Wrong policies could hamstring US gas development, forum told

Poorly conceived policies could restrict development of abundant domestic natural gas resources and deny the US energy security, economic, and geopolitical opportunities, several speakers at an Apr. 6 Hudson Institute forum warned.

This story was updated on Apr. 11 to clarify that liquefaction capacity additions by the US and Australia will account for more than 90% of global liquefaction capacity additions between 2015-20, and not total capacity as originally indicated.

Poorly conceived policies could restrict development of abundant domestic natural gas resources and deny the US energy security, economic, and geopolitical opportunities, several speakers at an Apr. 6 Hudson Institute forum warned.

“This administration has issued a slew of regulations intended to stifle gas use,” maintained former US Sen. George Allen (R-Va.) who now leads George Allen Strategies in Washington. “The removal of the Mid-Atlantic lease sale from the 2017-22 Outer Continental Shelf plan it is preparing is simply the latest example of keeping it in the ground, as environmental organizations like to say.”

More pipelines also are essential to get new gas production to markets, he continued. “In Virginia, there’s opposition to the Atlantic Coast Pipeline which would bring gas from the Utica and Marcellus shales to consumers,” Allen said.

“State, local, and federal governments could get billions of dollars in new revenue from more gas production without having to raise any taxes,” he asserted. “The only thing that’s missing is the political will to access these resources.”

The US could be saving 3 million b/d of crude today if it had adopted US Senate legislation proposed 5 years ago which would have provided a pathway for heavy-duty trucks to start running on gas instead of diesel fuel, oilman and investor T. Boone Pickens said in luncheon remarks. “Gas hasn’t captured the public’s imagination as a transportation fuel,” he observed. “More people need to buy into it. I guess I haven’t been a very good salesman.”

Even with depressed crude oil prices, gas still would cost less than gasoline or diesel fuel and not have as great an adverse environmental impact, Pickens said. “Cummins has just come out with a 9-liter natural gas engine that has 90% fewer [nitrogen oxide] emissions and is cleaner than the grid,” he asserted. He was less certain when an audience member asked about potential methane impacts and said he would need to study the matter further.

Gas to generate power

Two other speakers discussed coordination issues arising from gas’s growing use to generate electricity. “What really has changed is that pipelines have become bidirectional. This creates both opportunities and challenges,” said Michelle Bloodworth, Executive Director of External Affairs at Midcontinent Independent System Operator Inc. which coordinates power supplies for utilities from Manitoba to Louisiana.

“The gas and electric industries used to talk to each other only when there were problems,” said Richard Kruse, Spectra Energy’s vice-president of regulatory and Federal Energy Regulatory Commission compliance officer. “The power industry has both relied on and pushed away gas. There was a lot of concern about sharing confidential information, but this has been largely solved.”

More pipelines clearly need to be built to meet future power generation needs as coal-fired plants shut down, he and Bloodworth agreed. “We need gas to handle peaks and to rank generation, but we’re also using it more for baseload demand,” she said. “Typically, gas pipelines require less approval time than power transmission projects.”

Kruse said, “There are significant challenges in New England, where there’s been a tremendous switch to gas. Our pipelines there are always full. The Algonquin system has been delivering gas to New England since the 1950s. We’re under construction on a major expansion, and have another that’s being considered.”

LNG export potential

Two more speakers discussed US liquefied natural gas exports’ potential and challenges. “Global liquefaction capacity is expanding at a high rate, largely in the US and Australia,” said Victoria Zaretskaya, the US Energy Information Administration’s Lead Gas Industry Economist.

New projects in those two countries account for more than 90% of liquefaction capacity additions being built globally in 2015-20, she noted. Once all new projects in these countries are complete, these capacity additions are projected to expand global liquefaction capacity by about one-third by 2020, Zaretskaya said.

Exports to Mexico are already under way, where infrastructure to get it to the country’s interior is being built, she added.

But W. David Montgomery, who led NERA Economic Consulting’s research on LNG’s potential for the US Department of Energy, expressed concern that FERC denied the proposed Jordan Cove export terminal’s application in Oregon after residents and political leaders said they opposed the project.

“This is a highly capital-intensive business with prices that fluctuate over time,” he pointed out. “If the US really wants to be part of the market in 2020, it needs to start increasing its capacity now. We’re seeing new types of contracts that could pose problems which should be addressed.”

Contact Nick Snow at nicks@pennwell.com.

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