Natural Gas:

CAANG's Hurwitz, Wilderness Society's Alberswerth debate drilling for natural gas

High natural gas prices and flat production are prompting fresh pledges from Capitol Hill to bolster supplies of the clean burning fuel. But policy consensus will be hard to reach amid debates over where to drill, whether new market reforms are needed and other issues. Geoff Hurwitz of the Consumers Alliance for Affordable Natural Gas, which represents industrial natural gas users, and Dave Alberswerth of The Wilderness Society speak with E&E Daily reporters Mary O'Driscoll and Ben Geman about the future of natural gas policy.

Transcript

Mary O'Driscoll: Welcome to OnPoint. I'm Mary O'Driscoll. Our guests today are Dave Alberswerth of the Wilderness Society and Geoff Hurwitz of the Consumers Alliance for Affordable Natural Gas and my colleague, Ben Geman with E&E Daily and Greenwire. Mr. Hurwitz, I wanted to ask you first, we all know how the country got into this situation with natural gas with the high prices that created high demand. We have high demand for gas, but we have high prices because there's pretty flat to declining drilling rates for domestic natural gas right now, but there seems to be a real push, the problem seems to be a real immediate rather, and also long-standing too, but it's so immediate. I'm just wondering if it's so immediate, why don't we all go to like the Fuel Use Act of 1970s or something that would make things move a lot faster in cutting our consumption of natural gas?

Geoff Hurwitz: Mary, good question and I think going back to something like the Fuel Use Act, which mandates specific uses for specific energies, is really not the solution here. The natural gas problem is too much demand chasing too little supply. The group that I represent, the Consumers Alliance, and feel free to call us CAANG it's a lot easier, but we believe there is a balanced solution out there, there's no silver bullets. The balanced solution is equal amounts of energy conservation and efficiency, it's fuel diversity, it's more supply and it's additional investment in infrastructure.

Mary O'Driscoll: OK. Well, you contend that gas exploration in the most promising onshore regions, the inner mountain west, is constrained by environmental concerns. Yet the Interior Department's own report on the matter shows that 88 percent of technically recoverable resources are available and last year BLM issued about 6,100 drilling permits. In light of that, what are the environmental concerns that you're all worried about?

Geoff Hurwitz: Mary, I think my group actually contends that it's not so much environmental concerns in the Rocky Mountain West, but it's more procedural hurdles for permitting and things like that. But looking beyond that, we actually think the better play on the supply side is a more reasonable and holistic look at offshore of the eastern Gulf of Mexico and to try to find creative ways to look at the Atlantic seaboard as well as the Pacific, knowing full well, the political challenges that means, but we think that's where the gas is. We think the Rockies can be dealt with through more expedited permitting issues.

Mary O'Driscoll: OK, what about you Dave?

Dave Alberswerth: Well, I think we're in agreement with Geoff's organization about the impact of gas prices on consumers and that's a problem for everybody. We don't believe though that the solution lies, as some have said, not Geoff's group, but the oil and gas industry have said, and eviscerating some of our important environmental statutes that protect wildlife and clean water and clean air and the Rocky Mountain West.

Mary O'Driscoll: OK.

Ben Geman: Geoff, I wanted to hop on something you said. Your group has suggested a series of solutions, but one of the sort of important pillars of it is that we need new, as you suggest, offshore access. You know the political hurdles there are, frankly, enormous. You guys have done a good job publicizing that issue, but is there really any chance of winning new access to areas currently under moratoria? It seems awfully tough.

Geoff Hurwitz: Ben, it is tough. It's tough politically and that's why CAANG really believes that, again, no silver bullet here. We need to approach the natural gas issue, as Dave said, which is having a terrible price impact on consumers of all types, of residentials as well as industrials. That to address it we need a balanced policy and that old saw that we use when talking about legislation that we cannot let pursuit of the perfect be the enemy of the good, I really think applies in this case. For many, looking constructively and creatively at different ways to look at the offshore resources is going to require some creativity and some give. Just as on the producing side and some in the industrial side, it's going to take some give on the role that efficiency plays, conservation plays and fuel diversity plays.

Ben Geman: I mean sticking with the offshore piece for a second, there is, you know, according to the National Petroleum Council, there is a pretty substantial amount of gas that is restricted right now, on the order of 79, 80 trillion cubic feet --

Geoff Hurwitz: A lot of gas.

Ben Geman: It's a lot of gas. What are some of the tactics you guys, or some of the strategies or some of the messages you can put forward to even give that, you know, to make that something more than a pipe dream as the Congress puts together another energy bill?

