Friday Rant: Blowing Gas -- The Economics of Waste

The opportunity to exploit economic arbitrage has steadily declined as our global economy and instantaneous access to information has burgeoned. But our local refineries have stood the traditional arbitrage model – that of buying low in one market and selling high in another – on its head. The pump price for premium gasoline is predicted to hit 4 bucks a gallon any day now because oil refineries peg the pump price to daily crude futures. Iran saber rattles about restricting one fifth of the global oil supply by closing the Straight of Hormuz, and we're paying $6.00 more to fill our tank the next day.

But the energy news isn't all bad. Natural gas prices are plummeting so precipitously that domestic oil drillers are burning off the natural gas that's a byproduct of their drilling.

Yesterday's WSJ reported that "Natural-gas prices fell 5.7% Wednesday to their lowest level in over two years... [and] prices are expected to remain low for at least the next couple years." Great news for homeowners and businesses that use gas fired heating and manufacturing equipment. More disconcerting, though, is the mention that "Many energy companies have shifted their focus away from natural gas to more profitable oil...and some companies are opting to burn off the [byproduct] gas they find because they don't have a way to transport it."

Goodrich Petroleum is reported to "reluctantly say [it] is flaring gas from an oil well on a ranch in South Texas because a nearby pipeline is already full." Excuse me, but waste is wasteful. Our resources are finite and the brief historical pendulum often times swings between surplus and shortage. Those of us -- including myself -- who don't endorse ubiquitous governmental meddling, regulation and intervention, must object to frivolously blowing off resources because it's not profitable or too much trouble to harness them.

But perhaps I'm naïve. The next time I have a surplus of ripe juicy tomatoes in my garden or catch too many fish, maybe I should think twice before giving them away. After all, I could easily be sued should someone become ill by consuming my bounty. Or maybe there really is too much gas to go around.

- William Busch