What are local distribution companies doing to create the infrastructure needed to deliver the United States' growing supply of natural gas? During today's OnPoint, Dave McCurdy, president of the American Gas Association, explains how the United States can pay for infrastructure improvements while seeing direct economic benefits from those investments. He also discusses the impact of low natural gas prices on infrastructure development.
Monica Trauzzi: Hello and welcome to OnPoint. I'm Monica Trauzzi. Joining me today is Dave McCurdy, president of the American Gas Association. Dave, it's nice to have you back on the show.
Dave McCurdy: Good to be with you, Monica.
Monica Trauzzi: Dave, as an organization representing more than 200 local energy companies involved in the delivery of natural gas, what are local distribution companies doing right now to create the infrastructure necessary to deliver the natural gas that we see coming out of all these shale plays?
Dave McCurdy: Well, natural gas is really the backbone. It's a foundation fuel for not only the energy future, but also I think the economic recovery and revival in this country. We have over 2.4 million miles of pipeline, natural gas pipeline. And our members provide -- deliver natural gas from the burner tip -- or from the wellhead to the burner tip. And that's a major investment. And the United States is really the envy of the world when it comes to that infrastructure, that investment already in the ground. But as we see the shale revival, the shale revolution that's occurring, there is a need to increase the gathering capability of all that resource and then make sure it gets to the burner tip, whether it's heating our homes or running our vehicles or, you know, running manufacturing. It's a feedstock for a lot of the chemical industry. And I think it's the foundation for other renewable forms of energy as well.
Monica Trauzzi: This is a national discussion. How do we pay for the infrastructure improvements that are needed? And can you point to some direct economic benefits that we might see as a result of making those investments?
Dave McCurdy: Well, it is a national discussion and I just returned from both political conventions and, you know, both candidates for president have outlined energy as being a foundation for their economic renewal and also energy security. They both have different approaches and a lot of challenges ahead, but the one area they do agree on is that natural gas is a key element of any future. So, even though it's a national discussion, a lot of the decisions that affect the delivery of natural gas are made at the local level. That's why our members in AGA, we work very closely with the regulators, the utility regulators. And there, we've approached them and we're working with them to implement some of these national approaches, such as pipeline safety. Secretary LaHood called on the utility regulators to go beyond the traditional rate mechanisms that would probably impede the need to accelerate the reliability enhancement of this infrastructure. So working with those local regulators, we're encouraging them to look at innovative approaches. And there are a number of incredible examples out there. Georgia, for example, accelerated the replacement of cast-iron pipes and the older pipe in the ground, over a 10 year period, over 2,300 miles and they've been able to remove cast-iron from that state. Other states need to catch up on that.
Monica Trauzzi: Industry trade groups always seem to have a couple of gripes, at least a couple. What are some of the bottlenecks that you're facing?
Dave McCurdy: Well, you know, we're in a remarkable position in the natural gas sector in that the market is really working. When you have natural gas at $2.66, compared to, you know, almost four dollars for gasoline, you see opportunities opening up in transportation. But we've had this kind of chicken and the egg challenge of having vehicles produced and then making sure that the filling stations are there and available. We see movement on that front. The recent fuel economy standards are encouraging equipment manufacturers, the automakers to accelerate production. And our members are out there actually building those facilities to provide compressed natural gas or LNG, liquefied natural gas, for long-haul trucking, for fleets. And we'll see it now with smaller vehicles, including potentially passenger vehicles.
Monica Trauzzi: So in terms of the regulatory framework that exists surrounding permitting, are there changes that need to be made or is sort of the status quo that we have right now giving you enough certainty?
Dave McCurdy: Well, both the Democrats and Republicans, whether it's candidate Romney or Governor Romney or President Obama, have called for enhanced or accelerated permitting and a lot of that deals with federal lands. But then we have interstate pipelines that cross jurisdiction. There's an opportunity there to accelerate the permitting. And there have been some challenges in the courts, but we see that moving because I think the country recognizes that to have any economic renewal you need to have a foundation fuel and natural gas provides that. It's clean. It's domestic. It's certainly affordable now because of the abundant supply, so this is an opportunity for us to invest. And the beauty of it is that the consumer wins. Because of the low price the consumer is getting a real benefit in lower rates and lower cost on their energy bills. But it also provides an opportunity to make the investment without seeing price spikes or major increases in rates. And very few in the economy today can point to such a nice set of circumstances.
Monica Trauzzi: So, how much of a hurdle do infrastructure challenges pose for the development of shale gas? Are we seeing a situation where we might see a slowdown in that development, in these shale plays because the infrastructure just isn't up to par?
Dave McCurdy: You won't see a slowdown because of the infrastructure. Price may make a bigger difference now as far as the number of rigs that are actually drilling for natural gas, shale gas versus liquids such as oil. But again, that price will -- it's a stable price and you'll see it come back to a level that creates enough incentive for the producer to be in the field. At the same time, consumer continues to get benefits.
Monica Trauzzi: What's that number?
Dave McCurdy: Well, it's always a -- you know, there is no magic number, but $2.66 is not sustainable. So probably in the four dollar range you see profitability for the producer. At the same time, those that deliver natural gas, you know, get the real benefit and, again, the opportunities in direct use. We see now that micro-grids and combined heat and power and home refueling for vehicles, these are all possibilities and I think something is going to occur because of this low price.
Monica Trauzzi: How much of a conversation is happening with our Canadian counterparts? How much of an opportunity is there to build natural gas infrastructure between the two countries?
Dave McCurdy: We collaborate with our counterparts in Canada, both at the association level and also in government and in private sector. Canada has a very ambitious plan for natural gas and they see the benefits. They see it as a clean fuel, but they also -- not only for their own domestic use, they see the export potential into the U.S. So when we look at the market, we're really like a North American market and that's why when we talk about energy security. I don't go to energy independence, but I look at energy security because we want trade and free flow of trade. But we can reduce the imbalance of trade and still produce enough energy in this country to drive this economy and reduce the imports of foreign oil.
Monica Trauzzi: Candidate Romney has said that the domestic energy sector has been stifled during the Obama administration. Would you agree with that? How would you qualify the last four years under Obama?
Dave McCurdy: I can only speak to natural gas and in our sector we see this incredible increase in production because of the technology, American technology. Hydraulic fracturing has opened up so many resources, so the footprint is smaller and yet the reach of the production is greater. And the attributes of gas -- and this administration, I think, probably woke up to the real economic potential and realized that this is a foundation. It's also a great fuel to work in conjunction with other alternative fuels, you know, wind and solar. And so where there are differences in approaches between Democrats and Republicans, the natural gas sector is really benefiting because we have support from both sides. And I think it's a strong endorsement. You know, whoever is president is going to wake up and have major domestic challenges, the fiscal cliff, unemployment, reviving the economy, rebuilding the infrastructure and they have different approaches. But the one thing they do agree on is that natural gas is one of those foundations that they can build on. And I think we see a similar approach there.
Monica Trauzzi: All right, Dave, we'll end it right there. Thank you for coming on the show.
Dave McCurdy: Thank you, Monica.
Monica Trauzzi: Nice to see you. And thanks for watching. We'll see you back here tomorrow.
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