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 Questions and Answers About Natural Gas and National Energy Policy 

Why is energy such an important issue?

America’s economic prosperity, our quality of life, and national security all depend on the availability of reliable, affordable energy.

What is “national energy policy” – and why should I care?

Anyone who sets off on a coast-to-coast car trip without a roadmap or who tries to make a complicated banquet for 100 people without recipes knows how important it is to plan in advance the direction you want to take, the routes you’ll follow and the resources you need to achieve your goal. Meeting the nation’s energy needs for the next 20 years without a comprehensive plan is foolish – and dangerous.

Currently, homeowners and businesses are struggling to pay higher energy costs while facing shortages of energy in some regions. These problems should be addressed by Congress in a logical way.

What are the key benefits of using natural gas?

It’s economical. Natural gas is highly efficient – delivering most (90%) of its total energy to customers. In contrast, less than one-third (30 percent) of the total energy used in making electricity at coal-fired power plants reaches customers in a usable form.

It’s environmentally friendly. Natural gas is the cleanest fossil fuel – emitting less soot, carbon dioxide and nitrogen oxides than other fossil fuels.

It’s domestic. Using natural gas instead of petroleum imported from OPEC and other foreign traders makes our country stronger – and reduces the risk of an interruption in energy supplies that could trigger an armed conflict.

What are the American Gas Association’s goals for national energy policy?

AGA believes Congress should develop and pass national energy legislation that uses natural gas and other energy sources to their best advantage. Specifically, AGA has encouraged Congress to include the following components:

Protection of low-income customers:

  • Helping more people to pay their energy bills by increasing to at least $1.7 billion per year the amount of money Congress appropriates for the Low Income Home Energy Assistance Program (LIHEAP)
  • Increasing the authorization for LIHEAP from $2 billion to at least $3 billion annually for fiscal year 2002

Development of new natural gas technologies:

  • Advancing techniques for the exploration, production, transportation and use of natural gas
  • Favorable tax treatment for highly efficient end-use technologies
  • Eduction or elimination of regulatory barriers to market entry.

Infrastructure expansion:

  • Accelerating to seven years the depreciation period for natural gas storage and pipeline facilities
  • Streamlined environmental reviews and permits
  • Increased research on infrastructure reliability and safety
  • Repeal of tax on customer connections to utilities

Increased energy efficiency:

  • Funding for improved energy efficiency of government facilities and schools
  • Tax incentives and research and development to advance highly efficient technologies and recognition of total energy efficiency

Adequate supplies of natural gas:

  • Expanding access to federal lands for exploration and production of natural gas
  • Tax provisions to stimulate domestic production
  • Streamlined environmental reviews and permits.

What role does natural gas play in meeting the nation’s energy needs?

Natural gas currently provides one-fourth of the nation’s total energy needs and will meet an even greater share of U.S. energy needs during the next 20 years because it’s highly efficient, environmentally friendly, and found in abundance throughout North America. By 2020, natural gas will meet 28 percent of U.S. energy needs, rising from an estimated 22 quadrillion Btu in 2000 to 33.6 quads by 2020, if government actions are taken to promote increased use of natural gas.

Who uses natural gas?

Nearly 62 million customers use natural gas. They include:

  • 58 million households (about 6 of every 10 U.S. households);
  • nearly 5 million commercial customers, like hospitals and restaurants;
  • 161,500 industrial customers, such as manufacturing plants; and
  • 48,700 other customers, such as electric power plants.

Residential natural gas customers: how will national energy policy benefit them?

Natural gas is the most popular home-heating energy in the United States – heating 6 of every 10 U.S. homes. This popularity is especially apparent in the new-home market, where 70 percent of all new single-family homes feature natural gas. Last winter, homeowners across the country were hit hard by rising natural gas prices – because supplies of natural gas were tight. One of the best ways to reduce the price that people pay for a commodity like natural gas is to increase the available supply.

  • Congress can help to moderate the price that homeowners pay for natural gas by ensuring that the laws that govern exploration and drilling are updated to reflect more environmentally sensitive technologies.
  • Congress can also give incentives to independent producers to get the most out of existing natural gas and oil wells.

