Natural Gas ‘Shortage’ Puts Crunch on Environment, Economy

Published August 1, 2003

Natural gas supplies under current laws and regulations are unable to keep up with growing demand, testified Federal Reserve Chairman Alan Greenspan in a June 10 House Energy and Commerce Committee hearing. As a result, “we are not apt to return to earlier periods of relative abundance anytime soon.”

The federal government has been encouraging, by both carrot and stick, a move to natural gas, a cleaner fuel alternative to oil and coal. But environmental restrictions have prevented energy producers from keeping pace with demand. As a result, reported the June 8 Financial Times, natural gas prices have increased by as much as 700 percent over the past three years.

The Energy Information Administration projects demand for natural gas will rise by 50 percent over the next 20 years, but domestic production will grow by only 14 percent unless restrictions on public lands are loosened.

Natural Gas Transformation

As a result of clean air laws and environmental restrictions, nearly all electric plants built since 1998 are designed to be fueled primarily by natural gas. Demand is up dramatically.

But environmental restrictions still reflect the pre-1998 status quo, when natural gas was used primarily as a home heating fuel. According to Energy Secretary Spencer Abraham, environmental restrictions have rendered off-limits nearly half of the huge natural gas reserves that lie beneath federal lands.

“At home, natural gas supplies from old wells are diminishing and permits to allow new domestic and offshore drilling have been slowed by environment regulation,” reported Major Garrett of Fox News.

As a result, stored natural gas supplies have fallen to the lowest level since the federal government began keeping records more than 25 years ago.

Rising gas prices are taking their toll on industry, which is particularly sensitive to energy price spikes. The hardest hit sector is the fertilizer industry, for which natural gas represents 90 percent of the cost of ammonia, the building block of nitrogen fertilizers.

“The sorry thing is that there is gas to be found in this country but we can’t get to it,” said Robert Allison, chief executive of Anadarko Petroleum, a leading natural gas producer.

Environmental Restrictions Questioned

“There are actions that federal, state, and local governments can take to increase the availability of natural gas and help restrain price increases that damage consumers and the economy,” said Consumer Alert’s Glenn Schleede in congressional testimony delivered in July 2002. “Perhaps the most important action is to remove unnecessary restrictions on access to public lands and federally submerged lands for gas exploration and development.”

“We’re not running out of natural gas, and we’re not running out of places to look for natural gas,” said Keith Rattie, president of energy developer Questar. “However, we are running out of places we are allowed to look for gas.”

“Radical environmental groups have held up safe energy production on federal lands,” said House Resources Committee Chairman Richard Pombo (R-California). “Continuing moratoria, permitting backlogs, and radical environmentalist lawsuits have left Americans with as high as 1,000 percent price spikes in natural gas.”

Representative Ron Kind (D-Wisconsin) replied that supply-and-demand arguments are “designed to frighten Americans and consumers into a false sense of crisis” and weaken environmental protections in pristine areas.

However, a recent study by the Rand Corporation concluded that, “for the most part, the concentrations of economically recoverable gas exist in areas of relatively lower potential environmental concern.”

Ironically, price spikes associated with restrictions on natural gas recovery have prompted electrical plants to switch to oil and coal, which emit more pollutants than natural gas. Drilling restrictions promoted to protect the environment are resulting in more air pollution than the U.S. would otherwise experience.

Declining Infrastructure

Another factor in the natural gas shortage is an inadequate and deteriorating infrastructure.

“An expanded network of natural gas pipelines is essential to getting gas supplies to market. The Interstate Natural Gas Association of America has estimated that between $60 billion and $70 billion in new interstate pipeline investment will be required over the next 12 to 15 years to meet the demands of the market,” said Fred Fowler, chairman of the association. “And yet, onerous regulations and bureaucratic permitting processes have discouraged investment in new pipeline projects.

“Local opponents aren’t shy about tossing federally approved, interstate pipeline projects on an endless regulatory merry-go-round, using layers of red tape to slow or even stifle needed infrastructure,” Fowler added. “The ‘not-in-my-backyard’ argument tossed out by local opponents does not supersede need, and it should not be allowed to disrupt interstate projects blessed by a rigorous federal approval process.”

Said Robert Bradley Jr., president of the Institute for Energy Research in Houston, “The first point is that natural gas reserves in both the U.S. and Canada are at all-time highs. Mother nature is not to blame for high prices. Lagging infrastructure is at fault, from wellhead production to pipeline capacity to move supply to markets.”

James M. Taylor is managing editor of Environment & Climate News. His email address is [email protected].