Summary of Hearings on Natural Gas (7-7-06)
The House Committee on Small Business, Subcommittee on Tax, Finance and Exports held a hearing to address the effect of rising natural gas prices on small businesses. In their opening statements, members continuously expressed concern that high natural gas prices were hurting small businesses. "Currently small businesses are suffering under the high cost of natural gas it's our responsibility as members of Congress to ensure that the government is not interfering with the development of low cost energy," said Chairman Jeb Bradley (R-NH).
James Kendell, Director of the Natural Gas Division at the Energy Information Administration, discussed recent data collected on natural gas prices. He stated that the price hike of last winter was caused by supply problems from the hurricane season and increased consumption by the electric generation utilities. However, that spike doesn't reflect a trend for the near future. "Natural gas prices are projected to be lower for the rest of 2006 down $1.12 per thousand cubic feet from last year," projected Kendell. In addition, the prospect of increased drilling may help drive prices even lower.
The next witness described the potential of outer continental shelf (OCS) drilling to reduce natural gas prices. "The OCS is a major supplier of natural gas, and supplies more gas than any state other than Texas," described Walter Cruickshank, Deputy Director of the Minerals Management Service. "In recent years, the strongest growth has been in the deep water OCS (over 1000ft) This has been a major success story, with 90 new wells being drilled," he said. He also described the effect major weather events have on the ability to recover natural gas, and stated "Since the onset of Hurricane Katrina, 9% of [recoverable Gulf of Mexico] gas has remained shut in." Future severe weather catastrophes may have a similar impact on the ability to drill, and thus cause short term price spikes. He concluded his testimony by reviewing the potential of the OCS to supply natural gas. "There are 420 trillion cubic feet of undiscovered, recoverable gas," he said, "leaving great potential for expanded OCS drilling."
Tom Lonnie, the Assistant Director for Minerals, Realty and Resource Protection Directorate at the Bureau of Land Management (BLM), briefly reviewed the role of the BLM in exploring for and recovering natural gas. "BLM administers over 45,000 oil and gas leases, of which over 23,000 are producing [BLM] ensures production on public lands in an environmentally friendly way," he said. Lonnie also commented that the demand for natural gas has long surpassed the domestic capacity to supply more, leaving the price of natural gas open to volatility and fluctuation.
Witnesses from the private sector also discussed their concern with high natural gas prices. Richard Goodstein, a Washington representative for Air Products and Chemicals, Inc., described the critical role of natural gas in producing hydrogen. "The country will need the building block of hydrogen, natural gas," he said. Hydrogen may possibly be the nation's primary transportation fuel in the next 20 to 30 years, however, the hydrogen industry across the nation is in the early stages of development. Even so, in some regions of the country, the hydrogen industry has made significant progress into the market place in recent years. "In some places in California, hydrogen is available as a cost competitive fuel with appropriate government support, the U.S. can have a competitive edge in the development of hydrogen," reflected Goodstein.
Jeff Uhlenburg, President of the Donovan Heat Treating Company, described how his business struggled to operate during the last major increase in natural gas prices. Gas supply to his plant is cut off when supplies are low because electric utility demand is high. "Small business cannot compete with the electric utilities for natural gas," he said. This has a large impact on the cost of running his plant because they have to switch to propane, which is significantly more expensive than methane. Last year this resulted in major layoffs. Uhlenberg also encouraged members to allow continued development of natural gas. "Government should continue to give incentives for the market to work and allow fast track environmental permitting as long as they meet reasonable limits on emissions," he said. In his final comments, Uhlenburg also noted the importance of energy efficiency. "Conservation and efficiency is something each and every one of us can do right. Each business should work to conserve as much as possible."
