Natural Gas Price, Supply Concerns Bedevil Climate Change Bill

A Senate climate change bill passed in early November by the Environment and Public Works Committee will probably be pushed aside by a version more acceptable to Republicans and moderate Democrats.

Critics of the bill that passed the committee argue it will hit manufacturers hard as they are forced to switch from coal to natural gas for their energy needs, creating a price spike in natural gas due to a big increase in demand. However, the natural gas industry is disputing scenarios forecasting galloping gas demand.

The Senate bill - the Clean Energy Jobs and Power Act of 2009 (S.1733) - calls for cutting greenhouse gas emissions such as carbon dioxide and methane by 20% from 2005 levels by 2020 and by 83% by 2050. It is slightly more aggressive than a House bill passed in June. S.1733 passed the Environment Committee 11-1, with all Republicans declining to vote, and one Democrat, Montana Sen. Max Baucus, also voting against it. That substantial opposition had much to do with worries about how a mandated GHG reduction and an associated "cap-and-trade" emissions program would affect manufacturers.

Some manufacturing lobbies argue that the Senate bill - and its House counterpart - will send natural gas prices through the roof. Natural gas partisans, on the other hand, complain the Senate bill, because of free "allowances", actually insulates coal users - including utilities - from having to switch to natural gas while at the same time imposing new costs on pipelines - for example, stopping leaks of methane and carbon dioxide from compressor stations.

Martin Edwards, an INGAA vice president, says the industry prefers the Senate bill because it opens the door to pipelines receiving "offsets" to use against emission reduction requirements when a pipeline controls fugitive methane emissions beyond a legislated level, a concession not contemplated by the House bill.

Edwards argues that worries voiced by manufacturers about potentially severe natural gas price hikes are unjustified. Those worries have been expressed by lobbyists such as Paul Cicio, president of the Industrial Energy Consumers of America, a group of large manufacturers. He says the IECA is "is deeply concerned that S.1733 will immediately and significantly drive up the demand and price for natural gas and electricity."

Cicio says, for example, if the electric power sector uses natural gas to displace coal to achieve 100% compliance with the GHG emission targets in S.1733 it would consume the equivalent amount of 4.6 Tcf of natural gas, or roughly a 70% increase above 2008 power industry consumption. The largest increase in domestic production was only a 3% increase from 2006 to 2007, he states. "Clearly, the ability to rapidly increase production of natural gas to meet even a small portion of this potential demand does not exist," Cicio argues.

That scenario was disputed in testimony to the Senate Energy Committee on Oct. 28 by Lamar McKay, chairman and president of BP America, Inc. He said: "Our own forecasts indicate the potential for lower demand, as natural gas is squeezed over the next decade between growing renewable mandates and coal. Our analysis indicates legislative insulation for even the oldest and least efficient coal-fired power plants."