Ken Silverstein EnergyBiz Insider Editor-in-Chief

While natural gas may be given a priority status when it comes to permitting new electric generation, producers still have difficulty winning permission to drill and to lay pipelines. That doesn't just keep pushing prices higher. It also causes utilities and other generators to rely on other fuel sources such as coal.

The Interstate Natural Gas Association of America is one of the most vocal proponents of streamlining the pipeline permitting process. It is advocating a complete study "of the impediments that delay environmental review, data gathering, certification and construction of interstate natural gas pipeline projects" and one that would try to avoid duplication by the various federal and state agencies assigned to give permission to build.

Take Alaska's Prudhoe Bay: It produces about 8 billion cubic feet of natural gas a day, or roughly 13 percent of this country's daily consumption. But, that gas never reaches the Lower 48 states because it waits for a pipeline to be built. Just recently, though, the state offered a contract to build a 3,400-mile pipeline at a cost of $20 billion -- the biggest natural gas pipeline deal ever made. The deal has been 30 years in the making. Still, developers must overcome a host of opposition that is bound to be formidable. Under any circumstance, regulators are under federal mandate to expedite the review process.

According to the gas pipeline association, the country needs to invest $61 billion in its natural gas pipeline infrastructure. It also says that the industry must build 45,000 miles of pipelines in North America, as well as about 10 new liquefied natural gas (LNG) terminals, in the next 12 years. The association says that some of that pipeline is needed right now, given that areas of the country -- particularly California and the Northeast -- have bottlenecks that are creating severe price hikes. Any delays, it says, will only serve to drive up those rates even more.

Already, the United States has 206,000 miles of interstate pipeline, says the U.S. Energy Information Administration. There's another 73,000 miles of intrastate pipelines.

The high price of natural gas is a double-edged sword. On the one hand, the price is plenty steep that developers could reap above normal returns on their investments. And if the money is there, they will find ways to explore and build new pipes -- if it can all be done in an environmentally safe manner. The bad news for developers is that the high price is forcing utilities to examine alternative energy forms.

No Relief

Back when natural gas was in the $2-$4 per million BTU range, the U.S. Energy Information Administration said that the country's appetite for the fuel source would grow from 22 trillion cubic feet (tcf) a year to 30 tcf a year by 2020. January's deliveries for natural gas were $14 per million BTU. So, those optimistic forecasts seem skewed at this point.

"We'd take $6 gas anytime," says Michael Bradley, president of NewSouth Energy, at Louisiana State University's annual conference on global energy markets in Baton Rouge. Indeed, NewSouth, a Calpine company, is one of the largest consumers of natural gas in the country. The implication of his comment is that Calpine does not expect such a precipitous drop in prices for the foreseeable future.

The natural gas industry says that the solution to high prices and the over-reliance on coal is an obvious one: give producers more access to federal lands and waters that are now off limits to production. With such entrée, they say they could begin meeting the country's future expectation for natural gas. In the Rockies, for example, 45 percent of all likely deposits are off limits to exploration.

Despite high prices and the cry for new supplies, the pipeline permitting process is still onerous. The first step is to determine whether new pipelines are needed and whether the price of natural gas supports construction such that companies can obtain firm contracts to finance them. If so, potential routes are studied by looking at the predicted flow of natural gas from producing fields to power plants or other delivery points. Potential routes are chosen based on terrain and environmental factors as well as projected population growth and rates of return.

Robert Cupina, deputy director of pipeline projects at the Federal Energy Regulatory Commission spoke at LSU's conference. He told this writer that FERC encourages a so-called pre-filing process whereby developers consult with landowners and environmental groups in advance of filing a formal request. The regulatory body, he adds, has squeezed most of the inefficiencies out of the permitting process. And while there may still be delays, they are generally not the result of FERC dragging its feet, he says.

Take El Paso Corp.: It received permission to build pipelines in land controlled by the Navajo Nation near its Arizona headquarters. But, it has yet to win renewal on a right-of-way agreement from the group that controls the land. This dispute is over the price per acre for a 20-year lease -- a move that prompted El Paso to go over the Navajo Nation's head and appeal directly to the U.S. Department of the Interior.

Expeditious Process

For its part, FERC has approved dozens of pipeline projects in recent years. In the last two, it has approved eight LNG plants and three of those have already started the construction process, says Cupina. "We've taken six months off the old process. It's more thorough and there's no corner-cutting. The pre-filing process allows us a head start and there are faster and better outcomes as a result."

Cupina points to the Greenbrier Pipeline project as an example of how developers should work with all stakeholders in advance filing permits. Dominion Resources won permission to build a 280-mile pipeline from West Virginia to North Carolina but has delayed construction because of other demands on its capital resources. Meantime, the Wyoming Natural Gas Pipeline Authority is working with Kinder Morgan and Sempra Energy to connect Wyoming gas to eastern markets where prices are 30 percent higher.

"If it takes our entire commitment, we are willing to work with Kinder and Sempra to get this project done," says Bryan Hassler, executive director of the pipeline authority, in a conference call reported in the news.

The will to expand the nation's natural gas resources and infrastructure may be coming to a crescendo. High prices and bottlenecks are forcing policymakers to go into high gear. Nevertheless, plenty of hurdles stand in the way and overcoming them won't be easy. The outcome will help decide whether natural gas will remain on the preferred list.

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