Paul Wilkinson, Vice President of Policy Analysis at the American Gas Association, discussed the need for greater access to natural gas reserves. He commented on several congressional initiatives to expand natural gas drilling. "Drilling in the outer continental shelf is a step in the right direction," he said. "The three major steps to reduce the price of natural gas are to unlock domestic sources of natural gas, expand infrastructure like the Alaskan pipeline, and invest in liquefied natural gas receiving terminals at our ports," he said. Before these steps are taken, "the winds of weather" will always have an effect on prices.
Members of the committee asked questions concerning the stability of natural gas prices. Reps. Jeb Bradley (R-NH), Susan Kelly (R-NY), and Juanita Millender-McDonald (D-CA) were concerned that wide variations and unpredictability in natural gas prices hurt small businesses as much as the high prices themselves. Kendell responded to their concerns, citing the unpredictable hurricane season as a potential source of variability. However, other than abnormal catastrophes, prices should decrease. Kendell cautiously predicted that prices may become relatively stable compared to 2005, but insisted that the prices will not be as stable as the 1990s. "We don't expect them to be stable from month to month or from year to year," he said.
On November 17, 2005 the House Resources Subcommittee on Energy and Mineral Resources held a hearing to discuss the Outer Continental Shelf Natural Gas Relief Act (HR 4318), which proposes to allow natural gas drilling in areas more than 20 miles offshore. The bill, which is cosponsored by Representatives John Peterson (R-PA) and Neil Abercrombie (D-HI), is seen by some as a more heavy-handed approach to offshore energy development than a bill introduced by Resources Committee chairman Richard Pombo (R-CA) that would let states opt-out of a current offshore drilling moratorium for both oil and gas development.
Both Peterson and Abercrombie were present to promote the bill. Peterson
emphasized that natural gas shortages were a "problem caused
by government" since the Clinton administration had promoted
the use of natural gas without allowing the development of offshore
supplies. Peterson said he was promoting offshore development because
it is the easiest way to deliver gas to those who need it and because
it has no onshore environmental impact. Abercrombie pointed out that
his presence alone indicated that the issue is not a partisan one,
and he said the bill's opponents were "missing a genuine opportunity
to make a difference."
The prospect of jobs and factories moving overseas to countries with cheaper natural gas, in particular China, loomed over the hearing. At one point Peterson warned the committee that Hershey foods, which is based in his district, might soon be making its chocolate outside of the United States. Abercrombie asked the panel about China's policy on offshore drilling for gas. Gerard replied that while China imported most of its gas, it was looking at increasing its domestic onshore and offshore supplies. He also reminded the subcommittee of the often repeated fact that "the United States is the only country in the world that restricts access to energy resources."
Subcommittee members were also interested in hearing the witnesses' ideas on how to increase public awareness of this potential crisis and overcome widespread opposition to offshore drilling. Gerard told the committee that "a lot of people who are environmentally in tune accept this issue." Abercrombie said his experience did not agree with that assessment though. "I've been put in the village stocks by the environmental groups," he said. Bradley predicted that "once the heating bills hit in January, a lot of people are going to support policies that directly impact these costs." Several witnesses suggested that media campaigns to encourage energy conservation could also be used to educate people on natural gas supplies.
Overall the witnesses expressed a great deal of anxiety over the
effects of rising natural gas costs, and emphasized it was important
for Congress to act as quickly as possible. Geoffrey Hunt, who represented
lightbulb manufacturer Sylvania, said his company had gone as far
as it could with energy conservation, and he urged the subcommittee
members to help him keep Sylvania factories open. "I'm not looking
for a handout," he said. "I'm looking for free market economics
to work." Gerard told the committee there was still some hope
to reverse negative impacts on American industries, since opening
offshore areas would send a market signal that would moderate gas
prices immediately, even if new production would take several years
to come on line.
