High Energy Cost SparksCongressional Interest (11/03)

The following column by AGI/AIPG Geoscience & Public Policy Intern Deric Learman is reprinted from the November 2003 issue of The Professional Geologist, a publication of the American Institute of Professional Geologists . It is reprinted with permission.

Natural gas has been praised for its ability to produce cleaner-burning energy. That praise has translated into increased demand for natural gas in industrial, commercial, and residential use. Last winter’s below-normal temperatures in the eastern U.S. also drove up demand. The combination of those upward pressures on demand and a flattening of the global supply of natural gas has meant higher prices. According to the American Petroleum Institute, natural gas prices have nearly doubled this year, producing a dramatic effect on the U.S. economy due to higher industrial production costs and higher residential heating bills.

The economic (and political) ramifications of high natural gas prices were not lost on Congress, which held a steady stream of hearings and briefings to discuss short-term and long-term solutions. Because this issue affects virtually all regions of the country, it is a local issue for almost all elected officials, including members of Congress. By holding hearings, senators and representatives can tell their constituents — who are knocking on their door looking for answers — that they are addressing the problem. But discussing possible solutions can only go so far in answering constituent pressure.With the additional incentive of the August blackout and questions about the electricity transmission grid, Congress also surged ahead on comprehensive energy legislation.

Short-Term Market Solutions

According to the economic principles of supply and demand, the best way to lower prices is to increase supply or decrease demand. So the big question is whether the U.S. can accomplish either of these solutions to bring the current gas prices down. On the supply side, many witnesses who testified to the members of Congress agreed that there is no short-term solution to “cure” the high natural gas prices. They said that the U.S. does not have the capability to increase supply enough to offset the high demand. A representative from TransCanada Pipelines Limited said that Canada, the biggest gas exporter to the U.S., would be unable to increase the amount of gas they send to the U.S. due to their own supply shortage. Amongst the gloom, some witnesses said that gas consumption and prices could go down if the temperatures over the next year were mild. As of the end of July, the mild summer temperatures already allowed the U.S. to place significant amounts of natural gas into the national reserve.

In an attempt to curb the U.S. energy demand, the witnesses and members of Congress did agree on one solution for both the short- and long-term: conservation and efficiency. A witness for the American Council for an Energy Efficient Economy said that the U.S. could decrease its energy demand by 10% by improving its energy efficiency. He asked Congress to increase federal efficiency incentives and efficiency standards as part of energy legislation. To show the administration’s support for energy efficiency, an official from the Department of Energy (DOE) told Congress that the DOE has started a national campaign to educate the public on ways
to increase residential energy efficiency. While there was a consensus about the positive impacts of increasing energy efficiency, there was doubt that efficiency could accomplish the goal of lowering prices alone.

Not everyone involved in the decision making process was content with the small list of short-term solutions. In response, 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 by the end of September, although that deadline was likely to slip. Task Force Co-Chair Billy Tauzin (R-LA) said the Task Force will not dictate solutions, define balances, or make policy. Their only stated concern is to recommend possible solutions.

Long-Term Market Solutions

Congress’s next goal was to identify long-term market solutions to avoid future gas crises. The most surprising longterm solution was given by Chairman of the Federal Reserve Board Alan Greenspan. He testified that the U.S. should increase its amount of imported liquefied natural gas (LNG). Greenspan presented similar testimonies to committees in both the House and Senate. His presence at the hearings reflected the impact of natural gas prices on the economy. His statement sent a shock wave through Congress, sending opponents of LNG on a damage control frenzy that lasted all summer. One of the opponents’ major concerns involved the safety risks associated with LNG. In response, representatives from the LNG industry said that LNG is as safe, if not safer, to transport and store than most other fuels. They also named Japan as an example of a nation that safely imports all of its natural gas from LNG. The next major concern LNG opponents voiced was that increasing LNG imports would just add to the U.S.’s energy dependency. Greenspan responded by saying that LNG facilities would act as a safety valve, giving the U.S. the option of increasing imports to offset market fluctuations. Also, natural gas resources are not as geographically isolated as oil resources, so the U.S. would not be dependent on one specific country.

Increasing domestic supply was by far the “biggest player” on the long-term solution field. This solution had a great deal of support in Congress because the U.S. has plentiful gas resources, it involves familiar techniques, and it is not accompanied by the possibility of high cost or safety concerns. The problem is that the gas resources are being stalled by two major roadblocks: transportation and the inability to gain leasing rights on federal land. Representatives from the natural gas industry said that transporting gas to the needed markets was difficult due to inadequate pipeline capacity and distribution. The second roadblock evolved from accusations that industry did not have the ability to lease federal lands that held the majority of the gas resources. At hearings throughout the summer months, witnesses presented data showing that the majority of the gas resources on public lands were available for leasing, but that the real problem lay with the leasing process. The process is very slow due to
complex applications and litigation. Representatives from the Bureau of Land Management said they are addressing the problem but lack the resources to keep up with the number of leasing applications.

Rounding up the list of long-term solutions was diversification of the nation’s energy supply with non-traditional methods of natural gas extraction – tight sand gas, coal bed methane, and methane hydrate – and other fuel sources – geothermal, nuclear, alternative fuels, and clean coal technology. Most of these solutions did not get much consideration from Congress because of high costs, safety reasons, or disbelief about their energy potential. Clean coal did get some praise from a select few in Congress because of the U.S.’s large coal resources, but other members of Congress were skeptical of the “clean” technology.

Comprehensive Energy Bill

The political pressure resulting from high natural gas prices was greatly compounded by the failure of the electricity grid in the Northeast during August. The combined pressure may be enough to push energy legislation through Congress. Members of the House and Senate are meeting in conference to hammer out a compromise between the House-passed bill and Senate-passed bill. Led by Rep. Billy Tauzin (R-LA) and Sen. Pete Domenici (R-NM), the conferees hope to complete their work in the fall. The idea for a national energy bill originated in President George W. Bush’s 2000 campaign, during which he decried the lack of a national energy policy. During his first two years of office, the president’s bill did not pass through Congress because of many controversial issues including fuel standards, climate change regulations, and drilling in the Arctic National Wildlife Refuge. With added encouragement from the White House, the Republican-led congress has made the administration’s energy policy a top priority.

Deric Learman received his bachelor’s degree in geology from Central Michigan University in May and began graduate school in environmental geochemistry at Virginia Tech this fall.

This article is reprinted with permission from The Professional Geologist, published by the American Institute of Professional Geologists. AGI gratefully acknowledges that permission.

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

Posted June 29, 2005

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