Geoff Hurwitz: Ben, let me just say at the outset, that my organization and the company I work for are not in the producing segment of the industry. We're industrial users, largely, but the coalition goes beyond that. We are looking for creative ways to try to one, educate people, as we've been told, that the offshore technologies of today are not what we have seen years and years ago when you'd be in the Gulf Coast and see drilling rigs from the shore. We are told that the drilling rigs and the gas play right now is out over the horizon and not visible. So, in terms of that issue, we think that should not be a concern. Secondly, the advances in drilling technology are such and the number of nonassociated gas offshore, meaning gas plays only, not oil, is such that it can be done in an environmentally responsible way. I would just call attention to your viewers of the recent hurricane seasons down in Florida, as far as I was able to determine, there was not one rig accident, not any environmental impact from the terrible weather off the shores of Florida.

Mary O'Driscoll: But a lot of them were shut down because of the terrible weather off the shores.

Geoff Hurwitz: They were shut down, but they were still there and they survived probably some of the most severe weather that one can imagine. But again, I'm not here to really speak on behalf of the producers. They are capable of doing that themselves. I'm just saying that when you're looking at a balanced policy approach and given the severity of the issue, the economics and job consequences of severely high and persistently high natural gas prices, we need to look across the board at all options. Short term, I think Dave and I would probably be in violent agreement that short term we must do efficiency and conservation, but beyond that we think we need to also look at some creative ways to get up more supply.

Mary O'Driscoll: Well Dave, is it possible for the environmentalists and conservationists to come up with creative ways to accommodate offshore exploration? I mean, this is kind of a, this is a third rail, I think, along the lines of ANWR, no offshore, you know, you just, you don't touch those areas. Is there anyway that they can be --

Dave Alberswerth: Well I think the perspective of the environmental community on the offshore issue, is that there's an awful lot of gas offshore that is, in fact, available now for development and is being developed. Geoff mentioned there's about 80 trillion cubic feet that's off limits in moratoria area. There's about 320 trillion cubic feet that is not off limits in the central and western Gulf, according to MMS and in Alaska as well, which is a frontier area. These are the areas, particularly the central and western Gulf, which have been sort of the traditional provinces of development, that the environmental community thinks we should concentrate our efforts presently and given the political realities, given the concerns that a lot of people have about the impacts of drilling on the coast, we think that the effort should be concentrated in those areas where the risk seems to be acceptable to people.

Mary O'Driscoll: Well what's the problem with doing, as I think they tried to do in the last session, an inventory of what's in the offshore? I mean, that even got defeated as well.

Dave Alberswerth: That got defeated because to do the type of inventory that was authorized in the language really requires exploratory drilling. In other words, it's not really an inventory based on existing information or inferences, it would have required actual and authorized actual drilling off the coast and I think that was the problem for that language.

Mary O'Driscoll: OK.

Dave Alberswerth: I'd like to get back to the onshore issue though if I may, for a few minutes. You had mentioned, I think earlier, I hope I didn't misunderstand you, that drilling activity has been flat. Actually, it's been accelerating in the Rocky Mountain West and we were just looking at production figures today from the minerals management service and over the course of the past year there's been an over 40 percent increase in production of natural gas on federal lands in the Rocky Mountain West. As I think you mentioned earlier, the BLM of last year issued 6,000 drilling permits, that's a record. There are lots of opportunities for the gas industry to develop natural gas resources in the West. They're doing so. Our concern is that this administration and many of the proposals up in Congress would provide for weakening the current environmental requirements that these companies operate under and would make available lands that really should be used for other purposes, for wildlife conservation, for their environmental values and we really don't need to do that in order to get the gas that our society needs from that part of country.

Mary O'Driscoll: Well, I wanted to know, the country pretty much runs on natural gas. I mean, there's a huge demand for natural gas for electric power generation, more people using natural gas in homes, your clients using natural gas for their industrial processes ranging from chemicals to fertilizer and that kind of thing. Yet people don't want to drill on public lands. They don't want to drill on the offshore. There's a lot of resistance to building LNG facilities in port terminals, in anywhere but the already heavily trafficked area of the western Gulf of Mexico. So where is the gas supposed to come from?

Dave Alberswerth: Well, as I mentioned earlier, the gas is coming from the Rocky Mountain West. Production is increasing right and left. It still comes from some of the more traditional areas of Texas, Louisiana, Oklahoma. Last year Congress passed provisions to encourage development of the Alaska gas pipeline, a proposal that the environmental community did not oppose at all. There's about 35 Tcf at Prudhoe Bay that's simply in the ground and, you know, is landlocked right now. I think many of us in the environmental community believe that there is a role for, some role for LNG in the future. One of the peculiar aspects of our natural gas situation is that all of our, virtually all of our gas production comes from North America and it's the most expensive gas in the world. The world price of gas on the world market is actually much less expensive, yet we don't really have the ability to take advantage of those price differentials right now.

