Press Action ::: How the American Gas Association Learned to Stop Worrying …

Saturday, July 09, 2011

How the American Gas Association Learned to Stop Worrying …

… and Love Gas Exports

By Press Action

This is a tale of two natural gas industry lobbying groups. One group has opted to stay true to its principles and fight for the interests of its members. The other has veered off course and aligned itself with groups whose goals run counter to its members’ interests.

The American Public Gas Association (APGA), a Washington, D.C.-based trade group that represents publicly owned gas utility companies, is fighting the efforts of natural gas producers and terminal owners to export natural gas in the form of liquefied natural gas. Executives at APGA’s member companies—ranging in size from the mammoth Philadelphia Gas Works in Philadelphia, Pa., to the tiny Duck Hill Natural Gas System in Duck Hill, Miss.—want natural gas to stay reasonably priced for the people and businesses who consume the fossil fuel (and who also happen to be the owners of their companies.) But, according to APGA, exporting domestically produced natural gas would “play havoc” with U.S. natural gas prices.

The American Gas Association (AGA), on the other hand, has decided to throw its support behind shale gas producers and LNG terminal owners—a move that ultimately could backfire and alienate its investor-owned gas utility member companies. Investor-owned gas utilities generate the bulk of their income from the volume of gas that flows through their distribution lines.

But AGA is backing industry efforts to export domestically produced natural gas, which, as APGA points out, could create a tighter supply-and-demand balance, likely creating higher gas prices for U.S. consumers. And if gas prices move from their current range of $4 to $5 per million British thermal units to $7 or $8/MMBtu due to LNG export activity, then gas utilities will almost certainly face “demand destruction” due to people and businesses consuming less gas. The diminished throughput on gas utilities’ systems would mean smaller financial returns for the investor-owned companies.

Nonetheless, in March, an AGA official described efforts by LNG import terminal owners to turn their facilities into export terminals as “exciting.”

“It’s really quite exciting. And I believe the technology is there,” Jay Copan, AGA’s former senior vice president for corporate affairs, said in an interview with the Energy Delta Institute at the Gastech conference in Amsterdam. “Both Cheniere and Freeport have been doing an outstanding job talking to many people in the government about the great benefits of exporting LNG.” Since that interview, Copan has retired from his position as AGA senior vice president and is now serving as executive director of LNG 17. (See Editor’s Note below).

Copan was referring to Cheniere Energy Inc., which would like to export natural gas from its Sabine Pass Terminal in Louisiana, and Freeport LNG Development, which has similar plans for the Freeport LNG terminal in Texas. Cheniere, which is the furthest along in the regulatory process, received approval from the U.S. Department of Energy in May to export gas from Sabine Pass to any country not prohibited by U.S. law.

During the interview, Copan argued that “the supply is always [emphasis added] going to be there, whether it’s going to be LNG or shale. And now the focus, we think in the U.S., is how do we grow gas demand.”

Copan’s comments are a radical shift for an organization that has tended toward the conservative side when it comes to U.S. gas supplies and how they should be used. But AGA appears to have been taken in by the hype surrounding shale gas production. When Copan mentioned developing a strategy for “growing gas demand,” he was not alluding to ways that investor-owned gas utility companies could boost throughput on their systems. Instead, Copan was referring to increasing the use of natural gas for electric power generation as older coal-fired power plants get shut down. And he was referring to the gas industry searching for overseas markets for natural gas exports.

AGA’s position in favor of gas exports and the use of gas for power generation, as articulated by Copan, is odd because investor-owned gas utilities, the companies that keep AGA afloat through the payment of membership dues, do not stand to reap many benefits, if any at all, from either of these demand growth strategies.

Regarding gas exports, gas utility companies will not play any role in transporting natural gas from the wellhead to the LNG terminal. So, supporting gas exports will not help gas utility companies’ bottom lines and could actually hurt their finances by sending natural gas prices higher in the U.S. As for power generation, a large number of natural gas-fired power plants in the U.S. get their gas supply delivered directly through interstate natural gas pipeline systems. Gas-fired power plants often bypass the local gas distribution company, working out deals for their gas supplies to be delivered by tapping directly into an interstate pipeline. So, once again, gas utility companies would see only minimal benefits from the construction of new gas-fired plants in their service territories and would likely see U.S. gas prices rise considerably due to more gas-fired power plants getting built.

Short-Term Profits vs. Long-Term Health

Now, let’s take a closer look at the American Public Gas Association’s campaign against gas exports. In a June 16 letter to Senate and House energy leaders, APGA President and CEO Bert Kalisch said gas industry groups and companies that are pushing for LNG exports from the United States “are wagering our long-term national well-being on short-term profits.”

“Large-scale export of natural gas via LNG will not only play havoc with the current supply/demand situation (and hence the price of natural gas), but also, because the price of LNG abroad is tied to the international oil market, will inevitably link the domestic price of natural gas to international oil markets, which are substantially more volatile and less transparent than our domestic market,” he wrote.

According to Kalisch, APGA believes the “wise policy choice at this critical time in our history is to limit exports of natural gas so that we may realistically pursue the greater goal of energy independence.”

APGA is fighting a lonely battle. Lobbying groups for natural gas producers are obviously eager to see exports in the form of LNG in order to give their member companies new markets for their product. Natural gas pipeline companies also would welcome LNG exports because they would have new destinations—LNG export terminals—to pipe natural gas.

