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Natural Gas (12-16-04)

Cleaner than other fossil fuels and abundant in the United States, natural gas has gained an increasing foothold across the nation. It powers over 60 million American homes and 90 percent of new power plants. In all, natural gas accounts for nearly a quarter of energy consumption in the US. The federal government has tracked the status of natural gas as it has gained popularity and has periodically requested reports on the subject. In 1992 it solicited the first update from the National Petroleum Council (NPC), entitled "Potential of Natural Gas in the United States." Since that time NPC has issued two more reports, one in 1999 ("Meeting the Challenges of the Nation's Growing Natural Gas Demand"), and, most recently, in 2003 ("Balancing Natural Gas Policy--Fueling the Demands of a Growing Economy"). Secretary of Energy Spencer Abraham requested the latter in light of homeland security, price volatility, fuel avaibility and other concerns.

Most Recent Action

A new report released on December 15th by the Consumer Federation of America says a suite of policies addressing both demand and supply are needed in coming years as consumers struggle with natural gas bills that could average well over $1,000 per household this winter. The report -- titled Responding to Turmoil in Natural Gas Markets: The Consumer Case for Agressive Policies to Balance Supply and Demand -- comes as key Senate lawmakers have placed development of natural gas language on a fast track in preparation for another attempt to pass comprehensive energy legislation.

Mark Cooper, the report's author, told Greenwire that the report will form the basis for the group's response to a recent call by Senate Energy and Natural Resources Committee Chairman Pete Domenici (R-NM) for proposals for consideration when lawmakers craft the natural gas provisions of energy legislation early next year. The report does not endorse a specific policy but instead examines various options based on their economic, environmental and security characteristics, crafting a "framework" for weighing choices. Overall, the report says a combination of efficiency, pipelined Alaskan gas, conventional and unconventional sources, coal gasification and other steps will be needed to prevent shortfalls as demand grows in coming decades.

To read the report in its entirety, log onto http://www.consumerfed.org/naturalgaspolicy.pdf. (12/16/04)

On November 16th, the Federal Energy Regulatory Commission (FERC) asked for public comments on the proposed rule to establish an "open season" for companies to bid on capacity in the Alaska Natural Gas Pipeline. According to Greenwire, "An open season determines the size of the market demand for gas on a given project, providing nondiscriminatory access to capacity on any Alaska gas pipeline project while ensuring economic certainty to support the construction of the pipeline and provide a stimulus for further exploration, development and production of Alaskan gas." Written comments must be submitted by December 17, 2004, and must reference Docket No. RM05-1-000. Comments may be filed electronically via the eFiling link on the commission’s website at www.ferc.gov. Paper comments, along with 14 copies, may be submitted to FERC’s Office of the Secretary, 888 First Street, NE, Washington, DC 20426. (11/18/04)

On October 27th, the Federal Energy Regulatory Commission (FERC) announced a rulemaking schedule establishing an "open season" for energy companies to bid on capacity for the planned Alaska natural gas pipeline. Companies including BP, Exxon Mobil, and ConocoPhillips are expected to bid for a share of the pipeline that could transport and estimated 4.5 billion cubic feet of natural gas per day by 2014. The "open season" may run from a month to several months. The agency will also be responsible for a single environmental review to be completed within 18 months after receiving completed applications from the projects developers. The FERC said it will issue a notice of proposed rulemaking and a draft of the proposed regulations by November 18, 2004. A one day technical conference will be held in Alaska during the week of December 6 to solicit public comments on the proposed regulations. Written comments must be received by December 17th. Visit the FERC website for more information. (10/29/04)

The authorizing language for the Alaska natural gas pipeline was attached to the FY05 Military Construction Appropriations bill just prior to the vote and Congress' adjournment for the election on October 11th. According to Environment and Energy Daily, the language includes "a ban on a northern route for the line that would bypass Alaska markets, provisions that allow Alaska to control in-state use of the gas to promote its use for heating or enhancement of a gas industry in Alaska, and a streamlined permitting and expedited court review process to speed construction and limit judicial or regulatory delays...The bill also includes $20 million for a worker job training program in Alaska, including $3 million for construction of a Fairbanks training facility." This language, which effectively provides all the necessary prerequisites for the $20 billion project to get underway, was welcomed by the Alaska congressional delegation and may help Senator Lisa Murkowski who is currently in the midst of a tough reelection campaign. (10/20/04)

