Energy Prices Drive Inflation: Supply, Demand

By October 15, 2005Energy

We’ll keep making the point about the immutable law of supply and demand, especially as it impacts energy prices. We were reminded of it once again this morning, as the headline from Nell Henderson’s story screamed out above the fold in the Washington Post: “Inflation in Sept. Highest Since ’80“. Yup. Says the Post, “Energy prices have been rising for more than two years as the global demand for oil has grown and supplies have remained tight.”

NAM’s Chief Economist, Dave Huether said yesterday that the Hurricanes — Katrina and Rita — exposed long-term energy problems that policy-makers must address. Pretty hard to argue with. He noted our paltry four liquid natural gas terminals (Japan has over 20), and added, “We need to open known domestic reserves for exploration.” We have the highest natural gas prices in the world. What a distinction. The highest legal costs, too, but more on that in a day or two.

Finally, says Huether about the energy prices, “This has and will continue to be competitively disastrous for American industry — especially the chemical and plastics sectors which employ more than 1.6 million Americans in good-paying jobs.” There are 200 chemical plants being build around the world. Exactly one is being built in the US.

One of our members mentioned in a meeting that his company was building a (chemical) plant in the Middle East. Someone asked if it was safe. He said, “We’ll have a steady supply of cheap natural gas — and they don’t have our lawyers.” Like we said, more on lawyers in a day or two, but what a statement.

Supply/demand. As old as the hills. Maybe we can begin to make a difference in the short term, but over the long haul, we need to battle back against the moratorium on finding new sources of energy that a small band of rabid environmentalists have imposed upon us for the last few decades. Energy efficiency? Of course, but it’s not mutually exclusive with new exploration. We must do both.

Click here if you want to remind your Member of Congress of help to begin to drive down the cost of energy.