US climate bill said to cut domestic gas supply

30 May 2008 20:54  [Source: ICIS news]

WASHINGTON (ICIS news)--Passage of climate control legislation now pending in the US Senate would reduce domestic natural-gas production by as much as 40% and force greater dependence on foreign liquefied natural-gas (LNG) supplies, manufacturers said on Friday.

 

The Industrial Energy Consumers of America (IECA), a coalition of chemical producers and other energy-dependent manufacturers, said that an independent study by the UK-based Wood Mackenzie energy research firm indicates that increased costs that would be imposed on natural-gas production and consumption would render some domestic gas resources uneconomic to develop.

 

Under the principal climate control bill that is to be debated next week in the US Senate, a cap-and-trade mandate would require that manufacturers, the transportation sector, electric utilities and natural-gas producers cap and then gradually reduce their emissions of greenhouse gases.

 

The bill, S-2191, titled “America’s Climate Security Act,” would require industry to purchase emissions permits from the federal government to cover greenhouse gases generated in excess of what federal authorities allow for a given production or consumption activity.

 

Although final terms of the bill have yet to be mapped out - and the legislation is not expected to pass this year - it could require natural-gas producers to purchase permits to equal the emissions generated by households that use natural gas to heat their homes.

 

According to the Wood Mackenzie study, “If 100% of the consumer emission costs are borne by producers, approximately 32% to 46% of expected US [natural gas] production during the years 2012-2017 becomes uneconomic to develop”.

 

The study said that about 22bn cubic feet (bcf)/day of gas production would be economically stranded out of expected total production of around 56.3 bcf/day during that five-year period. That would mean a shortfall in domestic US gas production of nearly 40%.

 

IECA president Paul Cicio said the study, commissioned by the American Exploration and Production Council (AXPC), indicates that the climate control bill would reduce domestic US natural-gas supplies at a time of growing demand, and “could result in an alarming increase in the price of natural gas.”

 

The US chemicals industry is heavily dependent on gas as a feedstock and has seen prices increase nearly 200% since 2000.

 

In addition to the supply reduction expected as a consequence of S-2191’s emissions permit costs, the legislation would likely trigger widespread fuel switching among electric utilities from coal to natural gas, the study said, adding still further pricing pressure.

 

Cicio also cautioned that the resulting reduction in domestic production amid increased gas demand would push the US further into an unreliable market for foreign-sourced LNG. 

 

That, in turn, he said, “will increase our dependency on OPEC-type countries and negatively impact our trade deficit”.

 

The complete Wood Mackenzie study is available on the AXPC Web site.

 

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By: Joe Kamalick
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