Previous Action

On September 30th, the 18 member Task Force for Affordable Natural Gas issued its final report on the causes of and short-term solutions to the natural gas shortage. The report cited several policy shortcomings leading to tight gas supplies including regulatory uncertainty, inability to identify potential natural gas resources using 21st-century technology, difficulty obtaining access to federal lands, and a lack of incentives to produce and transport gas on those lands. The all-Republican task force also recommended conducting a natural gas resource inventory on federal lands, creating a federal office to coordinate permitting and environmental review of natural gas projects, facilitating cooperation among federal and state agencies and stakeholders on leasing and permitting for natural gas production and transportation projects, streamlining the permitting of natural gas projects on federal lands, and ensuring timely decisions on lease applications for gas production on federal lands, thus permitting requests for natural gas pipelines and production on federal lands.

In response to the report, House Speaker Hastert issued a statement calling on the task force members and chairmen to "continue working together to find environmentally responsible ways to increase domestic supplies of natural gas and promote fuel diversity." One of the task force chairs House Energy and Commerce Committee Chairman and Billy Tauzin (R-LA), told E & E Daily that this report was merely "stage one" in a process of monitoring how natural gas supply, production and demand relate to the use of other fuels that will continue through the next year. (9/30/03)

Secretary of Energy Spencer Abraham was on hand at the 112th meeting of the National Petroleum Council in Washington, DC on September 25th. There, the Council presented, approved and released their report, "Balancing Natural Gas Policy -- Fueling the Demands of a Growing Economy." Penned by industry leaders and members of the Bush administration, the report asserts that a "fundamental shift" in the nation's gas supply-and-demand balance has led to price volatility and the doubling of natural gas prices in the past two years. The report recommends increased imports of liquefied natural gas, construction of an Alaskan natural gas pipeline and allowing drilling in currently protected coastal areas and federal lands, particularly in the Rocky Mountains. Further, it recommends lifting moratoria and allowing gas production off the Atlantic and Pacific coasts and in the Gulf of Mexico near the Florida panhandle. Conservation and greater energy efficiency were touted as possible near-term fixes to prevent prices from skyrocketing. A complete draft of the Summary of Findings and Recommendations is available at http://www.npc.org. (9/25/2003)

In response to the current natural gas issues, House Speaker Dennis Hastert (R-IL) created the Task Force for Affordable Natural Gas, which is composed of 18 Republicans from the Energy and Commerce Committee and Resources Committee. The intended purpose of the Task Force is to report to the Speaker on the causes of the gas supply shortage and possible short-term solutions. On July 21, 2003, the Task Force held it first public meeting. Task Force Co-Chair Billy Tauzin (R-LA) said the Task Force will not dictate solutions, define balances, or make policy. Their only concern is to recommend possible solutions. He asked the members to assign one member of their staff to work with the committee staff on the problem. By August 1st, Tauzin said, the staffs should have defined background information, the current state of the gas market, gas trends, and policy. Over the August recess, the Task Force will hold meetings to discuss the issues. By mid-September, the Task Force should finalize their recommendations, which are due to the Speaker by September 30. Tauzin said he did not agree with analysts, such as Alan Greenspan, who say there are no short-term solutions to the natural gas shortage. Co-Chair Richard Pombo (R-CA) said that we cannot afford to say there are no short-term solutions. (7/28/03)

On July 10, 2003, the Senate Committee on Energy and Natural Resources held a hearing to discuss natural gas supply and demand and its effect on the economy. Federal Reserve Chairman Alan Greenspan testified that the nation's has yet to be significantly affected by a current spike in natural gas price increases and that this effect will be difficult to anticipate. Greenspan went on to advocate a consistent national energy policy, maintaining that the US cannot expect industry to use natural gas without increasing the country's liquefied natural gas (LNG) import capabilities. Greenspan likened LNG facilities to a safety valve, allowing the US to increase imports to offset market fluctuations. Several committee members were were concerned about the safety of LNG facilities although panelist, President and CEO of Tractebel LNG North America Richard Grant contended that LNG transportation and storage is as safe, if not safer, than most other fuels.

