Natural Gas, Unnatural Prices

How SNG and Artificially High Natural Gas Prices Will Affect Indiana’s Economy

This report presents was done to estimate Indiana employment and economic output effects of artificially high natural gas prices due to the production of substitute natural gas (SNG). In order to ensure the profitability of the SNG investment when natural gas prices are below SNG prices or, conversely, to ensure that consumers are able to share in the profits in the event of large increases in conventional natural gas prices, the agreement between Indiana Gasification—the company building and operating the SNG plant—and the Indiana Finance Authority (IFA) calls for 100 percent of any economic losses or 50 percent of any gains from the production to pass through to natural gas customers.

The recent technological advances in natural gas extraction were not foreseen at the time of the project’s conception. Current forecasts of natural gas prices through 2025 suggest that the IFA will incur heavy losses under the contracted pricing scheme. These losses will act like an excise tax applied to natural gas customers.

The surcharge is approximately $895 million, or $110 million per year, from 2018 to 2025. All values, unless stated otherwise, are in constant 2011 dollars. Researchers at Indiana University’s School of Public and Environmental Affairs (SPEA) and the Indiana Business Research Center (IBRC) at the Kelley School of Business measured the expected impact of the SNG plant construction, operations and the SNG loss tax. The research team’s analysis was generous on the positive side of the SNG plant job creation and economic impact ledger and was conservative in terms of thenegative effects of the SNG surcharge.