Natural Gas:

American Chemistry Council's Gerard explains need for more offshore drilling

With some House lawmakers pushing to lift a congressional ban on offshore natural gas drilling, can the measure gain enough support to win approval by the full House? Or is it instead an early battle in a larger debate concerning domestic energy supplies? During today's OnPoint, American Chemistry Council President Jack Gerard talks about how the current natural gas crisis is affecting U.S. manufacturers, and why lawmakers should open up the Outer Continental Shelf to energy extraction. Gerard also discusses the various OCS proposals being floated in Congress and the complex political factors surrounding the issue.

Transcript

Brian Stempeck: Hello and welcome to OnPoint. I'm Brian Stempeck. Joining me today is Jack Gerard, president of The American Chemistry Council. Jack thanks a lot for being here today.

Jack Gerard: Thank you for having me.

Brian Stempeck: Now the House, this week, a couple of days from now, is going to take up the Interior appropriations bill. The big issue that everybody is talking about that your organization is involved in is offshore and natural gas drilling. Congressman Peterson had some language in that bill that would basically change the scenario for offshore natural gas drilling. Give me a sense on how you feel in terms of how close is this to passing this time around?

Jack Gerard: Well it's always had an uphill battle as you know. This moratorium has been in place for close to 30 years now. And I think this is probably the first time that Congress has really focused directly on this question, is this a good policy or not? I think was very telling about what the full Appropriations Committee did is for the first time they have lifted that moratorium as it relates to natural gas. The reason being is we have a natural gas crisis in this country. In the manufacturing sector alone we've lost over 3 million jobs. In my industry, the business of chemistry, we believe we've lost over 100,000 jobs. So this debate that has now been enjoined is a very important debate, not only for the here and now, but for the future of this country in a national energy policy.

Brian Stempeck: Now in the past we've seen this kind of, we've seen votes on this in the past and it's really lost pretty resoundingly. This time around, during the committee vote at least, it seemed like things have turned. Do you expect that to continue on the House floor?

Jack Gerard: Well, win, lose or draw, we believe, again, that the debate has been enjoined. And by engaging in this discussion, whether we win in this round or not the most important event is we now see a seismic shift in the Congress's willingness, if you will, to enter into discussions to say this policy of 30 years does not make sense anymore. We need to have more natural gas supply in this country combined with energy efficiency, conservation and other forms of energy if we're going to preserve a good manufacturing base, protect those high-paying jobs and create more high-paying jobs here in America.

Brian Stempeck: Congressman Peterson has basically said that his language is really a first step on natural gas in terms of addressing the issue from a broader level, involving the Interior Department, having a broader plan from Congressman Pombo. How do you see kind of the, relative to whether you win or lose this vote on Thursday, what are the next steps in terms of addressing this issue during the coming months?

Jack Gerard: Well, you know this particular memo was offered on an appropriations bill, so due to the rules and the structure of that committee they are quite limited in what they can do.

Brian Stempeck: Sure.

Jack Gerard: I believe over the next four to six weeks we're going to see a broader debate on the question of energy and more specifically, on the question of natural gas supply. This will likely come through the authorizing committee. Congressman Peterson, Pennsylvania, that offered this amendment in committee, also has a full-fledged bill that has over 167 cosponsors on it right now; a lot of Democrats, a lot of Republicans who recognize that we need more natural gas. So I think what we're seeing is the first step in a multiple step issue development. I believe and hope by the end of this Congress that we will resolve this question to some degree and to send a signal to the marketplace that help is on the way. And hopefully bring natural gas prices down closer to where they should be to allow us to flourish in the United States.

Brian Stempeck: What exactly do you think will get through? I mean there's a lot of different plans out there. Senator Domenici has been working on the Lease Sale 181 area for natural gas drilling. We have the opt-out plan. We have kind of a wide variety of plans. What do you see as having the best chance in the near-term and, I guess, what would you like to see long-term?

Jack Gerard: Well in the legislative process it's very difficult to predict exactly what it's going to look like. My guess is it will probably be a combination of all the plans. That is as the forces come together we start sorting out what's important? Should there be some shoreline protections? How do we make sure we get short-term supply as well as long-term supply? And I think fundamentally if we step back and look at the longer-term equation it's very important that we send a signal to the marketplace that there is a natural gas supply in the United States that can be extracted in an environmentally sensitive and protective way, that we can use for the benefit of all Americans. These resources are American resources. Today we are the only country in the developed world that denies access to our natural gas resources. It's a policy that's in need of change. It's long overdue that we readdress this question. And I'm hopeful in the near future we'll do that with Congress.

Brian Stempeck: Why focus on the offshore natural gas? It seems like there's other alternatives as well, whether you're talking about LNG imports or drilling in the Rocky Mountain region. Why not focus on those as opposed to the offshore area where you have so many Florida lawmakers, coastal lawmakers, who are very strongly opposed to this?