The witnesses also condoned use of other energy sources to combat the current shortage. These included: clean coal technology, nuclear power, coal bed methane, tight sand gas, additional gas pipelines, and conservation and efficiency. Assistant Secretary for Energy Efficiency and Renewable Energy at the Department of Energy (DOE) David Garman pushed for energy conservation, listing a number of DOE programs with this focus. On the pipeline issue, Greenspan did not deem government subsidies necessary, maintaining that profit sufficiently motivate construction of a pipeline from Alaska to the continental US. (7/10/03)

The National Research Council (NRC) Board of Earth Sciences and Resources recently released a summary of a workshop entitled "U.S. Natural Gas Demand, Supply, and Technology: Looking Toward the Future." The event was held on April 22-23, 2003 in response to a joint request by the Department of Energy (DOE), Minerals Management Service (MMS), and the US Geological Service (USGS) to analyze government projections of natural gas supply and demand issues over the next 10-20 years. The agencies charged the board with identifying remaining natural gas reserves and with suggesting methods of increasing these reserves, resources and production. Although speakers focused on factors affecting supply and demand, they also addressed tax incentives, royalties and a need for federal-private research and technology models.

Amongst the factors influencing demand for natural gas, those that received most mention included economic growth, technological progress, resource bases, and carbon constraints. The workshop also revealed that proven reserves and unconventional gas (tight sands and carbonates, fractured shale, and coalbed gas) account for nearly 50% of technically recoverable resources in the US. Presenters also noted that while American demand will continue to grow, Canada, a major supplier of natural gas, will not significantly increase its export capacity. To meet this demand, according to workshop discussions, an educated and trained workforce, access to off-limits lands, increased storage capacity, a global transportation infrastructure, efficient and competitive fiscal and regulatory regimes, and rapid technology improvements will be necessary. (10/16/03)

Reps. Mark Udall (D-CO) and Tom Udall (D-NM) introduced H.R. 3698, the Western Waters and Surface Owners Protection Act, on December 15th. This legislation is the product of unsuccessful efforts to amend the embattled energy bill during its early days of being debated in the House Resources Committee. The bill would amend the Mineral Leasing Act of 1920 to require those seeking to extract mineral resources from federal lands to state on applications how they will protect water quality and quantity. The bill also would require lessees to replace water contaminated by coalbed methane development with fresh water that would be injected into depleted aquifers.

The measure comes as the omnibus energy conference report passed by the House sits in legislative limbo. On November 25th, the Senate voted 57-40 against ending debate and holding a yes-or-no vote on the conference report. According to E&E Daily, top GOP lawmakers are fervently seeking the 60 votes needed to get the measure to a final vote even though lawmakers are home in their districts enjoying the holidays with family and friends. The Senate is likely to take up the issue again on January 20th when Congress returns to Washington.

If the energy bill is passed, it will likely increase development of federally owned oil and gas resources through a combination of subsidies, tax incentives and exemptions from public review requirements, spurring the need for the stronger water protections, Mark Udall said while introducing the bill.

According to Greenwire, other provisions of the bill would:

  • Require oil and gas lessees to negotiate surface-use agreements with private landowners whose property sits over federal minerals. In cases where an agreement cannot be reached, the legislation would provide for an alternative dispute mechanism to ensure good-faith negotiations.
  • Require that landowners be notified of leasing decisions affecting federal oil and gas under their property.
  • Require full reclamation of all lands disturbed by oil and gas development, as well as bonds to adequately cover the costs associated with reclaiming all lands in case of forfeiture.
  • Establish a cleanup program for abandoned oil and gas wells on federal lands and private lands that overlie federal deposits. (12/22/03)

The Minerals and Management Service (MMS) proposed new incentives to boost natural gas production in the Gulf of Mexico. Published in the January 26th edition of the Federal Register, the incentives are designed to encourage the natural gas industry to explore deep gas deposits and offer a variety of royalty suspensions on wells drilled deeper than 15,000 feet. The incentives will only be offered to areas of existing production on wells that have started since March 26, 2003. In addition, production of natural gas must begin within the next five years.