To meet increased consumer demand for natural gas, Congress should promote expansion of the pipeline systems that deliver natural gas.

  • Allow natural gas utilities and pipelines to depreciate over 7 years (instead of 15-30) the investments they make in new pipelines.
  • To make it less expensive for customers to get natural gas service, Congress should also eliminate the federal tax on new utility connections (“contributions in aid of construction”).

Low-income consumers are hit hardest by rising energy costs.

  • Congress should increase the amount of money made available every year to help low-income households pay all or part of their energy bills. Currently, only one of every three individuals eligible for the Low Income Home Energy Assistance Program (LIHEAP) actually receives any help because the program is not funded adequately.

Efforts to increase the supply of natural gas must be matched with efforts to promote more efficient use of natural gas and other energy sources.

  • AGA has urged Congress and various federal agencies to use a “total energy efficiency” approach to measuring energy use. This means measuring the total amount of energy used from the production of energy (i.e., the coal used to generate electricity), through the transmission process and final delivery to customers.
  • Electricity from coal may be seem more efficient when it’s measured from the wall socket, but during the journey from its origin to the electric outlet, such electricity loses more than 70 percent of its useable energy. By contrast, natural gas loses only about 10 percent of its useable energy, making direct use of natural gas a much more efficient use.

Manufacturers and other industrial customers have been hit hard by rising energy costs. How can national energy policy help them?

Energy-intensive manufacturing industries are very sensitive to changes in energy prices, and adjust their production accordingly. For example:

  • Manufacturing: Employees of manufacturing firms have been hit hard by rising energy costs. Nearly 70 percent of manufacturing employees have suffered reduced profit-sharing, and 36 percent have lost work hours and income due to rising natural gas costs, according to a survey conducted in January 2001 by the National Association of Manufacturers.
  • Agriculture: Farmers need ample, affordable energy to run their machinery and equipment. Today, farm production costs are rising sharply while farm income remains low. Rising natural gas prices have made it more expensive to produce fertilizer, pesticides and other farm chemicals. Many farmers are spending more on the fuel they use to dry grain, heat farm buildings and run food-processing equipment. Heating costs for poultry producers soared last winter, sharply reducing earnings.
  • Chemical manufacturing: The chemical industry is using energy far more efficiently than it did in the 1970s, with energy use per unit of output declining by roughly 40 percent in the past 25 years. Nonetheless, rising energy costs in recent years have contributed to a slowdown in production, resulting in the loss of 10,000 – 15,000 jobs last year, according to the American Chemistry Council.
  • Computers and electronics: The reliability and quality of energy – not the cost – are the primary concerns of businesses that rely heavily on computers or electronics. Even a brief loss of power can impose significant costs on these high-tech firms.

These and other large-volume customers need a reliable source of affordable energy – and a network of pipelines and electric-transmission wires capable of delivering it when and where the energy is needed. A comprehensive national energy policy is vital to meeting these goals.

Electric power generation: what changes lie ahead?

More than half of the nation’s supply of electricity (51 percent) is generated from coal. Nuclear energy is the second largest source (20%) of U.S. electricity generation. Natural gas is the third-largest source of U.S. electricity generation, accounting for 15 percent of the electric power generated in 2000. But, in coming years, natural gas could make up a much larger proportion of electricity generation because plants using natural gas can be built faster and more economically than coal, hydropower or nuclear plants – and because it’s easier to meet many environmental standards with natural gas. AGA believes that a diverse supply of energy resources should be available for the generation of electricity in coming years. For example, coal and nuclear energy may be better-suited for baseload (large, central-station) electric generation. Natural gas might be most efficient for use at peaker power plants and in combined heat-and-power systems (such as co-generation or on-site power generation). The most efficient use of a premium fuel like natural gas is direct use of natural gas – such as fueling furnaces, water heaters, cooling systems or vehicles – instead of using natural gas indirectly to make electricity.

Why not rely more on conservation to meet the nation’s future energy needs, instead of producing more energy?