Along with APGA, the Industrial Energy Consumers of America, a small D.C.-based lobbying group, has been a vocal opponent of LNG export terminals. But IECA lacks the clout and size to be as effective in its lobbying.

AGA is the trade group that most industry observers view as APGA’s natural partner in protesting LNG exports.

Three years ago, AGA Chairman David McClanahan, in a speech before the National Association of Regulatory Utility Commissioners, described natural gas a “bridge fuel to the future.” The electric industry is expected “to turn to natural gas as a bridge until clean coal and nuclear generation are available,” McClanahan said. “However, we should not rely on natural gas-fired generation as the only solution.”

‘Bridge’ Is Not a Good Word

AGA is now singing a different tune. The association’s new president, Dave McCurdy, a former Democratic congressman, now claims natural gas is not a bridge fuel. The association sees natural gas as a “foundation fuel,” McCurdy said in May, pointing to the projected 100 years of supply in the United States.

In his interview at the Amsterdam conference, Copan also noted that AGA has decided to move away from using the term “bridge” and prefers the buzzword “foundation” to describe natural gas. Copan explained that AGA views natural gas as “the fuel of today and tomorrow.”

“In the States, for many years, we used the term ‘bridge’ and we’ve just really gotten away from doing that. We would rather you not say that word either,” Copan told the interviewer. “It’s not a good word.”

Three years ago, then AGA Chairman McClanahan argued that gas utility companies “must stress the importance of conserving energy and using it efficiently.” Now, AGA has a different agenda and is working hard to figure out ways to “grow gas demand.”

McCurdy took over as president and CEO of AGA in early 2011, succeeding Dave Parker, a former Nixon and Ford administration official. From 1981 to 1995, McCurdy served as a member of Congress from Oklahoma, the home state of the two largest shale gas producers in the U.S.: Devon Energy and Chesapeake Energy.

Since McCurdy took the helm at AGA, it’s been hard to tell whether the association represents natural gas producers or natural gas utility companies. In early June, AGA released what it described as “a set of principles that outline the benefits of developing abundant and clean natural gas as an energy source in America, and the importance of sustainable and responsible development of this foundation fuel.”

AGA also launched a new website that had to make McCurdy’s fellow Oklahomans at Devon Energy and Chesapeake Energy proud. The website, according to AGA, “houses resources for the public regarding how the natural gas resource is being developed, with a particular emphasis on the use of hydraulic fracturing of natural gas from shale formations.”

APGA also has been a cheerleader for the development of shale gas and has advocated for its use in electric generation as a substitute to coal. But, unlike AGA under its new leader Dave McCurdy, APGA is actively opposing the gas industry’s decision to pursue the export of domestically produced natural gas.

“Policy makers should proceed cautiously and not inflate the amount of natural gas that can be recovered in an economical and politically acceptable manner,” APGA said in a March 28 filing with the Department of Energy in which it protested Freeport LNG’s application to export domestically produced natural gas.

There is “uncertainty that still shadows projections of an exponential increase in recoverable domestic supplies,” APGA said. “Environmental and regulatory issues and local opposition hamper fracking operations and shale gas production. … Given these risks, it is still uncertain whether significantly increasing quantities of natural gas from shale and from offshore will happen.”

Four years ago, AGA was actively lobbying against the widespread use of natural gas for new electric power generation. Relying too much on natural gas to fuel power plants had pushed up gas prices, the association argued. Instead, at the time, AGA was pushing for fuel diversity, including the construction of new nuclear power plants.

Today, AGA is not worried about using natural gas to fuel new power plants. The association points to the emergence of shale gas as the “game-changer” that allowed it to embrace gas as a preferred generation fuel.

But APGA still wonders if shale gas has changed the game. APGA noted that “the history of the fossil fuels industry is replete with miscalculations regarding supplies.” It noted that a few years ago Freeport LNG predicted that the U.S. natural gas market would benefit significantly from the import of LNG.

“Not to pick on [Freeport LNG], but the last time it speculated on the future of the country’s natural gas supply, things did not pan out,” APGA said. “Conversely, the nation’s first LNG export facility in Kenai, Alaska is slated to terminate exports sooner than expected because drilling activity in Alaska’s Cook Inlet has not offset declines in production rates, making it unfeasible to continue LNG exports.”

“If the U.S. has vast reserves of recoverable natural gas, policymakers should seize the opportunity to foster energy independence,” APGA argued. “If the U.S. has less recoverable gas than projected, it certainly should not exacerbate the situation by approving export applications premised on a domestic over-supply.”

Editor’s Note: Jay Copan has retired from his position of senior vice president for corporate affairs at the American Gas Association. Copan was still employed by AGA as senior vice president for corporate affairs when he expressed support for LNG exports during the interview with the Energy Delta Institute in March. He currently serves as the executive director of LNG 17. AGA provided Press Action with this statement in response to the above article: “At this time, AGA is considering all the benefits and challenges of exporting natural gas and considering what is in the best interest of our members and natural gas customers across the country, but we have not commented on this issue and therefore your characterization of AGA’s position in your article is not accurate.”

While the association has not issued a press release or submitted an official regulatory document in support of LNG terminal owners who are seeking permission to export domestically produced natural gas, it is true that Copan offered praise for LNG exports while still serving as a senior official with AGA.