Geoff Hurwitz: Let me just jump in on Dave's last point and Mary your summation of the problem a moment ago, because I think it really gets to the nub of the issue. As Dave just said, the price of natural gas in the United States is the highest in the industrialized world. What that means is, unlike oil, which is priced globally through a cartel such as OPEC, natural gas is not priced that way. It's a series of individual national markets. So you'll find natural gas in the United States running approximately $6.25 a million Btu. In China last week, it was $4.50 a million Btu. In the Persian Gulf it was probably $0.75 a million Btu and we're looking at a situation in the United States where, Mary as you indicated, we are so dependent on this fuel that everybody loves. It's clean burning. For the chemical industry it's the primary raw material. It cooks well. It heats homes well and because we love it so, it seems to me, that our demand is going up and for a lot of reasons that we touched upon, supply is going down. When you look at future projections of natural gas, those two axes are just out of whack and going in the wrong direction. So the trick for us, if we all recognize this and I think we do, how do we cobble together a series of public policies that will bring those lines converging? I would argue, and one of the reasons really CAANG, this coalition, came together is that we've been on the sidelines to a certain extent in the energy debate in the United States for several years and we watched the producers versus the NGO community go at it and it was really producing, in our view, a political zero sum game. We also felt, that to a certain extent, the voice of the consumer, broadly speaking, was absent in the debate and that's why we tried to bring CAANG together knowing that it was a political challenge, knowing that it wasn't going to be easy, but because it wasn't going to be easy is why we felt somebody had to make an attempt to try to bring us together and find a solution.

Ben Geman: It seems like one thing that there is a fair amount of broad agreement on is that one piece of the puzzle is going to be energy efficiency and some type of diversification of fuels into the renewable sector as well. The proposed fiscal year 2006 budget just came out and the aggregate budget for efficiency and renewable energy is, in fact, down. So I guess as a sort of question to both of you, are we seeing enough from this administration to sort of, you know, maintain that piece of, sort of address the issue through the efficiency and renewable side or is the effort lacking at the White House?

Dave Alberswerth: Well I think clearly it's an indication, you've hit the nail on the head, that there's no commitment, from our perspective, from this administration to that part of the solution to the problem. In fact, in the legislative proposals we've seen on the Hill, the proposals for efficiency policies are really, in our view, quite deficient. The emphasis is on finding ways to provide for more supply almost exclusively. There are provisions in the bill that call for more support for renewables and energy conservation, but that's not really the direction that things are headed and that's our concern.

Ben Geman: Jeff how would you respond to the initiative?

Geoff Hurwitz: We look at the challenge both short, medium, and long term and we really feel that short term, given the time cycles for supply or some of the other new technologies that we're looking at, short term, meaning 1 to 3-4 years out, efficiency and conservation is the way we must go. I think that message is being heard on Capitol Hill, I hope it is, but that is one of the hallmarks of our proposal, is that short term we must take steps to conserve it and find ways to use it much more efficiently. A lot of the low hanging fruit is already gone, but there are lots of other things that we can be doing and we would hope to see the necessary investment available for that. Mid to longer term is when you're talking about some of the fuel diversity issues, some renewables, we'd like to see a big push in coal gasification. We still think that holds a lot of promise, especially in the utility sector. Some of the carbon issues obviously need to be dealt with, but we need to put money into that, private-sector money, public money needs to be a big play. The supply, the conventional supply piece, as we've been discussing, needs to be part of it. We need greater infrastructure investment, pipeline, storage, LNG and the like. Everything should be on the table.

Mary O'Driscoll: One final question. I just wanted to know with Congress looking like, both the House and Senate, looking like they're going to do a little more extensive rewrite of energy legislation than we originally thought, are you optimistic that your goals will be met in the coming energy bill?

Dave Alberswerth: Well to tell you the truth Mary, I'm rather confused right now about what will happen with the energy bill. We had heard that there would be action on it almost eminently earlier on, now it looks like it's been pushed back into March in the House. Actually, some rumors today that it may be even later than that. I think there are a lot of concerns about the impact of the energy proposal on the budget with the new budget numbers that have come out, generally from the administration, and the leadership doesn't seem to know what to do with the energy initiative right now before some other things, I think, are dealt with.

Geoff Hurwitz: I think Dave mentioned the House play. I'd like to move it over to Senate side where I think, I am an optimist, I think Senator Domenici's natural gas hearing, it wasn't a hearing, it was more discussion and dialogue, of two weeks ago, brought a lot of interesting ideas out on the table. I think he's making a concerted effort to have a bipartisan approach and in that context, I think, maybe slowing it down a little bit to get a thoughtful process moving forward is not necessarily a bad thing. So I remain an optimist that we're going to try to get something done this year.

Mary O'Driscoll: OK. Well that's going to have to be it for today, but we'll be talking about this a lot more. I'd like to thank our guests Dave Alberswerth of the Wilderness Society and Geoff Hurwitz of the Consumers Alliance for Affordable Natural Gas and my colleague Ben Geman. I'm Mary O'Driscoll. Join us next time for another edition of OnPoint.

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