Independent Petroleum Association of America (IPAA) spokesman Jeff Eshelman told Greenwire, "Deep natural gas wells are often very costly to develop, and the current royalty rate has often made the economics of developing such wells unattractive to companies and their investors." Industry groups said that the relatively small field of natural gas in the Gulf of Mexico will only go so far to supply the nation's estimated consumption of 22 trillion cubic feet annually and continue to urge Congress to pass the stalled energy bill. Passing the bill would allow similar incentives in coastal Alaska and in the Mountain West states. (1/26/04)

Increased demand in natural gas is leading Texas companies to increase drilling. Over 680 new wells were drilled in February. A new proposal for a $50 million pipeline at Texas' Barnett Shale natural gas field could be finished by early 2005 and would allow several companies to benefit from the 30 trillion cubic feet of reserves. Gas prices continue to rise and additional gas sources are constantly being sought out. (4/6/04)

In early April, Alaska Governor Frank Murkowski (R) signed a new law that appropriates $1.65 million to help bring North Slope natural gas to world markets. The legislation includes $650,000 for development of a project to export super-chilled liquefied natural gas. State officials are having trouble with bids for the building of the pipeline. One of the main companies withdrew its bid and another has stepped in and proposed to build the 745-mile pipeline with help from the U.S. and Canadian governments. State officials are still hoping to solicit more bids. The Alaska Gasline Port Authority has won a commitment from Calpine Corporation of California to negotiate a purchase price, including a tariff, and ship the gas through the proposed pipeline.

Under the Stranded Gas Act, a 1998 state law, Alaska my offer bonds or other incentives to private companies to help liberate some of the North Slope's estimated 35 trillion cubic feet of natural gas to markets in the lower 48 states. Tax provisions in the national energy bill in the Senate would provide billions in federal guarantees for construction of the pipeline. (4/15/04)

On May 20th, Rep. Lee Terry (R-NE) introduced H.R. 4413, the Liquefied Natural Gas Import Terminal Development Act. It aims to expand U.S. import capacity of natural gas by centralizing the permitting process for the construction of new LNG terminals under the Federal Energy Regulatory Commission.

Environment and Energy Daily has reported that natural gas prices have risen 80 percent in the last four years and are now up to $6 per thousand cubic feet, causing the loss of more than 800,000 jobs in the chemical industry alone. Paul Cicio of the Industrial Energy Consumers of America said that the bill's provisions are "in everyone's interest" and would help solve the natural gas crisis. The measure is being proposed as a substitute for some of the provisions of the comprehensive energy bill currently stalled in the Senate and as a complement to the energy bill (H.R. 6) that has been passed in the House.

Opposition to the bill largely comes from citizens who reside near the sites of proposed plants in California, Alabama, Massachusetts, and in coastal areas likely to house natural gas import facilities. They contend that safety and terrorism risks associated with the new plants pose a threat to their communities. The bill has been referred to the House Energy and Commerce Committee for their consideration. (5/26/04)

The House Subcommittee on Energy Policy, Natural Resources, and Regulatory Affairs met June 23rd to discuss the federal and state roles in siting liquefied natural gas (LNG) terminals at both onshore and deepwater ports. Chairman Doug Ose (CA) stressed the importance of LNG, explaining that increasing energy demands require the U.S. to import more LNG and consequently build more ports with the ability to accept these imports. The responsibility of licensing and securing these ports, however, has not been clear and the Committee called for federal standards that would specifically outline the LNG terminal permitting and siting process. As decided by the Maritime Transportation Security Act of 2002, the Federal Energy Regulatory Commission (FERC) has jurisdiction over the siting and construction of onshore terminals while the Department of Transportation (DOT), including the Coast Guard, is in charge of offshore terminal licensing and security.

Currently, five new terminals have been approved by federal regulators, but all with different criteria, raising questions of how secure they are from terrorist attacks and what danger they pose to nearby residents. Representative Edward Markey (D-MA) stressed the importance of building the terminals in remote locations during his testimony. He said this would be in compliance with a law he authored in 1979 that has largely been ignored by the DOT. He also called for a more thorough investigation of the safety of LNG tankers despite their good record over the last 40 years. Several other witnesses agreed with Markey, emphasizing the need for comprehensive federal guidelines before proceeding with the authorization of 35 pending LNG terminal applications. Eight deepwater port applications are currently being processed, but none are in operation anywhere in the world, making deepwater ports uncharted territory. Rear Admiral Thomas Gilmour from the U.S. Coast Guard assured the Committee they are modeling the offshore siting standards after the onshore terminals and are working to bring their regulatory standards in line with those of FERC.

