The opportunity Cost of Natural Gas

What is the Real Natural Gas Trade off?

by Elaine Schwartz    •    Jul 2, 2014    •    1662 Views

Our occasional Wednesday environment focus

When you discuss natural gas, do you refer to the environment, the economy or the law?

Just mention natural gas to some of my friends and they focus on the environment. Concerned about the impact of the process used to extract natural gas from shale, they say it should be banned. Otherwise, they expect local water supplies will be contaminated and greenhouse gas emissions will increase. More dependence on fossil fuels is what they want to avoid.

I also know people who perceive the natural gas boom as an economic boost to an economy that is still emerging from a massive recession. Their focus is the natural gas that we use to heat and cool our homes and the steel, plastics and chemical plants that need natural gas. They see supply soaring, prices sliding, and natural gas tugging the price of all energy sources down. Furthermore, as a growing industry, they point out that natural gas is creating jobs and pockets of prosperity.

You can see below that almost one-half of all US households use natural gas to heat a home.

The opportunity cost using natural gas

A third possible perspective was in the papers last night. Since 2008, New York State has imposed a temporary moratorium on natural gas drilling. Worried that the moratorium will be lifted, 177 municipalities in the state have expressed a NIMBY position while 77 of them enacted a permanent ban.  As a result, 2 of those municipalities landed in court when a driller and a local dairy farmer said the ban was illegal. Proclaiming that home-rule was fine, yesterday, the court disagreed. That means every community in NYS can decide if it will permit natural gas development.

Our bottom line? Most of the discussion about natural gas extraction has focused on fracking and the  environment. To take the next step, we could use opportunity cost analysis. Using opportunity cost analysis, we would first identify the next best alternative that we sacrificed. Then, to see what would be gained and lost, we list the benefits of the decision and of the alternative.

Sources and more..Recent news articles, here and here, and here described the NYS Court of Appeals decision on a natural gas production ban while journalist Greg Zuckerman's book, The Frackers provided the entire store of the industry. Based on his case studies, the industry illustrates entrepreneurial activity.

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