More drilling access vital as gas becomes bridge fuel: officials

Atlanta (Platts)--7Apr2009

http://www.platts.com/Natural%20Gas/...

Federal legislation aimed at limiting carbon emissions likely will boost demand for natural gas, several industry officials and analysts said Tuesday as they stressed the need for more access to reserves that are currently off limits to drilling.

"Gas-fired [power] generation is the only out-of-the-box-ready technology that can really pick up a significant portion of US generation that puts us on a lower-emissions path," Ben Feldman, executive director of environmental markets for JP Morgan, told the Southeast LDC Gas Forum in Atlanta.

"So in the medium term, gas is really the bridge fuel," he said. Feldman predicted passage of "comprehensive climate legislation" by 2010, with implementation likely by 2013. "This is really fundamental change that's being talked about, and the next few pieces of it are coming this year or next in terms of legislation," he said.

Independent energy consultant Bob Williams noted that the recent upturn in gas production -- resulting primarily from the emergence of prolific shale plays -- has positioned the industry well to meet upcoming needs.

"All of this seems to be a pretty good thing considering the spike in gas demand that's going to be coming from the power sector in a carbon-constrained world," Williams said. "So, all in all, it would seem to be a very positive outlook for the US gas industry."

He then delivered a caveat: "Now for the bad news: In no time at all, the Obama administration has generated what I consider a tsunami of environmental re-regulation that, coupled with new fiscal measures ... [is] going to have the effect of strangling the unconventional gas baby in its crib."

A primary concern, he said, is restricted access to gas drilling on federal lands, including the Outer Continental Shelf. Williams lamented Department of the Interior Secretary Ken Salazar's decision in February to extend by 180 days a public comment period on a proposed five-year plan for oil and gas development on the OCS, and suspected that such delays would continue.

"To me, that signals that the new leadership in Washington believes that a de facto moratorium works just as well as an actual one," Williams said. He said he fears that environmental regulations -- including "the revitalization, with teeth, of the Endangered Species Act" -- will be used to restrict drilling on lands in the West where drilling for coalbed methane, tight gas and shale gas have shown promise.

Williams, who also cited the threat of greater restrictions on management and disposal of water used in oil and gas production, issued a call to the industry to make a case to the new leadership in Washington "that, if natural gas is America's bridge to the future, the development of unconventional gas is the keystone in that bridge. Erecting more environmental regulatory barriers will be the tipping point for an already burdened US [exploration-and-production] sector, and unconventional gas will then fall short of its potential."

Bert Kalisch, president and CEO of the American Public Gas Association, agreed. "Congress needs to revisit and direct [Interior] to go ahead and make some of these areas available to supply," he said. Research and development advances "that have taken place over the last 30, 35, 40 years has been incredible. "Access to supply is a fundamental component of long-term, affordable natural gas."

Concerns about regulation weren't limited to the relatively short term. Charles Young, the deputy city manager of Hamilton, Ohio, suggested that, while gas stands to benefit at coal's expense in the near future, it could eventually meet a similar fate if alternative energy sources gain viability.

"In the long run, perhaps, as gas becomes no longer an environmentally friendly fuel as coal isn't there to make us look good, we may find environmental rules pushing us along the same lines," Young said.

--Tim Bresnahan, tim_bresnahan@platts.com