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Gas Supply-Price Mismatch Makes Conservation 'Interim' Necessity, FERC Official Says

The only viable mitigation for the nation's continuing high wholesale natural gas prices over the next two or three years is stepped up conservation, and FERC is now urging industry and regulatory leaders to push for more demand-side management, according to a Federal Energy Regulatory Commission staff director speaking Tuesday at the two-day "LDC Forum -- Rockies & West" conference in Los Angeles.

"We've entered a limited gas supply era," said J. Mark Robinson, director of FERC's Office of Energy Projects. Robinson substituted for Commissioner Nora Mead Brownell, who had been scheduled as the keynote speaker but did not make the conference. Robinson emphasized that from now until 2008 there won't be much in the way of added gas supplies or infrastructure, although a lot of construction and contracting is now underway with the target of starting up new liquefied natural gas (LNG) import projects and new pipelines from the Rockies or elsewhere sometime in 2008.

"Between now and 2008 there are not a whole lot of projects coming on line that could add supplies in the range of several B's (billion-cubic-feet) per day that people need and that they think are necessary to drive down prices," Robinson said. "That's why the message has to get out, and I think it is starting to get out effectively -- that conservation is the answer to mitigating prices between now and 2008."

Joking that he always tries to quote his boss when giving a speech, Robinson read a short message for FERC Chairman Joseph Kelliher, saying that "it is clear the most important action to be taken now is to reduce consumer demand through conservation."

Like other speakers later in the day, Robinson made it clear that the nation eventually needs to have new LNG receiving terminals on both the East and West Coasts as the two recent hurricanes brought home a fact FERC has voiced concerns about for several years -- that there is too great a concentration of natural gas supply infrastructure in the Gulf of Mexico region. In response to a question about whether an LNG terminal will ever be sited along California's coast, Robinson declined to speculate.

"LNG and domestic production are the fundamental drivers to national energy policy right now," said Robinson, noting that even in a period of declining North American reserves and skyrocketing prices, natural gas is still the "fuel of choice." He said if you accept some analysts' conclusions that the U.S. energy policy is a derivative of its economic, environmental and security policies, natural gas has to be the key because it is the only major energy source that can advance the nation's programming in all three of those areas.

An inescapable fact behind the LNG push is the statistic that 96% of the natural gas supplies in the world are located outside of North America. Thus, Robinson said, FERC has applications for about 20 LNG receiving terminals across the country. It has authorized eight projects totaling about 12 Bcf/d and three are under construction. Another 12 proposed terminals, representing about 16 Bcf/d, are being processed at FERC. Existing terminals process about 4 Bcf/d, he said.

"Everyone is looking at LNG right now, and they are asking the question of how you get it in faster."

In addition, new investment and policymaking changes in the Rockies as well as construction of an Alaskan pipeline will help domestic production remain a complement to LNG imports, said Robinson, although his estimate is that it will take another 10 years to bring arctic gas to the Lower 48 states, despite strong political pressure from parts of Congress to do it by 2012.

In the meantime, there are several key phases of supporting infrastructure investment that need to be made related to proposed LNG receiving terminals -- gathering pipelines to take the regasified LNG from the terminals, long-line interstate pipelines to take the supplies to the load centers, and finally a critical third phase of so-called "last-mile" pipe to get the LNG to the end-users, Robinson said.

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