We need to do both. The United States is using energy far more wisely now than it did 25 years ago. Conservation and energy efficiency measures will continue to play a key role in meeting the country’s energy needs. But conservation alone cannot provide enough energy savings to meet America's future energy needs. During the past 25 years, the U.S. has increased energy consumption by 34 percent – while increasing energy production by only 18 percent. That means that we are importing an increasing amount of energy – especially petroleum –thus risking economic growth and national security by relying on foreign countries for energy supplies. The United States should produce more energy from a variety of sources – including natural gas, coal, oil, nuclear, and renewables like solar and wind power -- to maintain economic prosperity and improve Americans’ standard of living.

How does natural gas get to customers?

During the production process, wells are drilled into porous rock formations, and the pressure from natural gas is enough to force it to the surface. From there, it goes into gathering lines that take natural gas to central collection points. Natural gas then flows through the pipeline transmission system – which works like an underground “interstate highway” for natural gas. More than 280,000 miles of high-strength steel pipe (ranging from 20” – 42” in diameter) carry huge amounts of natural gas across state lines from regions where it’s produced to where it will be used. Local natural gas companies take over the natural gas from the pipelines at a delivery point called a “city gate.” Here, gas companies measure and meter the gas, and add a sour odorant to help customers smell even small quantities of it. Nearly 1 million miles of pipelines operated by local gas companies distribute natural gas to nearly 60 million homes and businesses.

What infrastructure will it take to get increased natural gas supplies to customers?

Just as roads and bridges expand to handle increased traffic, the natural gas industry’s infrastructure will need to grow during the next 20 years to accommodate the increased quantities of natural gas that homes and businesses want. Virtually all of the natural gas in the United States is moved by pipelines. The current pipeline system is capable of transporting approximately 23 trillion cubic feet of natural gas – but it’s insufficient to carry the approximately 33 trillion cubic feet of natural gas that will be consumed by 2020. The estimated 30 percent increase in the natural gas industry’s underground network of reliable pipes will cost more than $150 billion. Most of this investment (totaling roughly $100 billion, or $5 billion per year on average) will involve expansion of local gas utility pipelines. The remainder ($50 billion) will be invested by interstate pipeline companies. Congress should allow natural gas utilities to depreciate their investments in pipelines and storage facilities over seven years, instead of the current 15-30 years.

How much natural gas is found in North America?

There are enormous amounts of natural gas in North America (the U.S., Canada and Mexico) and around the world. Most experts believe the U.S resource base holds more than 1,200 trillion cubic feet of natural gas – a supply that will last approximately 65 years at current consumption levels. Interestingly, the size of the U.S. natural gas resource base continues to expand. Although more than 150 trillion cubic feet of natural gas were used in the United States during the 1990s, experts now believe the amount of natural gas still underground is larger than they thought it was 10 years ago. For example, some sources of today’s gas supply – like coalbed methane – were not even acknowledged 10 or 15 years ago. Now, 6 percent of all the natural gas produced in the U.S. comes from coalbed methane. Large deposits of natural gas are found in almost half of the 50 states, but five states hold more than half of the United States’ total natural gas reserves: Texas, Oklahoma, Louisiana, New Mexico and Alaska.

Why should average people care about natural gas supplies?

Customers tend to enjoy lower prices for natural gas when supplies are abundant, and they pay higher prices when supplies are tight (as they were during the winter of 2000-2001). That’s why it is important for the United States to adopt a logical plan for the production, delivery and use of natural gas and other forms of energy. It takes awhile to get natural gas out of the ground and shipped to customers. Long-term price stability rests on a clear national “blueprint” for the wise and efficient use of the nation’s natural gas resources.

Are current U.S. production levels adequate to meet future demand for natural gas?

No. In June 2001, the Independent Petroleum Association of America reported that the U.S. may need to import an increasing amount of natural gas from Canada in order to meet growing demand. While U.S. natural gas production is expected to reach 24.8 trillion cubic feet by 2015, U.S. gas demand would be much higher – 30.7 Tcf. Similarly, the National Energy Development Plan issued by the White House in May stated:

“The most significant long-term challenge relating to natural gas is whether adequate supplies can be provided to meet sharply increased projected demand at reasonable prices. If supplies are not adequate, the high natural gas prices experienced over the past year could become a continuing problem, with consequent impacts on electricity prices, home heating bills and the cost of industrial production. These concerns will redouble if policy decisions sharply reduce electricity generation by any other source, since it is doubtful that natural gas electricity generation could expand to the extent necessary to compensate for that loss of generation.” (NEPD report, page 1-8)

How much of the U.S. natural gas supply currently comes from federal lands?