On October 25, 2005 the Interior and Related Agencies Subcommittee of the Senate Appropriations Committee met to examine oil and gas activities on Bureau of Land Management (BLM) lands. Opening the hearing, Subcommittee Chairman Conrad Burns (R-MT) suggested that the current focus on increasing offshore oil and gas production was misplaced. "It takes a long time to build a platform," he said. "There are trillions of cubic feet [of natural gas] onshore, where pipelines are already in place." Senator Larry Craig had harsh words for the BLM, claiming that the agency had not risen to the challenge of meeting the nation's growing energy demand. "I'd like to know who's asleep at the switch," he said.
BLM Director Kathleen Clarke attempted to answer this criticism with her testimony, pointing out that the BLM had rapidly increased the number of drilling permits it approved during her tenure. This year the agency approved 7000 Applications for Permits to Drill (ADPs) she said, double the amount it approved in 2002. Clarke also praised some provisions of the Energy Policy Act of 2005, particularly the establishment of pilot offices to streamline permitting, but pointed out that the law does not address environmental regulations that are a major stumbling block to increased energy development. Logan Magruder, from the Independent Petroleum Association of Mountain States, testified that the backlog of ADPs had increased dramatically over the past few years, and agreed with Clarke that environmental regulations were a major reason behind this. At one point Magruder pointed to a convoluted chart that represented the steps necessary for complying with the National Environmental Policy Act (NEPA). Two other witnesses, Paul Cicio and Ford West, who represent industries that rely on natural gas, testified as to how high natural gas prices are hurting these industries, and in many cases forcing the closure of fertilizer and chemical plants.
Both Cicio and West partly blamed the high price of natural gas on the increasing use of the fuel to produce electricity. Senator Robert Bennett (R-UT) suggested that the Energy Policy Act had addressed this problem, saying that it promotes "nuclear for electricity, and gas for industry." West, however, said, "The problem is only going to get worse, since there are new gas electric plants being built." Senator Pete Domenici (R-NM) asked what the panel thought of gradually reducing the percentage of natural gas that utilities were allowed to use. Cicio said the industries he represents wouldn't support that because it was a government mandate. Instead he suggested that Congress amend the Clean Air Act in order to encourage the use of coal for electricity.
Another subject that prompted discussion during the hearing was the effect of winter regulations on drilling activity. In response to a question from Domenici, Clarke said the BLM was legally required to "accommodate sensitive or game species needing habitat during certain seasons." Magruder said he was sensitive to concerns about elk hunting, but also pointed to anecdotal evidence of drilling being interrupted for up to five months due to habitat restrictions. Burns agreed that this was an issue that needed further discussion, saying, "I'm not an expert, but I've never seen wildlife out there in the dead of winter. This winter issue is bigger than we thought." Clarke also mentioned that there is a pilot program in the Pinedale, Wyoming BLM office testing the effect of winter drilling on wildlife populations.
Most of the hearing was focused on natural gas, but
Senator Wayne Allard (R-CO) was eager to discuss the development of
oil shale, which is abundant in his state. Clarke said the BLM had
received about 20 proposals for research and development permits involving
oil shale, and that the agency would finish issuing those permits
in the spring.
On September 14, 2005, the Government Reform Subcommittee, chaired by Representative Darrell Issa (R-CA), revisited measures to alleviate the burdens of escalating natural gas prices on consumers and businesses. The committee heard testimony from administration officials, industry representatives and consumer advocates on the status of the natural gas crisis in the aftermath of Hurricane Katrina. Discussion also included the virtues and limitations of the new Energy Policy Act of 2005, and recommendations for additional, more aggressive policies.
According to Guy Caruso of the Energy Information Administration, natural gas prices peaked at $13 per thousand cubic feet (tcf) following Hurricane Katrina, up from $10 per tcf, which was already over double 2004 prices. According to Rebecca Watson, Assistant Secretary of Land and Minerals Management, 35% of Gulf Coast natural gas supply, meaning about 7% of the nation's total natural gas supply, remained shut down as of the hearing, as industry continued to repair damage to onshore support facilities. While both officials remained optimistic about recovery, Caruso said that the near-term outlook for price stability would depend heavily on the timing and pace of the effort and that, even if heating prices recovered before this winter, prices of petroleum-based products would remain high for a long time thereafter. Assuming a "medium" rate of recovery, the EIA expected residential heating gas prices to be 46% higher than last winter on average, or 71% higher in some areas of the northern Midwest.
