Oil, gas and the nation's governors

Oil and gas may have been pushed to the sidelines during the National Governors Association's 2008 winter meeting in Washington, DC. But a few states' chief executives acknowledged that traditional energy sources, which also include coal, will have to come off the bench in helping the nation meet its energy and environmental challenges.

Tim Pawlenty, Minnesota's Republican governor and NGA's 2007-08 chairman, unveiled a year-long initiative, "Securing a Clean Energy Future," with goals similar to those which Congress and the Bush administration already have outlined: reducing US dependence on imported oil and cutting greenhouse gas emissions by developing more environmentally benign alternative fuels that are domestically produced.

SCEF's biggest difference is that it would use states' positions as utility regulators and their universities' research and development capacities to advance research into energy alternatives and create financial incentives for their development. Governors and outside speakers emphasized that business simply can't continue as usual. Michigan Gov. Jennifer M. Granholm, a Democrat, said that her administration is committed to replacing lost manufacturing jobs with positions in "green" industries.

But other governors warned that traditional energy sources should not be marginalized in the drive to develop alternatives. "There's a sense that producing states are pushing back against this. That's not true. We want to be part of it," said Joe Manchin III of West Virginia, a Democrat who chairs NGA's Natural Resources Committee.

"Natural gas, being clean burning, should be included in a greener energy future," observed Alaska Gov. Sarah Palin, a Republican who is the committee's vice chair, as its meeting began on Feb. 24. "The conventional resources we have can fill the gap between now and when new technologies become economically competitive and don't require subsidies."

'Some inevitabilities'

"As much as we would all like a technological future that drives toward a secure energy position and improved environment, there are some inevitabilities with which the United States will have to contend," noted Edward M. Kelly, a midstream gas specialist at Wood Mackenzie Ltd. in Houston, in remarks at the committee meeting.

He said that those inevitabilities include continued US reliance on imported oil, domestic oil and gas production remaining vital with more unconventional sources needed as supplies from standard sources are depleted, and increased use of natural gas to generate electricity, particularly if government officials decide to make using coal more expensive. Domestic gas supplies are available to meet much of the increased demand, but more liquefied natural gas imports also will be needed, Kelly said.

But Wyoming Gov. Dave Freudenthal, a Republican, warned that increased reliance on gas to generate electricity won't totally solve the increased greenhouse gas emissions problem. "While switching to natural gas seems environmentally benign to some people, it's troubling to others because it can lead to production from deeper formations which could include as much carbon dioxide as from coal, and which should include the same restrictions," he told the committee.

Following the meeting, he told OGJ Washington Pulse that Exxon Mobil Corp.'s production from deep gas formations at Short Creek vents 2,000 cubic feet of CO2 for every Mcf of methane that is recovered. "They're using some of it for enhanced oil recovery, but this characterizes problems of what can come up with deep gas. All natural gas is not the same in terms of carbon emissions impacts," Freudenthal said.

Bigger role for states

"It's not the size of reserves but concern about the environmental consequences of burning fossil fuels that drives public sentiment," said Jonathan E. Schrag, a founding partner of Hudson Strategic Energy Advisors. States should be at the foreground of energy research because they regulated utilities and have universities where early research can take place, he suggested.

Reliance on Future Gen and other federal efforts has been not been productive because it emphasized federal support for a single large project instead of building several small projects which could be expanded once their technologies has been successful demonstrated, Schrag said. States also need to take the lead in carbon capture and sequestration because they are best equipped to address siting and regulatory questions, he added.

"We have an odd geology in Michigan because we're on top of the Great Lakes. We currently store much of the country's natural gas and would like to be able to store carbon," Granholm said.

Schrag recommended that states form teams from their environmental and energy offices to examine carbon sequestration's potential because those divisions already have experience regulating gas storage. He also said that carbon sequestration needs to be separated from enhanced oil recovery before it can be publicly accepted because its EOR applications are limited.

Oil shale's role, impacts

Colorado Gov. Bill Ritter, a Democrat, asked Kelly if oil shale was a part of Wood Mackenzie's US energy forecast. Kelly responded that it is. "Full-out development of unconventional resources will be necessary to keep oil imports down," he said. Ritter noted that Colorado has substantial oil shale resources, but added that the state has questions about surface disturbance and restoration, groundwater and other potential environmental impacts of oil shale's development.

Ritter also said that he had detected concern from governors of states where coal, oil and gas are produced that the fuels have not been included and that the SCEF template was being developed too quickly. Roles for such existing fuels might need to be addressed later, he said.

Palin told OGJ Washington Pulse following the meeting that Ritter might be right. "I just don't want things to get out of hand with incentives for renewables, particularly since they imply subsidies, while ignoring the fuels we already have on hand," she said.

Convincing other US governors that oil and gas still have an important place in the national energy future will take time, Palin continued. "It's a different ballgame with this group than in Alaska. We're in the minority here," she said.

Contact Nick Snow at nicks@pennwell.com

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