Approximately one-third of current natural gas production comes from areas under federal government jurisdiction (10 percent from onshore federal land, and an additional 26 percent from offshore areas under federal control, in the Gulf of Mexico. More than two-thirds of the technically recoverable natural gas resources in the Rocky Mountains – as much as 79 trillion cubic feet of natural gas – is either closed to development or under significant access restrictions, according to a DOE report issued June 6, 2001. The report, which studied the Greater Green River Basin of Wyoming and Colorado, found that:

  • 30 percent of the natural gas resources are completely off-limits, due to federal rules.
  • 38 percent is available for access only sporadically, e.g., not during months when certain birds and animals are migrating or nesting.
  • 32 percent is subject to standard lease terms, e.g. environmental requirements.

Another 76 trillion cubic feet of natural gas resources are estimated to lie in restricted offshore areas in the eastern Gulf of Mexico.

Why does the federal government restrict natural gas exploration and production activities?

Federal rules haven’t kept pace with new technology. We need 21st century regulations to guide 21st century energy technology. Remember the early 1970s? We played music on vinyl albums and 8-track tapes, dialed rotary phones and used typewriters. Now we have compact discs, pocket phones, and personal computers. Office equipment like photocopiers save energy by “going to sleep” until they’re needed, and teleconferencing and telecommuting have cut down on transportation by car and airplane. Similarly, energy technology has improved dramatically -- but energy policies are stuck in a time warp. Today’s decisions should not be based on yesterday’s technology. Impressive improvements include:

  • 3-D seismic imaging that allows geologists to “see” oil and natural gas resources before they place a well.
  • Improvements in horizontal drilling allow access to resources 5 to 6 miles from the drilling site.

Does AGA support production of natural gas on federal lands?

Most of the natural gas produced in the United States comes from non-federal land, i.e., privately owned property or areas under state jurisdiction. However, if our industry is to meet for the dramatic increase in demand for natural gas during the next 20 years, it will be necessary to evaluate all sources of available supplies. Technology allows companies to develop energy resources with far less intrusion on the surrounding environment. To meet America’s future energy needs, they should be allowed to do so – not in national parks, but on other land owned and managed in the national interest by the federal government.

Does AGA support tax incentives for production in marginal natural gas wells?

Absolutely. And we’re not alone – the Sierra Club recently stated that a balanced energy plan should promote more efficient production of fossil fuels, including maximizing production from existing oil and natural gas wells. AGA has urged Congress to provide tax incentives to help producers (mostly independents) get the most from existing wells.

How much natural gas is found in Alaska?

An estimated 313 trillion cubic feet of natural gas resources are found in Alaska, although it should be noted that no pipeline infrastructure currently exists to transport natural gas to the Lower 48 states.

How will natural gas get from Alaska to the lower 48 states?

Energy company representatives, government officials and others are working to finalize plans for a pipeline that would carry natural gas from Alaska to the lower 48 states. The concept of an Alaska natural gas pipeline has won wide support – including recent endorsements from the Natural Resources Defense Council and Democrats in the U.S. House of Representatives. A Trans-Alaska pipeline is a significant undertaking that will take a number of years to construct, even after the permits and certification are granted. It won't make an impact in the short-term, but it will help to diversify our nation's energy supply in the long-term.

How much natural gas is in the Alaska National Wildlife Refuge?

No one’s really sure how much natural gas is found in the Alaska National Wildlife Refuge, although the potential is significant. Alaska’s North Slope contains the equivalent of approximately 20 percent of the proven gas reserves of the lower-48 states, both onshore and offshore.

Does AGA support drilling on the Arctic National Wildlife Refuge?

AGA supports a wide range of efforts designed to increase the production of natural gas from current sources and promote enhanced production from new and potentially significant sources.

 
 

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