2014 ndi – Pre Camp Natural Gas Negative



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Manufacturing I/L Turn

Plan kills the manufacturing industry before it solves.


Holland, 6-7-12(Andrew, Senior Fellow for Energy and Climate Policy at the American Security Project, a non-partisan think tank based in Washington, DC, “Will Dutch Disease Follow-on the American Energy Boom?,” http://www.consumerenergyreport.com/2012/06/07/will-dutch-disease-follow-on-the-american-energy-boom/)

An ongoing discussion among some of us analysts at Consumer Energy Report has been about whether having natural resources like oil or coal is actually beneficial to a country (see Are Countries With Vast Oil Resources Blessed or Cursed?, Oil Dependence — Tom Friedman’s False Narrative, and Oil — Easy to Produce, But Not Easy to Buy).¶ The argument which I’ve made is that a boom in natural resources production can cover up some short-sighted economic policies; in effect, the earnings from producing oil mean that countries do not have to invest in their education or produce their own manufactured goods. The other side of the argument is that it can only be a good thing for new resources to be found.¶ Leaving aside the question of whether natural resource wealth undermines institutions or causes corruption (and there is good evidence of a resource curse among developing countries) there is one thing that increased production of oil does, once it gets to be a big enough sector of the economy: it pushes up the value of that country’s currency.¶ All else equal (as economists always have to say), new production of natural resources strengthens the domestic currency. That’s because those resources are either exported or are used to replace imports.¶ Dutch Disease Phenomenon¶ Now – I should mention that I like a strong dollar, personally: it means I can afford to travel abroad more, and buy more when I get there. It also means that French wine (for example) becomes cheaper relative to Californian wine. I like French wine, and would welcome being able to buy more. However, that shows the problem with having a strong currency — it undermines domestic manufacturing and production (of Californian wine, in this example) by driving up prices of American-made goods and services.¶ This phenomenon is called “Dutch Disease.” Coined by The Economist in 1977 to describe how finding natural gas in the North Sea in 1959 affected the Netherlands’ economy over the ensuing decades. The symptoms of the ‘disease’ are when commodity exports push up the value of a nation’s currency, making other parts of the economy less competitive. This leads to a current-account deficit, which makes the economy even more dependent upon the commodity. The disease is especially pernicious for commodities like oil, coal, and natural gas because these industries are very capital-intensive, and actually do not generate that many jobs. There are two major industrialized countries that have undergone commodities booms over the past decade: Canada and Australia. They are both showing signs of suffering from Dutch Disease, with the Canadian dollar increasing in value vs. the American dollar (Canada’s #1 trading partner by far) by over 50% in the last ten years, and the Australian dollar increased in value compared to world currency rates by almost 70% in the past decade.¶ Exports vs. Domestic Manufacturing¶ Canada’s boom, related to the exploitation and exports of Alberta’s Oil Sands, has brought boom times to the resource-rich areas of Western Canada. However, an article in the Global Post highlights how the boom is dividing Canada: Western politicians are pushing for more oil-centered exports, while politicians in Ontario and Quebec, Canada’s traditional manufacturing heartland, are saying that increased oil exports have undercut their ability to manufacture. The article says:¶ The debate was reignited last month by Tom Mulcair, leader of the federal New Democratic Party, the main opposition to the ruling Conservative government. The high dollar, he said, has “hollowed out the manufacturing sector” and cost a half-million jobs. Australia too, is having problems with its currency. Steve LeVine writes in EnergyWire that “A Cautionary Tale for U.S. Energy Policy Unfolds in the Land Down Under” (paywalled). While Australia’s boom is not related to oil, it is exports of coal and iron ore – much of it exported to fuel China’s dramatic economic expansion – as well as becoming an important new exporter of Liquefied Natural Gas (LNG). Levine writes:¶ Australia’s dollar has surged 69 percent in value in the past decade, cutting into tourism and eroding the competitiveness of its manufactured products. Its manufacturing base has shrunk by almost 100,000 jobs over the past four years, according to government figures.

