Thursday, January 12, 2012

Corporate greed and the price of natural gas

It seems that whenever the price of gasoline spikes that some television news crew inevitably heads down to the local gas station and finds drivers who, when asked about the cost increase, place the blame on corporate greed and fatcat CEOs. This is, of course, absurd. If oil companies and their CEOs posssessed the power to raise prices on a whim they would do so in perpetuity; times of relatively low prices are not caused by their goodwill or benevolence but rather basic supply and demand.

Today's Wall Street Journal notes that the price of natural gas has been trending downwards for some time now, and if the futures markets are to be believed, that the decline is set to continue for some time to come. Unlike with the gasoline example, if a man on the street interview were to result in corporate greed being blamed for the price decline, that person would actually be right.

How so? Simple: when natural gas prices were high, energy companies -- driven by greed and the desire to make money -- invested considerable resources in producing more natural gas in order to take advantage of the higher prices. As the article notes:
When Louisiana's Haynesville Shale was discovered in 2008, gas prices were over $9 per million BTUs and companies rushed to lease as much acreage as possible.
Now in chart form:

The higher production resulting from corporate greed has boosted supply and reduced prices. More like this please!

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