Jack Gerard: Well we need all the energy we can get right now. If you look at the variety of energy sources, be it coal-fired power, clean coal technologies, nuclear capabilities, energy conservation, energy efficiency and natural gas supply. We focused on the outer continental shelf because these gas reserves are able to be extracted beyond the sight of anybody onshore. If you get out beyond 20 miles you can't see the platforms in the first place, number one. Number two, we have a vast reserve. We have over 400 trillion cubic feet of gas that exists off the coast of the United States. For the last 30 plus years we have tied over 85 percent of that resource up. We have demonstrated over the last 30 years that we can extract this resource in an environmentally sensitive way. If we look at the storms of Katrina and Rita they destroyed 115 platforms in the Gulf, yet there wasn't one single significant spill of oil or gas. We know how to do this. We can extract this resource. We can bring the prices down so our school district's costs don't go through the ceiling, hospitals don't have to pay increased costs, the residential consumers don't have to. And equally important we, as manufacturers, can have a low-cost supply that will allow us to compete in a global economy.

Brian Stempeck: Recently we saw a deal between China and Cuba at that basically will allow them to look for natural gas in the Gulf region. Is that going to change the political equation here now that you have another, essentially, a superpower starting to get into our backyard drilling for natural gas?

Jack Gerard: The Cuba situation, I think, has clearly shown a light on perhaps the absurdity of the U.S. policy. Cuba sits 90 miles off of our coast. They have signed contracts with the Chinese, with the Venezuelans and others to drill within 60 miles of the U.S. coastline. Yet the debate by some Florida lawmakers is we ought to ban access up to 150 miles, which essentially says, well Americans, you can get American resource long as you go south of Cuba to do it. We think that's a great irony. We think it's an absurdity and it must be addressed. So yes, I think that will play into the debate to help us recognize that this policy is antiquated, it needs to be revisited and it needs to be revisited soon.

Brian Stempeck: Now even if this drilling does go forward it's still, obviously, going to be a few years before a lot of this natural gas, a lot of this energy, gets online and starts resolving some of the high prices that you're talking about. In kind of the near-term, in between and during those three years, what alternatives are chemical companies looking at? I know I saw a story recently where, I think, Dow was talking about coal gasification, looking at some different forms of energy while natural gas prices are this high.

Jack Gerard: Yeah. Two points I think to that Brian. The first is we can get short-term relief from the outer continental shelf. We saw 181 that's been the heavy focus in the Senate debate by Senators Domenici and Bingaman. The experts tell us they could bring that gas online within 18 months. That will send a clear signal to the market that help is on the way, that there is gas there to be brought onshore that will help us moderate some of these prices. The second part of it, as you mentioned, is coal gasification. We have a vast reserve of coal in the United States, over 250 years. That can be converted in an environmentally clean way. The new clean coal technologies that are coming online would allow us to capture any related pollutants. And yet we could use as a feedstock. I'm not sure the American public understands fully how the chemistry industry uses natural gas. It isn't just heat and power for us. Its uses are feedstock as our raw material. So we take that natural gas, we change its composition and convert it to products such as plastics, tires, clothing, the insulation we need to make our homes more energy efficient, the sealants on windows, paints and coatings, a variety of uses. So it's very, very important to us, in our sector, and very important to our over all economy.

Brian Stempeck: Now you mentioned some of the job losses that are associated with the energy costs going up. I know the National Association of Manufacturers has said it's somewhere around the order of 3 million jobs. You mentioned about 100,000 jobs in the chemical industry. Is it fair to really tie those to energy prices alone? I mean aren't there other factors at play here? We have globalized nation, we have factories being moved offshore with the high cost of labor in the US. It can't just be energy I would assume.

Jack Gerard: No, energy is a major portion of driving those jobs overseas. And when we look at that question Brian, the thing to remember is energy is a key component of all we do here in the United States. One of the things that's allowed us to be competitive globally is because of our relatively low energy costs. Now that those energy costs have gone up it's driven many of our facilities offshore. Dow Chemical, a major U.S. interest has been in this country for many years, had a facility they were going to build in Texas. That facility is now being moved to Oman in the Middle East. Why? Because of natural gas prices. Almost solely because of natural gas prices. This is a self-inflicted wound, but Congress has the ability to heal this wound. They've just got to have the courage and the leadership to step forward and do it. We believe they can and they should to preserve these jobs, to provide for our American citizens and our American economy.

Brian Stempeck: Alright Jack. We're out of time. Thanks a lot for being here today.

Jack Gerard: Thank you Brian.

Brian Stempeck: I'm Brian Stempeck. This is OnPoint. Thanks for watching.

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