Does the US government mean what it has been saying for a decade about the environmental advantages of natural gas—or not? Will lawmakers and regulators promote supply of as well as demand for a clean and abundant source of energy on the low side of the cost spectrum—or not? Answers will emerge in decisions due soon about federal land.
In 2000, the US encountered the limits of gas deliverability. Unusually high prices late that year and early in 2001 punctuated an alarm already issuing from the gas industry: With demand rising and depletion accelerating, the US needs more supply from more areas and more capacity to move the gas. The country enjoyed a breather in 2001 and most of 2002 but felt the squeeze of deliverability limits again this year. The government must heed the message.
Discouraging supply
From its own resources and potential imports, the US has access to enough gas to meet the demand growth the government has encouraged. So far, though, in conflict with its demand policies, the government has discouraged supply, especially production from federally owned land.
In 1999, the National Petroleum Council produced a study estimating that federal land-use policies have foreclosed development of technically recoverable gas resources totaling 105 tcf. In the Rocky Mountain region, land with additional resources of 108 tcf is accessible but subject to restrictions, which typically preclude development. While only estimates, those volumes represent the potential to lift US gas production enough to dampen prices. In a market constrained by supply, precluding their development means cost.
Last week, NPC released a new report refining the foreclosed-supply estimates, particularly for the Rockies, and estimated the costs (see related story, p. 24). In the Rockies, NPC now says, a total of 69 tcf of technically recoverable resources is effectively off-limits, and a further 56 tcf is subject to costs and delays due to regulation. The new study estimates technically recoverable gas resources subject to moratoriums on leasing of the Lower 48 Outer Continental Shelf at 80 tcf, little changed from the earlier report.
The new study estimates that removing the OCS moratoriums and easing land-use restrictions in the Rockies could add 3 bcfd to US gas production in 2020. "This increased production," NPC says, "was found to reduce average price projections by 60¢/MMbtu, which translates into a reduction in the cost of natural gas to consumers of about $300 billion over a 20 year period." NPC estimates that a package containing the land-use changes along with other measures to boost supply, improve energy efficiency, and promote fuel-choice flexibility would raise the savings to $1 trillion.
Opponents of the NPC recommendations will quibble with the numbers, of course. What they can't dispute is that failing to act on gas supply already hurts the economy. The House Speaker's Task Force for Affordable Natural Gas this week reported that since mid-2000, 11 ammonia plants representing 21% of US capacity have shut down. Remaining plants are running at a combined 50% of capacity. Fertilizer prices this year have more than doubled. Food prices inevitably will rise as a result. The petrochemical and steel industries are under similar pressures, with similar consequences for consumers.
This happens when a government encourages use of an essential energy commodity while discouraging its production. So why discourage gas production?
Alarmism prevails
Propagandists of environmental pressure groups have convinced too many coastal residents and other sensible people rightly concerned about ecological values that drilling for and producing gas jeopardize nature. That just isn't so. But the pressure groups want there to be no drilling at all and therefore mischaracterize any drilling as threatening. The position is unfounded, extreme, and, in view of evident gas-deliverability strains, not one that the US can afford to pursue. Yet it prevails. It's the reason Congress and the Executive Branch have precluded leasing on, according to the task-force report, 85% of the OCS. This is potential gas supply held hostage to environmentalist alarmism.
So is the US government serious about natural gas—or not? Does it care about the national economy—or not? Voters eager to know the answers should watch what happens in Washington, DC, on land access in the US West and budgets for leasing of the inactive bulk of the OCS.
