Producers ask Congress for more access to domestic gas

April 3, 2006
Five chief executives from companies that produce, distribute, and consume natural gas Mar. 28 urged the 109th Congress and President George W. Bush's administration to significantly increase access to domestic resources that are currently off-limits.

Five chief executives from companies that produce, distribute, and consume natural gas Mar. 28 urged the 109th Congress and President George W. Bush’s administration to significantly increase access to domestic resources that are currently off-limits.

“There are about 1.04 quadrillion cubic feet of gas waiting to be discovered in the United States. But we can’t get access to most of that energy because of various government restrictions,” said James T. Hackett, chairman, president, and chief executive officer of Anadarko Petroleum Corp. in Houston.

“We’re here to call on Congress and the administration to help us increase supplies any way they can, and as soon as they can,” he told reporters.

He was joined by J. Larry Nichols, chairman and CEO of Devon Energy Corp., Oklahoma City; Lawrence M. Downes, chairman and CEO of New Jersey Resources Corp., Wall, NJ; Daniel R. DiMicco, president and CEO of Nucor Corp., Charlotte, NC; and Stephen R. Wilson, chairman and CEO of CF Industries Holdings Inc., Long Grove, Ill.

Immediate action is needed both on and offshore to increase gas supplies and reduce upward pressure on prices, the five business leaders said.

“High natural gas prices destroy demand,” Nichols said, adding that gas prices have increased more than 400% in the past 5 years, “which is far higher than crude oil or gasoline.”

Onshore, he said, the federal government could eliminate a backlog of more than 5,000 pending permits and drilling applications on nonpark, nonwilderness land that it owns.

Nichols said the US Bureau of Land Management has hired more employees to process drilling permits and applications, and the Department of the Interior agency has recently increased the number of permits it has approved.

“But the backlog is growing because gas producers are seeking to produce more gas to meet the country’s increased demand,” he said.

90% off-limits

Offshore, said Hackett, 90% of the US Outer Continental Shelf is closed to further exploration. “Industry has proven that development can take place with little or no environmental impact,” he said.

Hackett applauded the bill cosponsored by Senate Energy and Natural Resources Committee Chairman Pete V. Domenici (R-NM) and Chief Minority Member Jeff Bingaman (D-NM) that would open more of the so-called Sale 181 area in the eastern Gulf of Mexico to leasing.

“Since the first part of this area was opened for leasing in 2001, the industry has made 10 discoveries-all natural gas. As a result, about 1 bcfd of new natural gas resources will be making its way to American consumers in 2007,” he said.

This dramatically shows what exploration companies can do when they get access, but it’s not enough, said Hackett.

“There’s still huge potential in the untapped acreage that was deleted from the original Lease Sale 181. We need to make these waters available in order to deliver much needed gas supplies,” he maintained.

Downes, who spoke as the CEO of a gas utility, said increased access to supplies should be part of a comprehensive strategy that also includes conservation and fuel diversity.

“Over the past several years, we have learned that choosing to do nothing and ‘letting the markets work’ is not an energy policy,” he said.

He said that 5 years ago, gas cost $2-3/MMbtu. In the past year, it reached a record peak of more than $14/MMbtu.

“Denying access to critical resources does not allow a free market to work. It guarantees that prices will rise and hardships will continue,” Downes said.

Cost $1 billion

DiMicco said, “In my industry, price history is the wrong yardstick. Our yardstick is how much our foreign competition is paying now for natural gas.”

During 2005, he said, there were times when Nucor paid 3-5 times as much for gas as some of its foreign competitors did. “Because each dollar increase in natural gas prices costs the American iron and steel industry over $360 million annually, the increases in 2005 cost our industry about $1 billion,” he said.

DiMicco said that as a steel manufacturer heavily involved in recycling, Nucor uses less gas than conventional steelmakers. But it uses more electricity, which is increasingly generated in gas-fired plants, he added.

“For the last several years, almost all newly constructed electric generating capacity has been gas-fired. This trend is projected to continue for another 5 years, but with all the restriction on access to proven gas reserves, this trend is not sustainable,” he said.

Wilson said that as a fertilizer producer, CF Industries is concerned about higher gas prices not only on its own behalf, but because of its impact on the nation’s farmers.

“Forty percent of US crop production depends on using nitrogen fertilizers. Without them, US corn yields would drop an estimated 40%. There is a clear direct linkage of natural gas to fertilizer to our food supply,” he said.

Since 2000, domestic fertilizer producers have seen their gas prices rise from $2.50/MMbtu to a peak of about $15/MMbtu in December 2005, while some of their overseas competitors paid $0.50-1.50/MMbtu, according to Wilson.

“Each dollar rise in natural gas prices adds about $33 to the cost of making a ton of ammonia. So our natural gas cost rose from about $80[/ton] to nearly $500/ton from 2000 through last fall,” he said.

As a result, he said, US ammonia production has fallen some 44% from 18 million tons/year in 2000 to about 10 million tons/year in 2005.

“Without question, American farmers have felt this blow. Since 2002, the price of ammonia has more than doubled and recently has moved as high as $500/ton,” Wilson said.

Aimed at consumers

The business leaders held the press briefing not only to pressure policymakers, but also to begin educating consumers and voters.

“As American consumers begin to understand the impact of the misguided policy of encouraging natural gas use without providing access to supplies, people will start to reexamine their opinions,” Hackett said.

Asked how he and Nichols felt about proposals to limit future OCS leasing to gas only, the Anadarko executive said he would consider such a restriction if coastal states and the federal government recognize that lessees might need to be reimbursed for financial losses from reinjecting produced oil.

“We don’t want to see terms that are so restricted that leasing can’t take place. But this is something we’d be willing to work on. It’s something we’d like to make happen,” said Hackett.

Nichols questioned whether restricting leasing to gas was necessary after the industry’s performance during Hurricanes Katrina and Rita.

“That great bugaboo of oil spills from production platforms did not happen in two of the century’s worst storms,” he observed.

When a reporter asked which of four bills that have been introduced in Congress during 2006 stood the best political chance, DiMicco replied, “We need a comprehensive energy policy that supersedes the administration’s. This is no time to compromise. It’s a necessity.”