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Climate Change Bill Moves Forward…Toward Natural Gas Industry

By Stephen Barlas, Washington Editor,
Pipeline & Gas Journal, August 2009 Vol. 236 No. 8

The climate change bill the Senate will consider in September — which the House passed by a narrow 219-212 vote in late June — could have a significant impact on various players in the natural gas business; but the key word is could.

The Senate may change some provisions in the American Clean Energy Security Act of 2009, and may or may not pass the bill even after making changes. Some Democrats have threatened to defect because of the potential affect of mandated carbon emission reductions on their states.

While the pipeline industry has been relatively quiet, the legislation would force compressor stations emitting more than 25,000 metric tons a year of carbon-equivalent emissions to reduce those emissions 17% by 2020. It is unclear how many compressor stations are above that level. The EPA proposed a rule earlier this year that would require all sources of greenhouse gas (GHG) emissions to report on facility-based emissions above 25,000 metric tons starting Jan. 1, 2011. The Interstate Natural Gas Association of America (INGAA) has pressed the EPA to make changes in that proposal, including delaying reporting for one year.

Julie Gentz, spokeswoman for Williams Gas Pipelines, says the company does not disclose emissions for each of its 100 compressor stations. It does disclose aggregate emissions for all Williams’ facilities, midstream and pipelines.

Richard Wheatley, spokesman for El Paso Corp., says his company does have compressor stations with emissions over 25,000 metric tons. “We are affected and are continuing to assess proposed climate legislation and potential impacts on individual facilities and El Paso businesses/operations,” he adds.

As for the impact on gas producers, that is unclear. ConocoPhillips released a statement saying, “We recognize that the complex bill has both positive and negative implications for the U.S. natural gas industry.” Asked to delineate those implications, Charlie Rowton, a spokesman for ConocoPhillips, says he was not prepared to discuss them. “As everybody has pointed out, it is a lengthy bill and there are lots of complex issues entwined. Natural gas is a fuel that ought to have an important role, and we want to make sure it doesn’t get penalized vis a vis other energy sources.”

One would think that the gas producers, and nearly everyone else in the natural gas supply chain, would be dancing in the street, or at least besieging the Senate, demanding passage of the House bill. Paul Wilkinson, vice president, policy analysis, American Gas Association, says natural gas demand will spike as a result of the legislation. That is because natural gas, as an input fuel, emits less carbon when burned than coal or petroleum.

He points out that when sectors such as the electric utilities and big industrials start looking to replace coal so as to comply with industry carbon caps, natural gas will be the likely alternative, especially in the early years of a program, between 2012, when emission reductions must begin, and 2020. That is because utilities cannot turn to “carbon-capture technologies” because they don’t yet exist. There won’t be additional nuclear plants coming on line for years. Availability of solar and wind power is growing very slowly. That leaves natural gas.

The natural gas distribution industry itself will come under pressure, too, by having to ensure that by 2016 its residential, commercial and small industrial customers have brought their total carbon-equivalent emissions below about 9% (this number is a moving target) of total U.S. carbon emissions. That total is expected to be somewhere around 5.5 billion tons. In the rubric of the climate-change debate, that would mean the natural gas utilities would get an allowance in 2016 of something around 500 million tons (9% of 5.5 billion). If their customers emitted more than 500 million tons, the utilities would have to go out on the open market and purchase additional allowances.

To get to 500 million tons by 2016, natural gas residential, commercial and small industrial users would have to reduce consumption by about 1.8-1.9% a year, according to Wilkinson. He thinks that reduction is doable but not a walk in the park because residential consumers of natural gas have been decreasing consumption for 40 years, “and you can’t reduce consumption 2% a year forever.”