XT – Manufacturing I/L Turn

Demand increasing domestically now---exporting gas is the lowest economic value and cuts the manufacturing sector short


Cicio 9/27/12 (Paul N., President, Industrial Consumers of America, Cicio graduated from Youngstown State University with a BS in Business Administration and Economics. “The 10% 10% in 2016 Gas Export Problem” http://energy.nationaljournal.com/2012/09/sizing-up-the-role-of-natural.php

The shale gas boom is the greatest opportunity for economic expansion that we will ever see in our lifetimes. There is a brewing problem however, that no one is talking about, that could squander this once in a lifetime economic opportunity. I call it the “10% 10% in 2016 Export Problem.” The first 10% in the name of the problem comes from the 6 bcfd increase in demand we know is coming from already announced manufacturing capital projects totaling $80 billion in investment. That investment and the thousands of jobs it will create are all due to the favorable U.S. natural gas price. This is just the first “down payment” of manufacturing investment that is betting on continued favorable natural gas prices. This does not include the increase in demand we know is coming from the power and transportation sector. As an aside, the domestic demand projections used by EIA that projects demand as flat or increasing only slightly in the future, couldn’t be more different than what I hear from my members, who are responding to low prices by increasing consumption. The second 10% in the problem comes from a January EIA report that analyzed (on the low end) a 6 bcfd increase in demand due to LNG exports by 2016. (For your information, a total of 19 companies have applied to export potential volume that would increase demand by 42 percent.) The 2016 in the problem is that both the 10% increase in demand due to manufacturing investment and the 10% increase in demand due to LNG exports would both come onstream by 2016. The 10% and 10% increase in demand by 2016 will be the single largest increase in demand in U.S. history in a very short time frame. To put this increase in demand in perspective, from 2000 to 2011 total U.S. natural gas demand increased by only 4.4 percent. We have an abundant supply – but we also would have explosive short-term demand. The question the problem raises is can the U.S. export 6 bcfd of natural gas without jeopardizing the 10% increase in demand from the manufacturing sector; and without spiking electricity and natural gas prices for homeowners? The best bang for our buck is using natural gas in the manufacturing sector where it provides the highest return on investment in job creation; economic development and value-added product exports by leveraging the newfound competitive advantage. The lowest economic value is using it as a fuel and/or exporting it.

Exporting natural gas ends competitiveness, causes oil dependence and collapses the chemical industry


Makey 9/28/12 (Rep. Ed Markey, D-Mass. Ranking Member, House Natural Resources Committee http://energy.nationaljournal.com/2012/09/sizing-up-the-role-of-natural.php#2246213)

The boom in American natural gas production is causing a seismic shift in the entire American economy. Developed wisely, these resources have the potential to bolster America’s manufacturing competitiveness, eliminate oil imports from the Persian Gulf, and radically reduce emissions of global warming pollution. Just four years ago, coal generated half of our electricity. Now it’s down to 35 percent. Why? Because electric utility executives have decided to replace dirty old coal-fired power plants with cleaner, cheaper, and more efficient natural gas, which has grown from 21 percent to 30 percent of U.S. electricity generation in that time. Coal is also being edged out of the electricity market by wind, which has grown from virtually none of our power to 4 percent today. Solar is doubling every year. And when it comes to heating homes during the winter, natural gas wins in landslide. Last winter, families spent an estimated $2,238 to heat their homes, compared to $629 to heat with natural gas. That’s why 1.4 million households in the Northeast have switched away from heating oil in the last 8 years. Most of them are choosing natural gas. Yet, the Republican Party is oblivious to the free market revolution taking place. They are focused on making it easier for the coal industry to pollute while voting to extend more taxpayer subsidies for big oil, nuclear and coal. When you add up hydro, wind, solar, other renewables, and throw in natural gas and other gases, you get 44 percent of our electricity. But just like Governor Romney has given up on 47 percent of Americans, House Republicans are giving up on 44 percent of our electricity sector. In truth, the switch to natural gas is happening for one simple reason: it’s cheaper. Natural gas prices have decreased by 66 percent since 2008. Coal’s gotten 17 percent more expensive during that time. It is cheaper to produce new electricity from natural gas than from coal. This isn’t a conspiracy, it’s competition. Low price natural gas is driving an American manufacturing renaissance. The competitiveness of American steel, fertilizer, and petrochemical industries that use huge amounts of natural gas for fuel and feedstock has surged. Many of the 500,000 U.S. manufacturing jobs created since 2010 are a direct result of low natural gas prices. Pricewaterhouse Coopers estimates we’ll create another 1 million jobs by 2025 as a result of abundant, low-cost natural gas. Exporting natural gas will do one thing: raise prices. In fact, that is just what the oil and gas industry wants. By shipping American made natural gas to Japan and Korea, they can fetch prices 6 times higher than ours. In Europe, prices are 3 times higher. Ultimately, some natural gas producers may hope to create a global natural gas market that maximizes their profits. But if that happens, natural gas consumers will be exposed to higher prices and greater market volatility -- in much the same way that the global oil market routinely rips off consumers at the pump. Eighteen applications have been submitted to the Department of Energy seeking to export 40 percent of our current natural gas consumption. Exporting less than half that amount could send domestic natural gas prices skyrocketing by more than 50 percent, according to the Department. If all 18 or more are approved, and if electric utility demand and home heating demand continue on their current course, we could again see a huge price spike in natural gas. This would be painful for American consumers and catastrophic for the fertilizer manufacturers, the chemical and plastics producers, and the steelmakers that rely on low-priced natural gas. It would make it harder to convert our heavy- and medium-duty trucks and buses onto natural gas, which has the potential to reduce our oil imports by 2.4 million barrels per day. But don’t take it from me, billionaire Texas oilman T. Boone Pickens had this to say about exporting natural gas: “If we do it, we’re truly going to go down as America’s dumbest generation. It’s bad public policy to export natural gas.” I agree. That is why I believe we need a time out on approving additional LNG export terminals so that we can think through the consequences of expanded LNG exports for our own domestic prices and economic growth. We’ve had 5 votes on the House floor in the past year and half on exporting American energy resources. Republicans have voted in favor of exporting every time. The current natural gas drilling bonanza is radically reshaping our energy portfolio. We must ensure that this American resource is used to bring our troops home and protect the wallets of consumers, and not used to simply further enrich big oil and gas companies.

