The House Environmental Resources and Energy Committee heard from energy producers this week on Pennsylvania’s energy needs, pinch points and barriers to solving the state’s energy problems.

The Committee heard from — Doug Biden, Electric Power Generation Association, Gordon Shearer, Hess LNG, Stephen Rhoads, Pennsylvania Oil and Gas Association and George Ellis, Pennsylvania Coal Association.

Doug Biden, Electric Power Generation Association, said high prices of natural gas constitute one of the most “difficult and economically threatening” issues facing the energy industry in the near and long term. It’s creating a tremendous economic hardship, not just for homeowners, but also for industrial consumers of electricity and natural gas who are moving their manufacturing operations overseas or shutting them down, he said.

“The United States now has the highest natural gas prices in the world,” Biden stated, “and a new term has entered energy industry parlance to describe the effect this is having on industry – it is called ‘demand destruction.’” He said it is “vitally important that policymakers understand this problem, its causes, its implications for the economy, and potential solutions going forward.”

Nearly all of the new electric generating capacity built in the last 10 or 15 years has used natural gas as their primary fuel and as a result natural gas prices, more than the availability of electric generation, has driven the cost of electricity.

For example, the PJM regional spot market price for electricity rose more than 35 percent in 2003, 11 percent in 2004 and 32 percent in the first 10 months of 2005, mostly due to the cost of natural gas.

With the ending of utility generation price caps in 2009-10, the cost of electricity for consumers will be largely the function of natural gas price movements, how good utilities are at hedging natural gas price risk, the rate of increase in electric demands, the cost of more stringent environmental requirements and the net costs and benefits of complying with Pennsylvania’s Alternative Energy Portfolio Standards.

Biden said the change to natural gas was driven initially by federal environmental regulations, but now Pennsylvania is considering even more stringent rules for limiting mercury emissions and a multi-pollutant model rule from the Northeast Ozone Transport Commission that will drive more use of natural gas by power generators at the worst possible time. Biden said the General Assembly should be involved upfront in the mercury rule process and in reviewing a multi-pollutant rule for their costs and benefits.

Biden also noted there should be continued support for improved performance and cost competitiveness of renewable energy technologies, looking for more efficient advanced coal-fired technologies like Integrated Gasification Combined Cycle systems and promoting energy efficiency to help address Pennsylvania’s energy issues.

Relicensing Pennsylvania’s nuclear power plants, which supply 36 percent of the state’s electricity, is also a critical issue.

Biden also recommended the General Assembly adopt tax credits for investments in power plant emissions control equipment.

Gordan Shearer, Hess LNG, told the Committee North America represents 30 percent of the world’s natural gas consumption, but only 4 percent of the gas reserves and that 95 percent of the new power generating capacity of the nation has been fueled by natural gas.

At the same time, Shearer said the infrastructure to get natural gas from production areas, primarily from and through the Gulf Coast, to users, particularly in the Northeast, has caused significant price differentials. In January 2004 natural gas was selling for $65 per thousand cubic feet (tcf) in Philadelphia, while in Louisiana it sold for $6 per tcf.

Shearer said LNG would help fill this gap between demand and supply increasing from about 2 percent of U.S. gas supply now to as much as 25 percent by 2025.

There are now two proposals on the Delaware River and in North Philadelphia for LNG terminal facilities.

Shearer also addressed the issue of safety saying LNG shipping and terminals have handled over 45,000 cargoes of LNG around the world without any spills, environmental damage and without harm to the public.

Stephen Rhoads from the Pennsylvania Oil and Gas Association pointed to the estimated 2.4 trillion cubic feet of proven natural gas reserves in Pennsylvania as one way to fill demand for gas. Gas producers in the state will be issued over 5,300 permits for wells by the end of 2005 and drill about 60 percent of them.

Rhoads pointed to an additional 2.7 trillion cubic feet of recoverable methane in Pennsylvania’s coal seams and in formations like tight sands and Trenton Black River as well as Lake Erie where more reserves can be found.

Pennsylvanians use about 663 billion cubic feet of gas a year, according to the U.S. Energy Information Administration.

Rhoads recommended opening up more state lands and Lake Erie to natural gas production, passing legislation to encourage development of dormant wells, eliminating conflicts in law that would allow more development of coal bed methane, limiting a planned increase in oil and gas well bonding by DEP and doing more to encourage production from marginal, low producing wells.

George Ellis, Pennsylvania Coal Association, said coal remains the fuel of choice for electric generation with 56 percent of the electricity generating capacity in Pennsylvania fueled by coal. Thirty-four million tons of the 43 million tons of coal consumed in Pennsylvania power plants comes from Pennsylvania mines.

For coal to continue to play a major role in power production, Ellis pointed to several issues of concerns.

The plan by the Department of Environmental Protection to adopt a Pennsylvania-only rule to control mercury presents a serious risk to the continued use of Pennsylvania coal because Pennsylvania coal is high in mercury. A rule that would impose requirements different in timing and content from the federal rule now in place would encourage power plants to switch to lower mercury coal from other states.

Ellis endorsed proposals by the Rendell Administration to encourage clean coal technology through its recently announced EDGE (Energy Deployment for a Growing Economy) initiative. He also proposed tax credits for using Pennsylvania coal and a $2 per ton incentive on coal produced from re-mining operations.

Ellis also made recommendations in the areas of deep mine safety and changes to the mining permit and bonding requirements.

The Committee is chaired by Rep. Adolph (R-Delaware) and Rep. George (D-Clearfield). The next Energy Policy informational meeting will be held in January.

NewsClip: Lawmakers Hear of Natural Gas Role in Electricity Prices

12/9/2005