Tread Carefully on U.S. Natural Gas Sovereign Wealth Fund

midwestA popular story has emerged on the internet touting the benefits of the United States creating a federal sovereign wealth fund in order to harvest gains from the increase in proved natural gas reserves. A similar debate is occurring in the United Kingdom with regard to energy resources in the North Sea. Due to advances in energy extraction technology, namely hydraulic fracturing (fracking), the proven number of gas reserves has dramatically increased since the beginning of the millennium.

According to the U.S. EIA data on natural gas, “proved reserves of U.S. wet natural gas rose by 31.2 trillion cubic feet in 2011 to a new record high of 348.8 trillion cubic feet.”

Public officials in Saudi Arabia and other OPEC nations are worried about the energy resurgence in the Americas, particularly in areas like North Dakota, Texas and parts of Mexico. More natural gas harvesting in these areas could mean lower crude oil prices.

Though it is possible to debate this question regarding a federal sovereign wealth fund on the philosophical level, there are some technical questions that need to be addressed before considering such a move.

Already, the United States has a number of state-run sovereign wealth funds. They are also known as permanent funds. For example, the historic Texas Permanent School Fund (TPSF) was created in 1854.
Additionally, the states with large, proved reserves already have SWFs to deal with their natural gas revenue. They include North Dakota, Louisiana, Alaska and others.[ Content protected for Sovereign Wealth Fund Institute Standard subscribers only. Please subscribe to view content. ]

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