The plan’s increased exports causes deindustrialization killing manufacturing by shifting resources towards oil drilling and encouraging importation of foreign manufactured goods over the domestic industry.


Smith 10 (G. Jason B.S., University of Louisville, Department of Political Science University of Louisville Louisville, KY December 6,2010 “DO SOVEREIGN WEALTH FUNDS MITIGATE AUTHORITARIAN RULE? A STATISTICAL ANALYSIS OF SOVEREIGN WEALTH FUNDS AND THE RESOURCE CURSE”, http://digital.library.louisville.edu/utils/getfile/collection/etd/id/2015/filename/4812.pdf)

Dutch Disease occurs when a state experiences a rapid increase in resource exportation that culminates in indirect and direct deindustrialization. I Indirect deindustrialization occurs within the labor market of the afflicted state by pushing workers out of the manufacturing sector into the resource extraction and service sectors (Corden and Neary, 1982; Bruno and Sachs, 1982; Corden, 1984). Increased demand for resources by world markets boost wages in the resource-extraction sector of the economy. Higher wages then attract skilled labor from manufacturing companies resulting in a shift of educated personnel from the industrial sector to the resource extraction sector (Corden and Neary, 1982; Bruno and Sachs, 1982; Corden, 1984). As the situation continues, the state's workforce loses its comparative advantage in tradable manufactured goods further promoting deindustrialization (Krugman, 1987). The spending effect further impedes labor movement into the industrial sector by increasing employment demand in the service sector as the state uses its new-found commodity wealth to boost government expenditures on public and social services (Ross, 1999; Ross 2001). Increased demand for labor in those employment areas elevate wages and creates an incentive for unskilled workers to enter the service sector over the industrial sector (Krugman, 1987). Rising incomes increase internal demand for manufactured goods and services that leads to price escalation and domestic inflation (Bruno and Sachs, 1982; Van Wijnbergen, 1984). Inflation combined with elevated global demand for resources increase the real exchange rate of the state's currency resulting in direct deindustrialization (Van Wijnbergen, 1984). The process of direct deindustrialization unfolds as follows. An increase in the real exchange rate makes goods manufactured in the resource-rich state relatively more expensive on the global market than goods produced in countries without inflation problems. Higher exchange rates also make imports relatively cheaper than domestic production for the resource-rich state (Bruno and Sachs, 1982; Krugman, 1987). The resulting economic situation incentivizes the importation of manufactured goods over domestic production for Dutch Disease afflicted states. Over time, these circumstances erode the ability of the inflation-distressed state to export manufactured goods leading to direct deindustrialization. The cycle continues with each peak in commodity prices leaving resource exporting states ever more vulnerable to deindustrialization (Corden and Neary, 1982; Bruno and Sachs, 1982; Corden, 1984; Van Wijnbergen, 1984; Krugman, 1987; Auty, 1990; Auty, 1993; Auty, 2001). Concentration of labor resources in the commodity extraction sector of the economy does not produce the type of occupational specialization conducive to democratization because of the unique nature of that industry. Specifically, technical advances and worker productivity tend to increase slower in resource-extraction jobs than in the traditional manufacturing sector (Ross, 1999). Limited exposure to technological development prevents employees from developing the critical thinking skills necessary to challenge the government because workers are not required to continue their education beyond the initial learning process (Lipset, 1959; Inglehart, 1960; Deutsch, 1961; Ross, 1999; Ross, 2001). The slow evolution of worker productivity inherent in the resource extraction sector tends to further hinder occupational specialization through a separate process (Ross, 1999). To maximize worker efficiency under the Dutch Disease circumstances, employees are not shifted around to different jobs. As such, unions and other industrial groups do not form to protect workers.

