Interconnections

Natural gas drilling company Chesapeake Appalachia has assigned hundreds of its leases in Wayne County, PA to a Norwegian company, StatoilHydro. Not everyone is bothered by this idea. When the point came up at a public meeting in Pike County on January 17, Dave Jones, part owner of Kittatiny Canoes, responded by saying, “Is that so bad? We are all interconnected.”

We are indeed all interconnected. The problem is that the particular way in which the United States is financially connected to the rest of the world is as a debtor owing trillions of dollars. A large part of that debt is related to our energy purchases. We spend about $250 billion per year on imported oil, compared to a total 2007 trade deficit of about $700 billion. Over one quarter of the $11 trillion-plus in U.S. debt is held in foreign hands. When people talk about our energy security, and how important it is to develop our own energy resources, this is a large part of what they are referring to. Those who hold the purse strings in today’s world have at least as much power as those who point the guns.

A source of energy like the Marcellus Shale gas is certainly more secure than, say, petroleum fields in Iran to the extent that it is not subject to attack, embargo or armed insurrection. But to hand over control of (and profits from) energy resources located in the U.S. to foreign-owned companies is to continue to do exactly what’s made us energy-insecure in the first place: send torrents of dollars overseas to countries that may or may not be friendly to us, while sinking further and further into debt.

That enormous debt in turn is a security risk because it makes our currency vulnerable. It hasn’t caused the dollar to collapse so far only because the U.S. has been coasting on a reputation of financial strength and reliability built up over generations. But that special dispensation may be close to running its course, as suggested by the fact that OPEC nations are now considering switching from the dollar to the Euro as payment for petroleum.

If this move away from the dollar were to accelerate, foreign countries would start dumping Treasuries by the truckload, domestic interest rates would go through the roof regardless of anything the Federal Reserve could do and inflation would spiral out of control even as real output declined. Picture something on the scale of the Great Depression, but with double-digit inflation thrown in.

But that’s not all that’s wrong with leases being assigned to overseas countries. Norway is an ally of this country whose values and laws are extremely similar. But should StatoilHydro decide that it in turn wants to unload these assets—likely in a period of economic turmoil like the present—whom else might the leases be transferred to? China? Russia?

For some landowners matters are bad enough already, even with U.S. companies owning the leases. At a community gas drilling meeting on January 17, Hickory, PA resident Ron Gulla said “This has been a total nightmare. Once they lease your land, it’s theirs.” He was referring to two domestic companies, Great Lakes and Range Resources. Now imagine owners headquartered halfway around the globe, in countries whose concept of individual rights and rule of law may not jibe with ours.

The reason Gulla has dealt with two companies in the six-odd years since his lease was first signed is that Great Lakes was bought out by Range Resources—another way in which leases can change hands, and with no guarantee that the buyer will be, as it was in Gulla’s case, domestic. And heaven help us if some bright boy decides to securitize gas leases, the way they’ve done with mortgages: the owners would be spread out around the globe, with nobody able to figure out who they are or how to hold them to account.

For these reasons, we can’t see anybody on either side of the gas drilling issue resting easy with the transfer of leases to overseas entities. Both to maintain control over our own land, and for the sake of national security, we would like to see regulations put in place as soon as possible that prohibit the transfer of rights to the energy resources on U.S. territory to foreign entities. That kind of transfer connects us to the rest of the world, all right, but in a way that could leave us with their feet on our throat.

Dr. Punnybone

Mad Dash