POLITICS:

Coal chiefs go on offensive as Pickens pushes case for natural gas

A dramatic preamble to an upcoming climate policy fight played out yesterday on Capitol Hill, pitting the coal, oil and natural gas industries against each other as lawmakers fired up debate about powering a low-carbon U.S. economy.

In an austere House hearing room, top executives from the nation's three largest coal producers emphasized their collective role as sources of cheap electricity. The coal chiefs warned against a "dash to gas" and tried to poke holes in an emerging conventional wisdom that the North American natural gas supply is abundant enough and cheap enough to replace King Coal.

Meanwhile, in the ornate House Ways and Means Committee room, T. Boone Pickens, the Texas oil tycoon turned clean energy activist, urged Congress to promote U.S. natural gas as a fuel for trucks and to boost gas as a source of "green" jobs.

"Because of cheap oil, we keep drifting, drifting," Pickens said, reminding committee members that the United States imports two-thirds of its oil supply.

"In January 2010, our trade deficit for the month was $37.3 billion," he said in the same gravelly voice that narrates TV commercials raising the specter of U.S. dependence on foreign energy. "$27.5 billion of that was money we sent overseas to import oil."

For Pickens, this is where national security, development of relatively clean energy sources, a U.S. economic resurgence and global warming roll into a single argument.

"As Americans we have to look at green jobs and a green economy, not as a 'feel-good' effort, but as a global war to protect American jobs," he said.

Members of the Ways and Means Committee peppered Obama administration officials, economists and energy industry financiers on ways to adjust the U.S. tax code to promote an energy policy aimed at cutting greenhouse gas emissions and creating new jobs.

Oil refiners join the fray

Pickens, chairman of BP Capital, steered clear of a contentious debate about an Obama administration proposal to cancel $40 billion in tax benefits for the oil and gas industry. But he pushed for passage of pending legislation that would create tax credits for natural gas vehicles. The proposal would require half of the federal government's fleet to use compressed or liquefied natural gas and authorize the Energy Department to offer financing to manufacturers of light- and heavy-duty natural gas vehicles.

Gasoline and diesel refiners blasted Pickens for his high-pitched push for gas. The National Petrochemical and Refiners Association called the idea that cars and trucks could make an easy switch to natural gas "a costly fantasy."

The move could add $6,000 to the price of a car, NPRA asserted, "and exert upward pressures on prices consumers pay for plastics and thousands of other products they use every day made by petrochemicals derived from natural gas."

Pickens has spent millions of dollars on national ad campaigns promoting natural gas vehicles, and he has a lot more riding on a gamble that gas will ultimately end up a winner when the energy and climate policy debate shakes out. Clean Energy Fuels Inc., in which he has a substantial interest, upgrades fueling stations to accommodate natural gas. The company's stock price has nearly tripled in the past year from about $7 a share a year ago to $20.77 at the market's close yesterday. In that time, Pickens has continued to press for favorable government policies and subsidies on the airwaves and to members of Congress.

After the hearing ended yesterday, Pickens met with lawmakers crafting a fresh compromise energy and climate bill, Sens. John Kerry (D-Mass.) and Lindsey Graham (R-S.C.).

In another corner of the Capitol, members of the House Select Committee on Energy Independence and Global Warming took testimony from the coal industry chiefs of Peabody Energy, Arch Coal, Rio Tinto and the Ohio Coal Association.

The executives, feeling the heat because of a deadly coal mining accident in West Virginia this month, warned against adopting policies that could hasten the erosion of coal-burning power generation and U.S. coal production. Tens of thousands of jobs are at stake, they warned.

Coal executives cast doubt on new gas finds

The coal executives talked about developing technology to capture heat-trapping carbon dioxide emissions. When asked, they denied charges by Democrats that coal producers are ginning up opposition to climate legislation by repeatedly questioning the science. They also responded to charges that the coal industry plans to lobby against any legislation aimed at making coal-burning emissions costly. That's not the plan, they said.

Instead, the coal executives took aim at natural gas, a perennial battle that is putting increasing pressure on climate bill talks in the Senate. Gas companies and industry lobbyists claim the United States has a 100-year supply, and perhaps a 200-year supply, of domestic natural gas and are pushing back against the traditional coal industry argument that coal remains the cheapest and most abundant fuel for power generation. Gas, its industry lobbyists say, is also cheap and abundant -- and cleaner than coal. Burning gas produces about half of the greenhouse gas emissions of coal.

"Much has been said lately about the promise of shale gas discoveries," said Gregory Boyce, president and CEO of Peabody. "We do not know the eventual cost, sustainability, deliverability, reliability and environmental impact of large-scale shale gas production."

Projections of domestic natural gas supply, according to both government and energy industry estimates, has increased by as much as 40 percent in the past three years. A small band of independent gas producers has been widely deploying advanced drilling technology to pull gas out of tight-sand and shale rock formations. The development has been rapid, but there remain lingering concerns in Washington and among state regulators and electric utilities that gas prices have been hard to pin down for much of the past decade.

"Natural gas prices have seesawed wildly in the past decade," Boyce said, arguing that it destabilizes consumer power prices and puts the economy at risk.

But in the past 18 months, natural gas prices have remained relatively low. The tough economy cut industrial consumption, but resilient and increasing domestic drilling in unconventional, onshore gas fields also helped keep the price down. While gas has become a more competitive fuel choice for electric utilities, the cost of using coal has increased.

Boyce and the others tried to chip away at the rosy gas supply projections.

A press for carbon capture incentives

Government and private-sector estimates about gas supplies have been all over the board, Boyce told the committee. Since 2000, he noted, optimistic projections about gas off of U.S. shores and the anticipation that large amounts of imported liquefied natural gas would drift toward American shores were turned upside-down by the rapid development of onshore shale gas basins in Texas and Louisiana and in Appalachian country in the Northeast. Supply uncertainty goes hand-in-hand with the gas industry, he suggested.

Steven Leer, chairman and CEO of Arch Coal, warned that creating federal incentives for utilities to switch from coal to natural gas would freeze development of carbon capture and storage technology. CCS technology is the single most important technology development for the coal industry, he asserted.

"All of this brings me back to the key point," Leer continued, "which is that without robust CCS technologies, we cannot stabilize carbon dioxide concentrations in the atmosphere within the next 40 years."

Leer suggested that future gas supply projections aren't as straightforward as many would suggest. Shale gas and other unconventional gas production is projected to grow, he said, but added that the U.S. Energy Information Administration also sees conventional offshore supplies declining. The net increase in gas supplies would be offset by the decline.

"Even if all of this additional gas went to power production, which currently consumes about one-third of total U.S. natural gas consumption, it would not make a major change in coal use," Leer said in written testimony to the committee.

Just a day after returning from Easter break, House Democrats appeared girded for a showdown with the coal industry. The panel of executives attracted the theatrical, as protesters angry about the industry's reputation as a dangerous and dirty business wore yellow miner hats and marched in their direction before being escorted from the hearing room.

Rep. Edward Markey (D-Mass.), who helped craft a climate bill passed by the House last June, had one point to make to Michael Carey, president of the Ohio Coal Association, who complained that Congress has made no effort to help the coal industry adopt CCS technology as it charges ahead with environmental regulations.

The Waxman-Markey climate bill includes $60 billion for development of clean coal technology. Without some buy-in by the coal industry on a federal climate policy, Markey said, referring to coal production in the United States, "We do believe it is an inexorable decline."

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