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AGF Report Says Much Work Needed to Rebalance Gas Market

The U.S. natural gas industry is one-third of the way toward achieving the most desirable supply-demand scenario outlined in a 2005 American Gas Foundation (AGF) study, the foundation said Tuesday. While the Energy Policy Act of 2005 (EPAct) has brought progress on a number of industry goals, much more work remains, the AGF said.

"Today and for the foreseeable future, high natural gas prices are negatively impacting all consumers in our nation," the AGF says in its latest report, which examines the effect of EPAct on the gas industry. "The impact includes high gas bills, the inability of companies to remain competitive, and the loss and/or overseas move of U.S. jobs. Even in light of this, government decision-makers continue to support public policy and federal/state regulations that reduce, delay, or eliminate natural gas supplies that can ease the supply/demand imbalance that has directly contributed to high prices."

The AGF says recent events, such as the 2005 hurricane season, higher crude oil prices and diminished expectations for liquefied natural gas (LNG) importation, only increase the importance of addressing the "imbalance" in the gas market. AGF says that while EPAct made "some headway in key policy areas" noted in its 2005 study, such as demand reduction, onshore supply access and LNG supplies, there is more to do. "Additionally, actions on other important issues such as moving forward with the Alaska Gas Pipeline have yet to be taken."

And Congress has not appropriated funds for many of EPAct's measures. "At best, EPAct and other policy measures taken over the past year bring us about one-third of the way toward achieving the potential market balance as outlined in the 'expanded' policy scenario of the [2005] AGF Outlook Study.

"Without additional efforts beyond the measures taken over the past year, U.S. consumers will continue to bear the burden of high and volatile natural gas prices and can expect to face billions of dollars in additional cost over the next 14 years,"

Despite the tightness of the gas market in 2005, AGF said the long-term projections made in its 2005 study remain the same. It is unlikely the market will return to the oversupply/low-price environment of the 1980s and '90s, and "without significant policy changes," the market will remain in a tight supply-demand balance with accompanying high gas prices. Further, short-term supply disruptions are likely to cause price spikes.

AGF looked at five areas when assessing accomplishments to date: demand reduction, onshore access, offshore access, Alaska gas pipeline development and LNG imports.

In the area of demand reduction, full implementation of all EPAct measures could reduce gas demand by 100 Bcf/year on top of a 300 Bcf/year reduction realized from currently implemented efficiency and conservation policies.

Onshore gas supplies could grow by 100 Bcf/year with full implementation of all EPAct provisions, on top of 100 Bcf/year expected to come from the streamlining of the approval and permitting process.

Regarding the offshore, Congress in December passed legislation that opens access to 365 Bcf of supply in the eastern Gulf of Mexico (see Daily GPI, Dec. 21, 2006). However, no new policies on Outer Continental Shelf access have been implemented since the 2005 AGF study.

Further Alaska gas pipeline efforts were sent back to the drawing board by a changing of the guard in the governor's mansion (see Daily GPI, Nov. 9, 2006). The AGF says an Alaska gas pipeline could provide up to 2.2 Tcf/year.

LNG imports could grow another 1 Tcf/year with implementation of additional policies to promote long-term supply contracts. This would be on top of a 1 Tcf/year increase expected to come from the streamlining of the LNG terminal approval process. Potential LNG imports were pegged at 6.4 Tcf/year in the 2005 study.

The report, "The Energy Policy Act of 2005 and Its Impact on the U.S. Natural Gas Supply/Demand Imbalance," is available at the AGF website, www.gasfoundation.org.

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