OUTLOOK ’08: US chems face an energy squeeze

24 December 2007 17:17  [Source: ICIS news]

By Joe Kamalick

WASHINGTON (ICIS news)--US chemical producers and many other manufacturers will face an increasingly tight squeeze in energy in the new year as Congress moves to broadly increase demand for natural gas - even as it continues to restrict gas supplies.

The US chemicals industry is heavily dependent on natural gas as both a feedstock and energy resource, and the industry views with dismay federal energy policies that add demand and pricing pressure on gas.

Just before Christmas, Congress approved and President George Bush signed the “Energy Independence and Security Act of 2007.”  Chemical industry officials lament that, despite its grand name, the new energy act does little or nothing to enhance US energy independence or security.

The bill increases by 2020 the average US automobile fuel efficiency standard to 35 miles/gal (mpg) (15 km/litre) from the current 25 mpg. It also imposes new energy efficiency and conservation requirements on US government and commercial buildings, lighting fixtures and home appliances such as washing machines and refrigerators.

The bill chiefly creates a major new mandate for US production and consumption of biofuels in the country’s transportation fuels mix. 

Congress decreed in the energy bill’s renewable fuels standard (RFS) that by 2022 the US should be producing 36bn gal/year (136bn litres/year) of biofuels, principally plant-based ethanol. 

That is a four-fold increase over the previous biofuels mandate, which was to require 7.5bn gal/year of ethanol output and fuel blending by 2012. By the close of 2007, US corn-based ethanol production was nearing or at 7bn gal/year.

Congress also decreed that, of the 36bn gallons of biofuel to be produced by 2022, 21bn gallons should be from cellulosic feedstock such as wood chips, grasses, agricultural waste and other non-food sources. Production of corn-based ethanol is expected to peak at some 15bn gal/year and is already blamed for driving up prices for corn, other key food grains and derivative or dependent foods such as poultry and beef.

Paul Cicio, president of the Industrial Energy Consumers of America (IECA), a group of chemical producers and other high-energy industries, warned that the 2007 energy bill and its biofuels mandate will put a major squeeze on natural gas.

“If only one-half of the energy bill’s renewable fuels standard (RFS) mandate was met by using [corn-based] ethanol, it would consume an additional 900bn cubic feet [bcf] of natural gas,” Cicio said.  “This is the equivalent of 4.4% of the nation’s 2006 natural gas supply.”

That also represents an additional demand for natural gas supply “that today does not exist,” Cicio said.

Tom Gibson, senior vice president for advocacy at the American Chemistry Council (ACC), complained, “What Congress keeps missing is that we need more natural gas.”

“Biofuels production has a long natural-gas tail,” Gibson said, citing the use of natural gas as a feedstock for fertilizer needed to grow corn and as a fuel in the ethanol distilling process.

In the new year Congress is likely to enact some form of climate-control legislation, probably a carbon cap-and-trade measure that will force chemical producers, other manufacturers and electric utilities to cut their emissions of greenhouse gases, such as carbon dioxide (CO2).

Bill Holbrook, spokesman for the National Petrochemical & Refiners Association (NPRA), cautioned that almost any sort of climate change legislation will likely have a profound impact on energy by forcing “massive fuel-switching from coal-fired electric power to natural gas."

The sharp increases in demand for natural gas for biofuels production and greener electric power will come as US domestic gas production continues to decline. Citing US Energy Information Administration (IEA) figures, Cicio said that US natgas production is down 4% since 2000 and imports of Canadian gas and liquefied natural gas (LNG) are declining.

At the same time, Congress continues to maintain a 26-year-old moratorium on exploration and development of vast oil and gas reserves in 85% of US offshore regions.

“I think Congress and the federal government have again done the American people a disservice with their wrong-headed energy policy,” said Joe Acker, president of the Synthetic Organic Chemical Manufacturers Association (SOCMA).

“In the natural gas area, they have done things to increase demand and yet limited gas supplies,” he said. “This is a false economic model, a model driven by government regulations rather than market economics.”

“Every time Congress has an opportunity to improve the US energy supply, they miss the boat,” Acker said.

By: Joe Kamalick
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