The Problem of Panic Policymaking in Natural Gas
John Dunham and Associates
Many government policies are developed and implemented based on little data or understanding of how they impact businesses or consumers. Over the years, my firm has examined hundreds of policy proposals, documenting how they impact not only the economy, but consumers, businesses, and the general public.
More often than not, we find that even the most well-intentioned regulations have serious and costly consequences, many of which are far worse than the problem that the regulation was initially supposed to address. In fact, much of the regulatory burden coming out of Washington DC and state capitals is due to panic policymaking, which is defined in the literature as the speedy creation of new laws and regulations or new duties for governmental and private institutions in a situation of sudden, unreasoning, and excessive fear or anger.
We recently conducted a study on the economic costs and benefits of new rules on the drilling of oil and natural gas wells on Federal lands currently being proposed by the US Department of the Interior. These rules are an excellent example of the type of “panic policymaking,” that we often see, with environmental groups and their governmental allies are using misinformation to instill panic about what they call “fracing.” which is nothing more than a method for completing oil and natural gas wells so that the petroleum products flow out of them rather than just sitting in the ground. The current techniques used to complete wells were first developed in 1947 and have never resulted in any of the problems that the Department of the Interior’s rules are supposed to address.
Commercial petroleum production in the United States began in Pennsylvania, and for over 150 years, wells in the state have been producing oil and natural gas. Recent changes to drilling technology have now made huge natural gas deposits located in the Marcellus Shale formations commercially developable. The environmental groups, which abhor the possibility of inexpensively available petroleum, are using this imagined fear of a normal activity as a way to greatly increase development costs, thereby reducing production and increasing the price of natural gas for businesses and consumers throughout Pennsylvania and the Northeast.
In fact, our research shows that the rule proposed by the Bureau of Land Management for drilling on Federal lands would lead to an increase of about $250,000 in the cost of drilling an oil or natural gas well. Most wells are drilled by independent producers, the majority of which are small businesses. Considering that Pennsylvania has permitted about 198,000 oil and gas wells in the state since 1900, the anti-development regulations being promoted by environmental groups and their government allies would have cost businesses in Pennsylvania nearly $50 billion had they been required on all of the wells drilled in the state.
Were there an actual problem, then the $250,000 per well cost might be justified; however, in its analysis of the anti drilling rules, the government could not document any actual level or cases of environmental harm that the new requirements might actually eliminate. Rather, than taking the time to understand how oil and natural gas wells are drilled, and how companies already deal with environmental issues, government is simply engaging in panic policymaking and reacting to unsupported claims and unwarranted hysteria on the part of people who do not even live near the well sites in question.
John Dunham is a partner at John Dunham and Associates, an economic research firm based in Washington, D.C. and Brooklyn, N.Y.