Location: New York
Author: Ken Silverstein, EnergyBiz Insider, Editor-in-Chief
Date: Monday, August 18, 2008
Natural gas may once again become a preferred fuel, but only if the confluence of events surrounding it convinces a majority of U.S. lawmakers to give producers more access to federal areas now forbidden.
Concerns over climate change in combination with escalating energy prices are forcing policymakers to take a harder look at issues once considered off-limits. The Bush administration in July lifted the executive ban on oil and gas leasing operations on the Outer Continental Shelf. It then subsequently moved to jumpstart further development by asking the U.S. Department of the Interior to analyze the nation's future energy needs.
President Bush and the presumptive Republican Nominee John McCain are now pushing Congress to amend its own ban that has been in place since 1982. The two are also working to enact legislation that would give states a say in the process. For his part, Barack Obama, the apparent Democratic nominee, has softened his view. If off-shore drilling is part of a comprehensive energy strategy, then he says that he would not resist.
Times have changed. Natural gas prices have risen about 460 percent over the last eight years. Industrial facilities, which are voracious consumers of natural gas, say that energy costs can be 80 percent of their overall production costs. At the same time, Congress is moving inexorably toward a carbon constrained society and discussing cap-and-trade legislation that would limit carbon dioxide emissions. If this occurs, it will immediately increase the demand for natural gas.
"Natural gas producers don't need special subsidies," says Marc Smith, executive director of the Independent Petroleum Association of Mountain States. "They need access to the places where energy resources are found, and a predictable regulatory and tax structure to make long-term investment decisions that ensure uninterrupted supply."
According to Smith, 279 million acres of federal land have oil and natural gas potential. Of that, 145 million acres are closed to leasing while another 20 million are inaccessible because of the prohibition against surface occupancy or ground disturbance. Similarly, off-shore supplies now provide 27 percent of U.S. oil production and 15 percent of the nation's natural gas production. Advocates of greater drilling rights say that an additional 18 billion barrels of oil and 76 trillion cubic feet of natural gas are available in the Outer Continental Shelf if Congress lifts its ban.
Beyond that, untraditional forms of natural gas such as shale could vastly increase supplies and provide fuel for 100 more years. Shale formations are prolific in the Appalachia region and in the Gulf States of Texas and Louisiana. In testimony before Congress, Chesapeake Energy said that Haynesville Shale in the Gulf region could provide 44 trillion cubic feet, which is twice what the U.S. consumed last year.
"I believe that natural gas can and should be the driving force for how Congress can take bold action to free our country from the death grip of high prices for imported oil, thereby improving our economy, enhancing national security and helping the environment," says Aubrey McClendon, chief executive of Chesapeake.
Logical Choice
Not everyone feels that way. The Democratic leadership says a carbon-constrained world necessitates that the nation's resources be channeled into green energy development. They also say that millions of acres have already been leased to oil and gas developers and they have yet to explore in those regions. To ask for access to untouched pristine areas is not only unnecessary but also unproductive, they say. That's because it would take at least decade for such supplies to come online.
The most ambitious of those thinkers, which includes former Vice President Albert Gore, are pushing the nation to go totally green in 10 years. They say that the effects of climate change are occurring and that immediate steps are necessary. They are requesting the rapid development and commercialization new energy technologies as well as the creation of an integrated grid to deliver renewable power to wherever it is needed.
"Moving instead to the path toward free fuels would offer the affordability, stability and confidence our economy desperately needs," says Cathy Zoi, chief executive of the Alliance for Climate Protection.
Proponents of additional drilling rights say that the two causes do not contradict one another. Advances in technology and safety mean that exploration is safer and less noticeable than ever before. They also say that natural gas does not compete with renewable energy, noting that two are destined to grow in tandem. Wind and solar power are intermittent and must therefore have a back-up energy source.
Natural gas is a logical choice, given that its greenhouse gas emissions are half that of coal. It is also much cleaner, having no associated mercury releases and far less nitrogen oxide and sulfur dioxide emissions. As such, the U.S. Energy Department is predicting that the demand for natural gas will rise by 11 percent by 2020.
"The good news is that these new state-of-the-art gas-fired plants are clean and efficient and they can be located in urban and suburban areas adjacent to the electric load," says David Manning, executive vice president for U.S. external affairs at the National Grid. "Combined cycle or co-generation plants have dramatically improved the heat efficiency and reduced emissions per unit of power purchased."
Natural gas producers are digging deep for support, arguing they can deliver enough energy to help the country meet its future demands. Increased drilling rights have long been elusive but high energy prices and environmental constraints are now providing an effective one-two punch. Obstacles abound. But an eventual compromise could ease restrictions and give producers some additional opportunities.
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