Representative John Tierney (D-MA) stated his concern that the standards were relying too much on those of the industry; he believed the federal government should set standards independently. As for state agencies, none have a comprehensive plan addressing LNG import terminals. They have jurisdiction only on environmental issues that fall under the Coastal Zone Management Act and terminal siting must comply with their management plans. Gilmour assured the Committee they have been working with both federal and state agencies to ensure quick processing of permits and compliance with all necessary regulations. (6/25/04)

Background

An altered energy landscape, including "new concerns over national security, a changed near-term outlook for the economy, turbulence in energy markets based on perceived risk, price volatility, fuel-switching capabilities, and the availability of other fuels" prompted Secretary of Energy Spencer Abraham to request an assessment of the state of natural gas markets and consumption from the National Petroleum Council (NPC). In addition to these reasons, Abraham maintained that increased American dependence on natural gas, which accounts for almost one-quarter of national energy consumption, warranted this investigation. Prior to Abraham's March, 2002 request, NPC had not analyzed natural gas since 1999. The Secretary asked that the NPC analyze new supplies, technologies and risks as well as supply sustainability, and energy market dynamics. He also solicited advice on enhancing energy efficiency and the natural gas supply to meet US energy needs.

The following February witnessed a particularly cold winter, low stock prices, instabilities in oil producing countries such as Venezuela and later Iraq, and a flattening out the global oil supply. This prompted significant congressional discussion on national energy sources, including natural gas. At a February 13th hearing, the Senate Committee on Energy and Natural Resources discussed the availability of federal lands for resource exploration. When republicans complained that only 40% of federal lands (located in Alaska, mountain states, the outer continental shelf, and most significantly on coastal areas) were available for natural gas exploration, democrats drew attention to the meager 12% of lands completely unavailable for drilling, noting that these lands contained little or no gas anyway. Guy Red Cavaney, President of the American Petroleum Institute, also commented that permitting was a greater obstacle to gaining access to these lands than leasing.

A February 25th hearing by the same committee that focused explicitly on natural gas confirmed that the recent increase in natural gas prices was due to a harsh winter, a flattening of supply, and considerable growth of power plants using natural gas. Although short-term price volatility remained likely, witnesses predicted that current high prices would trigger an increase in drilling, bringing prices down. Congress could facilitate this by granting access to federal lands and encouraging of new infrastructure construction, witnesses maintained.

This discussion continued at a June 10th House Committee on Energy and Commerce hearing on Natural Gas Supply and Demand Issues. Witnesses advocated developing a better pipeline infrastructure, reversing the drilling moratorium on federal lands and exploring clean coal technology, liquefied natural gas (LNG), methane hydrate, and tight-sand gas. Of note was Federal Reserve Chairman Alan Greenspan's support of increased LNG imports.

No clear consensus has emerged on the LNG issue. During both the June 10th hearing and a June 19th hearing held by the House Subcommittee on Energy & Mineral Resources, panelists debated the merits of LNG imports. Although unique transportation requirements have rendered LNG prohibitively expensive in the past, Greenspan noted that costs have decreased and that a diverse set of natural gas sources would be adventageous. Others noted that the price of LNG still remained high, making it cost-effective only when natural gas from other sources was particularly expensive. Some disagreed, however, contending that LNG could be cost effective even in a market with moderately priced natural gas from other sources.

Meanwhile repeated calls for new drilling area led to a debate on drilling in the Artic National Wildlife Refuge (ANWR), created in 1980 in the Alaska National Interest Lands Conservation Act. Although drilling has never been allowed in the 19 million acre refuge, section 1002 of the Act leaves open the possibility of drilling in 1.5 million acres of the northern coastal plain (commonly referred to as the 1002 area) between the Brooks Range and the Beaufort Sea. The ongoing discussion conformed pretty closely to party lines, with republicans generally supporting drilling and democrats opposing it. More on ANWAR is available at http://www.agiweb.org/gap/legis108/anwr.html.

Sources: E&E News, Greenwire, hearing testimony, The Kansas City Star, The Los Angeles Times, The National Petroleum Council website, The New York Times, Thomas website, and The Washington Post.

Contributed by Ashley M. Smith, AGI/AAPG 2003 Fall Semester Intern; Emily M. Lehr, AGI Government Affairs Staff and Gayle Levy, AGI/AAPG 2004 Spring Semester Intern; Bridget Martin, AGI/AIPG 2004 Summer Intern; and Ashlee Dere, AGI/AIPG 2004 Summer Intern; David Millar, 2004AGI/AAPG Fall Semester Intern..

Sources: AGI's Energy Hearing Website for the 108th Congress; E&E Daily, Greenwire and THOMAS legislative database.

Please send any comments or requests for information to AGI Government Affairs Program.

Last updated on December 16, 2004


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