Infrastructure main US gas development challenge, NARUC panel told

Infrastructure could be the single biggest limitation to the US fully exploiting its abundant unconventional natural gas resources, gas industry association leaders told state utility regulators on Feb. 11.

The US Federal Energy Regulatory Commission cannot compel a new pipeline’s construction, Interstate Natural Gas Association of America Pres. Donald F. Santa said during a discussion of the improved US gas outlook before the National Association of Regulatory Utility Commissioners’ Gas Committee.

“That’s still up to the pipeline and its shareholders,” he said, adding, “But state commissioners can help provide incentives to make the decision easier.”

American Gas Association Chairman Gregg S. Kantor, meanwhile, observed, “From my perspective, we haven’t done a great job of planning. We know there will be some big changes. It probably would make sense for customers to pay some of the permitting costs. With a 3-4 year planning horizon, it will be hard to keep up.”

America’s Natural Gas Alliance Pres. Martin J. Durban said, “Taking public policymakers from an attitude of scarcity to one of abundance will be a hard slog, but we’re getting there. We need to be careful not to take prices during the recent cold snap so seriously that it keeps us from moving forward.”

Upset the apple cart

INGAA’s Santa noted that FERC does a very good job overall with a framework that works well. “It’s still difficult because abundant gas has affected every other resource’s economics,” he said during the session at NARUC’s 2014 Winter Committee Meetings. “It’s upset the apple cart. What it’s done to alternatives and renewables has made some groups oppose new transmission capacity proposals.”

Santa said pipelines performed generally well in a generally colder winter, although some vulnerabilities have been exposed. “When customers are willing to enter into long-term contracts, the regulatory structure lets pipelines respond and build more capacity.”

With demand for gas to generate electricity expected to continue growing, however, the question is whether customers will be able to send the right kind of signals for pipelines to build new systems, according to Santa. FERC is actively leading the effort to reconcile gas and electric pricing differences, he said.

The federal Pipeline Safety Act also is up for reauthorization in 2015, and operators expect to actively participate in discussions leading up to it, he added. “Pipeline safety isn’t just a matter of rules and regulations to INGAA and its members,” Santa said. “It’s part of our social license to operate.”

Kantor, who also is chief executive of NW Natural, a Portland, Ore., local distribution and gas storage company, said he sees five priorities for state regulators to consider:

• Building the safest possible systems.

• Making sure infrastructure is adequate to meet demand, including electricity generation.

• Making gas available to communities which don’t have it already without burdening existing customers with additional costs.

• Making sure policies lead to the best environmental results.

• Creating regulations which are fair and equitable to all end-users.

“There’s a lot going on,” Kantor said. “I believe this association and its members can play an important role in helping make sure we don’t go after these opportunities in a piecemeal way.”

Innovative technology is leading to US gas being produced more efficiently, Durbin said. In the last 6 years, the number of gas rigs has dropped from 900 to 300 because more wells can be drilled from a single pad. “It’s not just innovation in production, but also in consumption as companies like GE and Siemens find more different ways to use gas,” he said.

Contact Nick Snow at nicks@pennwell.com.

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