News Notes
Energy Policy
Greenspan calls for gas imports

Over the past year, the demand for natural gas in the United States has outstripped supply. The amount of gas in underground storage has dropped by 32 percent and the price of gas has nearly doubled. On June 26, during a summit in Washington, D.C., to address the gas crunch, Energy Secretary Spencer Abraham called the limited supply a “national concern that will touch virtually every American.” Residential heating bills in the Midwest this winter could increase by 19 percent. The fertilizer industry, which relies on natural gas for 97 percent of its total energy use, has already been forced to lay off some of its employees, Abraham said. A similar price spike hit the country in 2000.

The tight gas market has led the Bush Administration to propose opening more federal lands and offshore areas to drilling. According to the U.S. Geological Survey, approximately 1,015 trillion cubic feet of technically recoverable natural gas lie onshore and beneath state waters in the United States. The National Energy Policy recommends opening portions of Alaska’s North Slope to new drilling, exploring ways to expedite the leasing of federal lands for drilling and evaluating economic incentives to encourage deep drilling offshore.

But on June 10, Alan Greenspan, chairman of the Federal Reserve Board, took a different tack, calling for an increase in natural gas imports. Speaking in front of the House Committee on Energy and Commerce, Greenspan said “our inability to increase imports to close a modest gap between North American demand and production … is largely responsible for the marked rise in natural gas prices over the past year.” Expanding import capacity would create a “price-pressure safety valve” by allowing imports to step in during times of heightened demand, such as a particularly cold winter, or during periods of low domestic production.

Imports would introduce a degree of uncertainty due to possibly insecure sources of foreign supply, as has been the case for oil, Greenspan said. But gas resources are more widely distributed throughout the world than oil, reducing dependence on the volatile Middle East. Nearly 40 percent of proven gas reserves are in Russia and its former republics, he said, while only 30 percent are in the Middle East. In contrast, 60 percent of proved oil reserves lie in the Middle East.

In comparison to the oil industry where imports account for more than half of domestic consumption, the United States imports less than 1 percent of its gas from countries outside North America. Gas takes up so much space per unit energy that it is not economically feasible to transport it by tanker in its gaseous form. Cooling the gas to minus 260 degrees Fahrenheit, however, condenses the gas into a liquid that stores the same amount of energy in one-six hundredth the space. Tankers transport the newly liquefied natural gas (LNG) to marine terminals, which regasify the fuel as needed.

LNG, however, has not taken off in the United States because each step in the process, from liquefaction to regasification, is expensive, says Colleen Taylor Sen, an LNG researcher at the Gas Technology Institute. An LNG tanker costs between $170 and $180 million, more than twice that of a typical oil tanker. Currently only four LNG terminals operate in the United States.

But now that natural gas prices have begun to climb, LNG imports have become more economical, spurring new investment, Sen says. The cost of producing and transporting LNG has declined by 35 and 50 percent over the past decade, she adds. Now, all four operating LNG terminals are planning to expand their import capacity. By the end of May 2003, six projects had applications with the Federal Energy Regulatory Commission or the Coast Guard to build new LNG ports. An LNG terminal in Cove Point, Md., on the Chesapeake Bay, is set to receive imports later this year — its first in over two decades. If all the expansions and permit requests on the books go through, U.S. terminal capacity would more than quadruple, Sen wrote in the June 23 Oil & Gas Journal.

Jack Ekstrom, an executive with Evergreen Resources and chairman of the Western Business Roundtable’s Energy Committee, fears that Greenspan’s testimony will encourage investment in gas exploration and development overseas, at the expense of domestic production. “What Greenspan has implied is that the most favored solution to gas supply is sending money outside our own borders. Should we spend it where it benefits all Americans or should we do further damage to our balance of payments?” Ekstrom says.

But a moderate expansion of gas imports could actually promote domestic production, says John Curtis, director of the Petroleum Exploration and Production Center at the Colorado School of Mines. By stabilizing gas prices, imports would allow producers to have a better sense of what the financial rewards will be for major investments in new drilling — giving them more confidence and incentive to invest domestically. But, Curtis adds, increased imports should go in tandem with efforts to conserve gas and to extend drilling permits on federal lands in the West and the Gulf of Mexico.

Greg Peterson

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