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Industrial-Farm Coalition Opposes Subsidies for Gas Transportation

A broad coalition of industrial and agricultural natural gas users told House and Senate leaders Monday that they oppose any legislation that seeks to increase natural gas demand in the transportation and power sectors through the use of subsidies or mandates.

"The most recent example [of such legislation] is HR 1380, the NAT GAS Act," the group wrote in a letter to Senate Majority Leader Harry Reid (D-NV), Senate Minority Leader Mitch McConnell (R-KY), House Speaker John Boehner (R-OH) and House Minority Leader Nancy Pelosi (D-CA). The measure calls for creating or extending tax credits for the purchase of natural gas vehicles, fuel and infrastructure over the next five years (see Daily GPI, April 7).

"We urge the Congress to allow the market to set supply and demand for natural gas instead of picking 'winners' and 'losers' through legislation. It is also not sound fiscal policy to establish a multi-billion-dollar subsidy when our nation faces a $14 trillion deficit," said the 61-member coalition, which includes several major companies and associations, such as the Industrial Energy Consumers of America, the American Chemistry Council, The Dow Chemical Co., the American Forest & Paper Association and The Fertilizer Institute.

Manufacturers, who use gas as both an energy source and an essential raw material, are "concerned that such legislation could result in higher costs, causing further industrial 'demand destruction' that forces good U.S. manufacturing jobs to overseas competitors. Higher natural gas costs will also drive up the price of electricity," the coalition said.

"The farm sector depends on natural gas for food processing, irrigation, crop drying, heating farm buildings and homes and nitrogen fertilizer production. By far the most intensive agricultural use of natural gas is in the production of nitrogen fertilizer, which is used on virtually every crop produced in this county." The coalition estimated that gas accounts for about 80% of nitrogen fertilizer production costs.

"Subsidizing natural gas demand is unnecessary. If natural gas is abundant and affordably priced, the market will respond by increasing demand," the group said.

"We are alarmed at the speed of our increasing dependency upon natural gas. For example, natural gas demand from the power generation sector has increased 42.3% since 2000 and 7.2% in 2010." On the other hand, "we are encouraged by the recent reports regarding a new abundant supply of natural gas from shale formations. In fact, numerous manufacturers have recently announced expansion plans based on affordable supplies of natural gas."

But manufacturers' optimism for shale is tinged with concern. "History has shown that unforeseen circumstances, including the potential for both federal and state regulations to be placed on shale drilling, can either slow its production, increase its costs or otherwise dramatically alter these types of future projections.

"Government policy that artificially raises demand while competing policies constrain supply is a recipe for increased cost to manufacturers and consumers alike."

The "New Alternative Transportation to Give Americans Solutions Act," which is known as the NAT GAS Act, was introduced in Congress in April. Competing alternative energy industries quickly complained that it would give natural gas an unfair advantage.

Investment bank FBR Capital Markets believes that the 2011 version of the bill has a better chance of passing than its predecessor because of its smaller five-year scope. Its doomed predecessor covered 17 years and was estimated to cost between $4 billion and $7 billion, one possible reason for its failure to muster enough support for a House vote in 2010 (see Daily GPI, April 15, 2010; March 25, 2010).

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