New pipelines serve interests of ag producers
There seems to be a lot of confusion around how natural gas pipelines like the proposed Rover Project would impact the agricultural sector and farming communities in Michigan and Ohio. This is no doubt due to the fact that it is easy to overlook many of the gains from an improved transportation system for natural gas, including increased production of a clean abundant fuel source.
It’s important that people understand the benefits a project like Rover can have for our communities. An expanded and improved natural gas infrastructure provides both direct and indirect benefits to the agricultural sector, along with a commitment to safety.
We have looked at the likely impacts on agriculture in Michigan, Ohio and the eastern Midwest of pipeline infrastructure projects that move natural gas from Pennsylvania. What we found was that new natural gas pipelines would offer substantial benefits to agricultural producers in Michigan, Ohio and the Midwest in general, with minimal downsides.
Controlling production cost is crucial to profitable farming. As energy is a major component of farm production expenditures, accounting for over 30 percent of costs, inexpensive energy, and especially increased use of natural gas, holds substantial promise for the ability of farmers to control their costs.
An increased natural gas supply would provide an immediate advantage for agricultural producers by lowering the price of electricity. These lower electricity costs would be especially beneficial for livestock and dairy operations that are historically high users of electric energy. It also would be advantageous for producers who rely heavily on irrigating their crops, as one of the largest costs of water use is the price of electricity.
Another direct benefit is due to the fact that many farm vehicles now use natural gas. Lower prices will lower fuel costs for these vehicles and reduce expenses associated with transporting goods off the farm. In addition, natural gas is an essential tool for drying crops, mostly grains, after harvesting.
Then there are the indirect benefits. Agriculture is a very energy-intensive industry. In dollar terms, the highest consumption of natural gas on American farms occurs indirectly through the use of fertilizer, the most energy intensive farm input. In fact, natural gas represents approximately 70 percent of the cost in manufacturing fertilizer, as it is an essential ingredient in synthesizing ammonia, a key input for fertilizer. Fertilizer itself accounted for over half of all indirect energy consumption on U.S. farms in 2011.
Pesticides are another energy-intensive farm input and over 1.25 billion pounds of them are used in the United States annually. Pesticides accounted for slightly less than 50 percent of indirect energy used on U.S. farms in 2010, and slightly less than 15 percent of total energy use, so any reduction in the cost of energy can have an important effect on farm costs.
All of this requires more access to gas, which is why the eastern Midwest must invest in new, safe natural gas infrastructures such as the Rover and Nexus pipeline projects. The Rover Pipeline, in particular, has been focused on local farming and is a project committed to safety.
No option is risk free, but we believe the risks associated with pipelines are less than risks of alternative approaches. According to both the National Transportation Safety Board and the Pipeline and Hazardous Materials Safety Administration, pipeline transportation is easily the safest method of transport, far superior to truck and rail.
When completed, proposed pipelines will provide stable, safe, and inexpensive access to natural gas. This should help reduce agricultural production costs by providing cheaper fuel for farm operations, stable prices for electricity, and lower prices for fertilizer and pesticides. In turn, this would strengthen the profitability and competitiveness of agriculture in the region.
Gary Wolfram is president of Hillsdale Policy Group, director of economics and William Simon professor of economics at Hillsdale College. Charles N. Steele is an economist with Hillsdale Policy Group and associate professor of economics at Hillsdale.