In his opening statement and throughout the hearing, Chairman Issa stressed the negative impact that persistent high natural gas prices have on U.S. competitiveness, as manufacturing industries struggle to keep up with the global market. Although Issa called the recently passed energy bill "a step in the right direction," he added that events such as Hurricane Katrina "have caused a reexamination of policies and practices in terms of domestic production." Namely, Issa called for revisiting possibilities such as year-round onshore drilling, increased outer-continental shelf production, and more liquefied natural gas terminals.
In contrast, the committee's ranking member, Diane Watson (D-CA), zeroed in on the possibility of market manipulation and how it may be impacting prices. She also stressed the importance of facilitating long-term as well as short-term solutions as the nation recovers from the immediate crisis. Similar to the energy crisis in California, she said, supply shocks like the post-Katrina situation are in part attributed to the kind of "shortsighted planning" included in the energy bill, and exacerbated by price gouging among energy companies.
Witnesses tended to side with the views of either Chairman Issa or Representative Watson as they delivered their recommendations. Secretary Watson and Logan Magruder, President of the Independent Petroleum Association of Mountain States, pressed hard for expanded access to natural gas supplies on federal land and the outer-continental shelf, especially the 139 tcf trapped in the intermountain region of the western United States. Watson said that, while the Energy Policy Act of 2005 gave the Interior Department mandates to increase permits to drill, legal battles have increased 4-fold over the last four years, placing further pressure on the supply market. Magruder agreed, calling for an overhaul of the National Environmental Policy Act (NEPA), which he said is primarily responsible for slowing development. Also pushing for supply diversification, Mike Zenker from Cambridge Energy added that there would be no feasible way to meet the nation's growing demand without increasing imported liquefied natural gas.
On the other end of the spectrum, Tyson Slocumb from Public Citizen, a consumer advocacy group, pushed for better regulatory oversight of energy companies and an emphasis on conservation. "Strengthening transparency empowers market participants and makes for more efficient, competitive markets, which in turn lead to fair prices for consumers," he said. One policy he emphasized to curb demand, conceived by the American Council for an Energy Efficient Economy (ACEEE), would reduce natural gas demand by 10% by 2020.
During the question and answer period, witnesses and members disagreed further about where the energy bill failed to meet the nation's needs, and what Congress should focus on now. Representative Brian Higgins (D-NY) agreed with Slocumb that subsidies for energy industry contained within the energy bill dwarfed the bill's conservation measures, asserting that "the energy bill provides just enough incentives for alternative energy sources to say we're doing something." Secretary Watson disagreed with this assessment, arguing that the bill contained several meaningful measures. She declared that the focus of congress should be on public education rather than creating new environmental and other regulatory laws.
Following up on a half-day natural gas conference organized last month, witnesses from FERC, the Coast Guard, State authorities, and industry stakeholders offered testimony on LNG siting and safety before the Senate Energy and Natural Resources Committee Energy Subcommittee. The hearing focused on the siting process of LNG terminals and infrastructure, risk assessment, and the involvement of State and local governments.
At the center of the debate over siting new, safe LNG facilities lies the proposal to grant the Federal Energy Regulatory Commission (FERC) primary jurisdiction over the regulatory process. Senator Jack Reed (D-RI) and David Cicilline, Mayor of Providence, testified against a plan for an import terminal in Providence, RI, accusing FERC of already failing to cooperate with local officials in considering significant risks, such as shipping imports through a heavily populated area and allowing grandfathered safety standards. On the other end of the table, Thomas Giles of Sound Energy Solutions testified that the regulatory process has been undermined by needless jurisdictional disputes in the Long Beach, CA project, and FERC should be named lead agency to avoid such disputes nationwide. Giles as well as Mark Robinson, representing FERC, assured the committee that state authority would be maintained through the Coastal Management Act, the Clean Water Act and the Clean Air Act.
