend four times more of their income on home energy (10.4%) than do non-poor households (2.6%). That same report says that roughly 40 million households, or 36% of U.S. households, are eligible for Liheap. Though the poor on average spend less overall on heating and electricity, lower natural gas prices have still shaved about $10 billion a year from the utility bills of poor families.

To put it another way, fracking is a much more effective antipoverty program than is Liheap. In 2012, Liheap provided roughly $3.5 billion to about nine million low-income households to subsidize their home-heating costs. New drilling technologies saved poor households almost three times more. Low gas prices benefit nearly all poor households, while Liheap helps fewer than one in four.

These energy savings are especially impressive compared to what residents of other industrialized nations are paying. The natural gas price this summer increased to about $3.70 per million BTUs, but that compares to the roughly $10 that consumers pay in Spain or $13 in China. According to the Mercator analysis, if natural gas prices were that high in the U.S., average home heating bills for millions of Americans would be almost 75% higher.

You'd think that good liberal egalitarians would welcome these financial savings to poor households. Yet most green groups, in particular the Sierra Club, continue to oppose fracking and are using lawsuits and political lobbying to stop it. Rich Hollywood types like Matt Damon propagandize against it. No one is doing more to increase income inequality in America than the affluent environmentalists who oppose natural gas drilling.