From the mailbag

Here's one of the responses I received from my most recent newsletter on the severance tax. I agree that if this tax is passed on to the consumer, it'll be paid by consumers in Illinois and other parts of the Midwest where our natural gas is being shipped. At the same time, we can probably rest assured that we're helping to pay Oklahoma's severance tax for them.

I agree with most of your thoughts about the severance tax. It is also good that a democrat, Mike Beebe, and a republican, Sheffield Nelson, and the gas industry can amicably agree to this. It makes a cynical old guy like me wonder why it was so easy. I do have some knowledge of the gas industry and its pricing. The severance tax does factor into the cost of the gas, which is a pass through cost not subject to the regulatory process. Therefore, the cost of the tax will be borne by the customers, as is the case with most taxes. The only difference here is if the gas is exported to other states then the customers of Arkansas are not affected. However, if it is sold to the Arkansas residents then they will bear the burden in higher cost of gas. (Sometimes I think economics mixed with politics is much more complex than quantum physics.)

Speaking of moving fuel, the Houston Chronicle has an excellent article this morning on shipping natural gas from areas like the Barnett Shale to markets in the east and how it can affect price swings.