Mike Peevey, President of the California Public Utilities Commission, which is battling FERC for jurisdiction over the Long Beach site, proposed Congress should, "rather than consider legislation for exclusive federal jurisdiction, consider legislation for concurrent federal/state jurisdiction and not preempt state government." He asserted that state agencies have "a much better understanding than FERC of unique local conditions" and also have greater opportunity to raise public awareness and support.
In the second panel, witnesses reported on various safety concerns
of on-shore and off-shore terminals, susceptibility to terrorist attacks,
and the overall excellent safety record of LNG vessels and facilities.
When asked by Senator Lamar Alexander (R-TN) regarding the advantages
of off-shore facilities, Robinson testified that off-shore terminals
are unprecedented for the U.S., much more expensive to construct,
and they involve their own environmental risks. Grant testified that
off-shore facilities would be "good supplements" to onshore
facilities, which are more secure and reliable because they are located
in the market area.
On January 25th, Senate Energy & Natural Resources Committee staff invited 32 representatives from industry, environmental groups, and government agencies to discuss 38 policy proposals that would address the growing gap between natural gas supply and demand. The conference was meant to initiate bipartisan discussion and draw attention to rising gas prices before the Senate issues an energy bill draft later this Spring.
The half-day conference involved six panels devoted to policy topics including the expansion of on-shore and off-shore domestic supplies, liquefied natural gas (LNG) siting and safety, infrastructure improvement, environmental concerns, and the use of fuel efficiency and diversification programs.
Representatives from the oil and gas and utilities industries put forth numerous proposals for streamlining the permitting process and expanding domestic production, calling for a re-evaluation of environmental regulations in the face of improved technology. Many proposals sought access to restricted land around the Rocky Mountains, in the outer continental shelf, and expanded production in the Gulf of Mexico. Oil and Gas stakeholders claimed that production could be realized without creating a lasting environmental impact. The Bureau of Land Management (BLM) and USGS reported 85% of the 400 trillion cubic feet (tcf) offshore domestic natural gas supplies and 55% of the 600 TCF onshore supplies would be available with direct action from Congress.
Environmentalists testified that domestic production can be increased without surrendering restricted land and relaxing environmental standards, citing that 88% conventional natural gas resources are already currently available for leasing and development under the BLM onshore program. The continental shelf, they claimed, would simply be "too fragile" to sustain gas operations. Other policy suggestions included a targeted interest in BLM funding to improve land use mitigation and an emphasis on efficiency programs and a national renewable energy portfolio standard. Senator Jeff Bingaman (D-NM) announced a consensus that BLM and the Forest Service should receive more funding to act on drilling applications and monitoring compliance.
Many who supported the development and expansion of natural gas and LNG operations emphasized the need to grant the Federal Energy Regulatory Commission (FERC) full authority over the siting and certification process in order to minimize jurisdictional disputes among government agencies.
Proposals to promote supply diversification and energy conservation
received much attention as key components of natural gas policy. A
representative from the American Council for and Energy-Efficient
Economy (ACEEE) testified that, with supply and demand in tight balance,
a small, 4-5% improvement in efficiency could result in a much larger,
25% reduction in gas demand, translating to roughly $100 billion in
savings. Among those advocating for improved diversification, coal
gasification, synthesis gas, wind and nuclear were top picks for alternative
Sources: Hearing testimony, E&E Daily.
Contributed by Katie Ackerly, AGI/AAPG 2005 Spring Semester Intern, Peter Douglas, AGI/AAPG 2005 Fall Intern, and Tim Donahue, AGI/AIPG Summer Intern
Please send any comments or requests for information to AGI Government Affairs Program.
Last updated on November 22, 2005.