Escaping the Oil Trap

NEW YORK (TheStreet) -- Throughout its history, the oil and gas business has required some agency to maintain profitable prices, and assure capital budgets could scale supplies to keep costs low.

This was the argument for Standard Oil in the 19th century. It's what the Texas Railroad Commission created as early as the 1920s. It's what OPEC is supposed to be about.

Maintain control of supply, maintain profitable floor prices for the commodity, maintain stability. It's the American way.

As I noted yesterday on TheStreet, we don't have that right now. But the elements are in place for a deal that will get it.

First, the deal. Grant an antitrust exemption to a natural gas group setting a minimum price for the stuff, and grant subsidies for all those who subscribe to its fund marking the difference between that price and the Henry Hub market price. Simply pay it out of government coffers, an outright subsidy.

Now here's the catch. That's a loan. The loan will go into an infrastructure fund, and accelerate efforts to export gas, to build and supply LNG tankers headed for Europe, for Japan, and for any other market where prices are strong. The loan will be paid back as prices go above the minimum. It's an excess profits tax.

Even Exxon-Mobil (XOM) admits to "losing our shirts" at current prices. (This link will take you to an outside source.) Imagine what the smaller drillers are going through. So, what would be a fair price? Here's the money to assure that price rises over time. The money will be invested. All it would require from the government is an antitrust exemption approving the fund.

You can do this with other forms of energy. You can do it with electricity, the money going into improving the efficiency of the U.S. grid (related article in the Chicago Tribune), and for scaling emergency services, so customers don't swelter for weeks. You could even do it with oil (OGI article on demand), where producers are now talking about drilling fewer wells (OGI article on oil), because they can't get the price they want.

Low prices are an opportunity that should be seized.

There's a stick available to force this deal, in the form of permits to export gas, says Trefis. And natural gas inventories are continuing to build, stretching storage supplies to the limit, according to Buffalo News.

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