Australia proves


LeVine 6/7/12 (Steve, Environment & Energy Publishing, “A cautionary tale for U.S. energy policy unfolds in the Land Down Under,” http://eenews.net/public/energywire/2012/06/07/2)

Coal and iron ore have transformed Australia into a regional powerhouse, propelling a 51 percent economic expansion over the past two years alone and spearheading an expected further gusher of export wealth from liquefied natural gas. Yet the remarkable boom has come at a price: Australia's dollar has surged 69 percent in value in the past decade, cutting into tourism and eroding the competitiveness of its manufactured products. Its manufacturing base has shrunk by almost 100,000 jobs over the past four years, according to government figures. As the boom has built, Australians have gone deeply into debt -- last year, they owed an average of 156 percent of their disposable household income, more than triple their 49 percent debt load in 1991. It's a dilemma that could be replicated in the United States. Swiss investment bank UBS said in a research note this week that the U.S. energy boom could raise annual economic growth almost 1 percent but also strengthen the U.S. dollar, raising the price of American exports and making them less competitive abroad (EnergyWire, June 5). Australians call it their "two-track economy." A 19-year run of economic growth fueled by China's industrial and commercial boom has delivered unprecedented wealth to the country of 22.3 million people. But, driven mostly by mining and drilling exports from just two rural provinces, it has also weighed on the rest of the economy, including in large cities outside the resource belt such as Melbourne and Sydney. Now, with flagging economic growth in China, Australia's reliance on cyclically priced commodities is reverberating broadly in the country. Economic growth has slowed -- in the last quarter of 2011, it was just 0.4 percent -- as Australian companies are receiving 17 percent less for thermal coal than a year ago and 31 percent less for iron ore. But the slump has been unevenly dispersed: Airline, banking and engineering companies recently announced thousands of layoffs. Yet Australia's natural resource companies, pushing ahead with record capital investment despite the Chinese slowdown, have begun to recruit abroad to fill $100,000-a-year-and-up skilled labor jobs. "What do you call a credit bubble built on a commodity bull market built on a much bigger Chinese credit bubble? Leveraged leverage? A [collateralized debt obligation] squared? No, it's Australia," Dylan Grice, an analyst with Société Générale, said in a note to clients last month. U.S. economists and energy analysts, taking stock of growing production in shale oil and shale gas fields, have begun to forecast a broad-based American economic revival, including hundreds of thousands of new jobs. But Australia illustrates that such booms do not necessarily produce broad-based job growth, and that they can prove debilitating in unexpected ways to other important industries.

Backstopping---exports cause supply cut backs globally---collapses the economy and independently turns the case


Korin 12 (Anne Korin is co-director of the Institute for the Analysis of Global Security, a think tank focused on energy and security, “Should the U.S. Export Natural Gas?” http://online.wsj.com/article/SB10000872396390444226904577561300198957854.html)

The U.S. gas bonanza is giving Washington a key geostrategic opportunity to reposition itself in Asia and the Pacific, to slowly back away from the Middle East and help key allies. The U.S. may have a future role to play for governance over natural-gas flow in Asia, especially if it becomes a key LNG exporter. MS. KORIN: But as LNG plays a larger part in international natural-gas trading and the commodity becomes fungible, the other gas giants—Russia, Iran, Qatar, Saudi Arabia and the United Arab Emirates—will have every incentive to concretize their discussions on forming an OPEC-like natural-gas cartel. They'll be able to restrict supply to the market and counterbalance the U.S. That will drive the newly global natural-gas price—and thus prices in the U.S.—higher than it would have gone otherwise. That will certainly benefit those who own and sell the gas, but through higher electricity and chemical prices, it would overall be a drain on the economy.


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