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AGA Official: Let States Guide Gas Development

North America's strong natural gas supply outlook is thanks to what has taken place below ground: horizontal drilling with long laterals and hydraulic fracturing well stimulation. However, what is happening above ground will determine to what extent these efforts will benefit the country's energy security.

Last week the latest report from the Potential Gas Committee (PGC) said the United States had 1,898 Tcf of gas in the ground at the end of last year, a new record (see Daily GPI, April 28). That number was derived from "a fundamental geologic assessment" of the country's gas basins, most notably established and emerging shale gas basins, the American Gas Association's (AGA) Chris McGill, managing director of policy analysis, told NGI's Shale Daily.

While PGC tallies up the gas below ground, AGA's role, according to McGill, is above ground, where policy and regulatory decisions are made: "...[W]hat is going to happen around hydraulic fracturing, around some of the other technologies that evolved with shale production? Will there be impediments or will all of the stakeholders find a way to be able to continue to put this gas into the pipeline grid and to produce it and to do that in a sustainable manner?"

When it comes to regulation of natural gas industry activities, AGA's position is that things are best handled at the state level. McGill cited as a recent example of how state regulation can work actions by Pennsylvania's governor on drilling wastewater.

Pennsylvania Gov. Tom Corbett called on drilling operators to stop delivering wastewater from Marcellus Shale gas extraction to 15 facilities that had been accepting it, citing newly revised total dissolved solids (TDS) regulations. The process of removing TDS from wastewater also removes nontoxic bromides, but these become pollutants called trihalomethanes when combined with chlorine, which is used at water treatment facilities to disinfect drinking water (see Shale Daily, April 20).

"The discovery was made; the governor reacted. The producing community seems to have embraced that in terms of something that they're going to have to integrate into their business. I think that's how it's supposed to work," McGill said.

One reason state-by-state regulation is better than blanket federal rules is the geologic diversity that exists among states, calling for different solutions to different problems, McGill said.

"States seem to be able to act and react," he said. "In fact, when you talk about these kinds of issues and you talk about them in Oklahoma and Texas, the discussion seems different than it is in Pennsylvania. We're not here saying that additional regulation from the federal government is going to stop shale production. I think that's not true. On the other hand, I think it is a valid argument to look at the operations as a local operation and allow the local regulatory community to meet whatever requirements...state, federal or whatever are there..."

On the gas demand side, AGA, like many in the industry, has changed its tune on gas. Abundant supplies have turned gas from a "bridge fuel to the future" to "a foundation for the future," McGill said.

Besides direct use for space and water heating in homes and businesses, gas has a significant role in the power generation sector. While regulation of greenhouse gases (GHG) at the federal level was seen as the major catalyst for more gas-fired generation development, the potential for such regulation has been pushed aside. However, gas-fired power generation is enjoying expansion regardless.

"What has happened in the interim [without federal GHG regulation] is a number of states already have pushed cleaner power generation renewable portfolio standards, a multitude of things, out into the marketplace," McGill said. "And we are seeing some transition already, whether you talk about wind power and natural gas or natural gas and wind together, so there's some momentum there to begin with.

"If there were a legislative approach on a national level that forced a change in the power generation mix in the country, then you'd have a whole different set of analytical tools to look at there to try to determine what that impact would be. But it's already happening, and it's happening on the basis of the environmental elements in our social discussion today as well as the pricing. Relatively low prices of natural gas have made gas-fired generation more economic."

According to the U.S. Department of Energy, the total of more than 22.1 Tcf of gas demand in 2010 was the highest-ever level in the United States, exceeding the previous high established in 2000 by more than 10%. Last week the Gas Technology Institute (GTI) said it sees the coming decade as "a period of continued robust growth" for natural gas.

"The outlook for natural gas demand remains robust, thanks to the remarkable expansion of natural gas supplies in recent years and very attractive end-user prices. We believe that gas demand will likely reach 24 to 26 Tcf by 2020..." said GTI CEO David Carroll.

Future growth in demand will be led by the power generation sector, GTI said, where natural gas is poised to help offset an expected wave of older coal-fired power plant retirements across the country. Power generation demand in 2010 was at an all-time high, 40% higher than demand in 2000. Industrial demand also bounced back sharply from pre-recession levels.

"New power generation gas demand will be complemented by a continuing industrial rebound," said William Liss, managing director of GTI's end-use solutions. "Low natural gas prices are helping to expand domestic manufacturing -- particularly in the chemical, petrochemical, and food production and processing segments."

The natural gas industry is also experiencing growth in residential and commercial market sectors. In 2010 residential natural gas demand was the highest since 2003, while commercial customers used more gas than at any time since 1997, according to GTI.

Another area in which GTI anticipates major growth in demand is in the transportation sector, where fleet owners are increasingly turning their attention to natural gas vehicles.

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