IPAA's Jordan: 'Pray for Good Weather'

To produce enough natural gas to fuel the nation's growing demands, the North American gas industry, which has an adequate resource base, must be permitted access to lands as well as capital, Jerry Jordan, chairman of the Independent Petroleum Association of America (IPAA) told a Washington audience last Thursday.

As for the energy industry as a whole, "currently --- and for at least two years into the future --- all of us should adopt the California 'faith-based' approach to energy --- pray for good weather," Jordan said. "Our combination of increased demand based primarily on electric power generation, and a stifled producing industry has put us in a precarious position as to our natural gas supplies. We barely got through this winter --- and our problems are not being solved at a pace which reassures me in the least."

As a result of the natural gas crisis during the 1970s, the country enjoyed two decades of affordable gas, but over the past two years it has been "severely tested," as government regulations interfered with the market and drove the economy toward gas as the fuel of choice, excluding alternatives, Jordan, president of Ohio-based Jordan Energy, told a Natural Gas Roundtable meeting. By putting all of the nation's eggs in the "natural gas basket," coal and nuclear power generation have been discouraged, and even hydroelectric power has been cut back in some places, "about two to three" dams have been torn down in recent years. The executive said a "balanced approach" of generating sources is what the country currently needs.

While the rhetoric has focused on natural gas, government policies haven't been particularly helpful. They have "greatly reduced the available non-park government lands which can be explored for new gas supplies." Even in areas that can be drilled, permitting delays can result in canceled projects.

"We can only be effective in that revitalization effort if we strike a policy balance between our energy needs and our environmental concerns," he said. "When I say that, I am not encouraging the destruction of our environment. Our industry has learned to do our job of development with only minimal effect on the land and waters where we are operating. Most environmental national concerns and fears are based on 25-year-old technology that is no longer used. Today, we don't have to choose between adequate energy and clean air and water; we can have all of them."

While most of Jordan's career has been focused on the gas industry, he said he has spent a lot of time over the last few years on what has been "erroneously" called electric deregulation. Far from true deregulation, he said restructuring --- as seen in the gas industry --- is what is needed for the electricity industry. Much like the gas shortages three decades ago that sparked a restructuring of the gas industry, the California crisis with electricity will act as the necessary call to arms that will ignite true progress in the nation's electric restructuring process, Jordan predicted.

He believes the nation now has a "unique opportunity" to accomplish electric restructuring at this time in spite of the current thinking that we should retrench. Problems in California have been blamed on restructuring by those who would like to see the heavily-regulated regime continue. But Jordan labeled those arguments "baloney," saying "we are very likely to get a great negative reaction to restructuring and to market based solutions, and I am really happy that in Ohio, our egg is scrambled. It is going very slowly, but I think it is going to work beautifully."

Jordan said the restructured gas industry should be looked to as the key model. As for the gas industry existing today, he said, "Nobody sat down and planned it out. It evolved from practical needs of a vital industry, and it works --- as long as government regulation stays out of the way, as to its essentials."

Jordan said the move toward electric restructuring was propelled by industrial electric consumers that had reaped billions of dollars in savings when the gas market was restructured. "But they [industrials] realized quickly that restructuring was not going to be easy," Jordan said. The power system is dominated by large and small "fiefdoms," and those companies had no reason to release their hold on the market. Areas where electric restructuring has been put in place are paying a high economic price in the form of excessive stranded cost recovery, long transition periods, and in the case of California, totally unrealistic structures, which ignored market realities, he said. But the crisis has hit, much like it did involving natural gas in the 1970s, and Jordan believes it is time to take action.

Borrowing from a recent speech by former Federal Energy Regulatory Commission Chairman Jim Hoecker, Jordan paraphrased, "The answer is not retreat and retrenchment as to electric restructuring; the nation must push market reform full speed ahead, and push for effective regional electric markets."

"I believe that he has it right," Jordan commented. "It worked with natural gas, and it can work again if we maintain our resolve... It took 10 years or more with gas, and it may take that long or longer with electricity. But let's stick to the effort, and realize the enormous savings of a market-based electricity system. It can act as a great stimulant to our economy, which is obviously needed today."

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