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Vol. 11, No. 14 Week of April 02, 2006
Providing coverage of Alaska and northern Canada's oil and gas industry

Taking it to the people

Gas consumers, producers have appealed to Congress, administration; now telling public that off-limit resources in U.S. would reduce prices

Kristen Nelson

Petroleum News

Executives of two natural gas producers and three natural gas consumers said March 28 that the American public needs to hear that the government’s policy of locking up access to natural gas resources is one of the reasons for high natural gas prices.

Jim Hackett, Anadarko Petroleum’s chairman, president and chief executive officer, told a press briefing in Washington, D.C., that the group has been going to Congress and the administration with these issues for five years. “We’re now taking this to the American people,” he said.

The United States has “vast untapped” natural gas resources, Hackett said, with estimates by government agencies putting the supply at 177 years of gas for home heating. But industry can’t get access to many areas because of government restrictions, he said.

Others headed off to talk to Congress about natural gas included Larry Nichols, chairman and chief executive of Devon Energy, and three representatives of companies that consume gas: Larry Downes, chairman and chief executive officer of NJ Resources; Steve Wilson, president and chief executive officer of CF Industries Holdings; and Dan DiMicco, chairman and chief executive officer of Nucor Corp.

Nichols: high prices destroy demand

Nichols of Devon Energy said high natural gas prices destroy demand and are bad for the farmer, the consumer, the industrial consumer and natural gas producers.

More than 30 percent of the land in the United States is owned by the government and only 1.5 percent of onshore land is available for leasing, he said. The U.S. Geological Survey estimates land off limits for leasing contains more than 622 trillion cubic feet of natural gas, he said. And on lands available for leasing there is a backlog of 5,000 drilling permit applications.

“Our natural gas supply problems are man made by legislation and red tape,” Nichols said, and the solution is in the hands of Congress and the administration.

The Bureau of Land Management has hired more employees, but the backlog in permits has increased because more applications have been filed. In addition to not having enough people to handle the work, Nichols said environmental studies are not always done efficiently with some areas repeatedly studied. He also said that rather than processing applications for individual wells, where identical wells are proposed, that BLM should do group processing of the applications.

Hackett: 90% OCS off limits

Anadarko’s Hackett said addressing the onshore backlog is only the first step: 90 percent of the outer continental shelf is off limits to exploration. He said industry has proven that in offshore areas exploration and development can take place with little environmental impact.

In the eastern Gulf of Mexico there is a move to open remaining parts of lease sale area 181 to exploration. A small portion of 181 was offered in 2001 and industry has had 10 discoveries in the area, all of them natural gas, Hackett said. A platform installed this year will start delivering 1 billion cubic feet a day of natural gas in 2007, representing almost 2 percent of daily U.S. demand. This will be six years from leasing to production, he said, and offers a “dramatic example” of what can happen when industry is allowed to help America in competitiveness.

But a huge area is still off limits and Hackett said the companies represented were calling on Congress to open the remaining 181 sale area and lift moratoria on other offshore areas as soon as possible. Closed areas include the majority of the east and west coasts and much of Alaska.

He said the group’s message to Congress is that the solution is in its hands.

Downes: utilities get to deliver the bad news

Downes of NJ Resources, a natural gas local distribution company, said local natural gas distribution companies are face to face with almost 70 million consumers in the United States. “We get to deliver the bad news of higher prices,” he said, and want an environmentally responsible strategy to develop the nation’s resource base.

A quarter of U.S. energy needs are met through natural gas, 80 percent of which is produced in the United States, he said. While prices averaged $2 to $3 per thousand cubic feet five years ago, prices have hit record levels of more than $15 per mcf. Prices are rising and our customers are bearing that burden.

He called for a national energy strategy and said in the last few years we learned that doing nothing and letting the markets work doesn’t work because the government is denying access to natural gas resources. We need to “honestly and aggressively address the problem,” Downes said.

Wilson of CF Industries Holdings, one of North America’s largest manufacturers and distributors of nitrogen fertilizer, said the American farmer needs fertilizer, and CF Industries needs a dependable supply of reasonably prices natural gas to make nitrogen fertilizers. Natural gas is to ammonia as flour is to bread, Wilson said. It is also about 90 percent of the cost of producing ammonia and 40 percent of U.S. crop production depends on nitrogen fertilizers.

Natural gas has been as high as $15 per thousand cubic feet, he said, while some competitors abroad pay as little as 50 cents to a dollar per mcf.

Wilson said the high feedstock costs have driven CF Industries to look offshore for future nitrogen projects.

It is “irrational,” he said, for government to promote use of natural gas while restricting the supply.

CF Industries is not looking for a handout, Wilson said. The company wants to compete and is looking to the government to take the handcuffs off.

DiMicco: global environment the issue

DiMicco of Nucor Corp., the nation’s largest steel producer and recycler, said natural gas prices are critical: Our yardstick is how much foreign competition is paying for natural gas. Nucor paid three to five times as much for natural gas as some of its foreign competitors. He said he didn’t expect the government to guarantee low natural gas prices, but does expect the federal government not to withhold access to energy resources it controls. That, he said, is what the government is doing on the outer continental shelf and on federal lands.

DiMicco said its global competition pays one-third or less what it pays for natural gas. The government needs to provide the tools for the market to do the job and then get out of the way and not tie the hands of industry.

The American people should be standing up and demanding a realistic energy policy, he said, and saying we don’t want to be dependent on other countries.

“We need to do things the right way,” he said, and “not everyone in the world shares the same view.” Industries are being taken out of the United States to areas of the world with zero environmental control systems for steel, fertilizers and chemicals, he said, and the net impact on the environment is larger. California recently reported that 25 percent of the particulates in its air come from China, he said.

DiMicco said we need to look at the whole picture on environmental issues, and argued it is better for the global environment to have production done in the United States where there are regulations in place and enforced. He said the U.S. is losing its industrial base to countries with no environmental controls. Environment is a global issue, he said, and we need to look at what’s best for the global environment.

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