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Obama Says Natural Gas Bridges to Energy Future, But Tax Incentives Unnecessary

In the annual State of the Union address to the nation Tuesday, President Obama praised domestic natural gas production and said if it's "extracted safely," gas would be "the 'bridge fuel' that can power our economy with less of the carbon pollution that causes climate change."

However, while he heaped accolades on exploration and production (E&P) efforts that have lifted the United States into the No. 1 position among explorers, the president said the $400 billion in tax subsidies should be directed to other endeavors.

The administration's "all of the above" strategy, which has placed alternatives in direct competition with fossil fuels for federal funding, with the exception of coal, has put the United States "closer to energy independence than we've been in decades," the president said.

The reference to gas being "extracted safely" in the address was in direct reference to the complicated tale of hydraulic fracturing (fracking), although that term was never used in the speech.

"Businesses plan to invest almost $100 billion in new factories that use natural gas, the president said. “I'll cut red tape to help states get those factories built, and this Congress can help by putting people to work building fueling stations that shift more cars and trucks from foreign oil to American natural gas."

The administration plans to continue to partner with the energy industry "to sustain production and job growth, while strengthening protection of our air, our water, and our communities." However, in a throw-off line, the president added "while we're at it, I'll use my authority to protect more of our pristine federal lands for future generations."

Onshore and offshore E&Ps for years have criticized the lack of access to federal lands, and the president's own jobs council in early 2012 called for the government to provide more access to oil, gas and coal on federal lands (see Daily GPI, Jan. 18, 2012).

Long a proponent of alternative energies, the president in his address urged Congress to adopt a "smarter tax policy that stops giving $4 billion a year to fossil fuel industries that don't need it, so that we can invest more in fuels of the future that do."

Democrats and some Republicans rose to their feet when the president discussed taking more action to alleviate climate change, which he said is real and a growing threat. "The debate is settled. Climate change is a fact. And when our children's children look us in the eye and ask if we did all we could to leave them a safer, more stable world, with new sources of energy, I want us to be able to say 'yes, we did.'"

In the past eight years, he noted, the United States has reduced its total carbon pollution "more than any other nation on earth...But we have to act with more urgency -- because a changing climate is already harming western communities struggling with drought, and coastal cities dealing with floods...The shift to a cleaner energy economy won’t happen overnight, and it will require tough choices along the way."

Critics of the administration offered some praise for the nod to domestic production, with some caveats.

America's Natural Gas Alliance (ANGA) members welcomed the president's “continued support for the opportunities that natural gas is bringing our nation," said CEO Marty Durbin. "It is clear...that the president recognizes the role natural gas is playing in meeting our nation's economic and environmental needs.”

There is "great promise," Durbin said, "for natural gas in our transportation sector as trucks, trains and cargo ships transition to this clean and abundant fuel. The 1.4 million well-paying jobs that natural gas development will support in 2015 can help narrow America's income inequality. The abundance of natural gas and its geographical diversity is bringing manufacturers back to U.S. shores, improving the economic well-being of communities across the country and enhancing energy security by using more of this clean, affordable and domestic resource."

However, ANGA members "continue to disagree with the president on how this industry's tax provisions should be treated, but we stand ready to work with the administration, Congress and policymakers around the country to see that our nation capitalizes on the many environmental, economic and national security benefits offered by natural gas."

Marcellus Shale Coalition (MSC) President Dave Spigelmyer also weighed in, noting that "the clear environmental benefits tied to safe shale development and the expanded use of natural gas cannot be denied." The president "also laid out his vision for America's role in the highly interconnected global economy and what we must do to remain competitive.

"Affordable supplies of oil and natural gas, driven by tightly regulated shale development, have catapulted America from a period of energy scarcity to a new and more prosperous era of energy abundance. And the results are clear: a plunging trade deficit, stronger geopolitical standing, cleaner air and significant consumer savings."

The MSC chief said jobs created by shale production and the reduction in carbon emissions point to the importance of using domestic gas resources.

"We appreciate the president's steadfast commitment to the safe development of American natural gas," Spigelmyer said. "It's a false choice to suggest that we can either produce natural gas and create jobs, or protect and enhance our environment. Pennsylvania continues to lead the way in achieving both of these shared goals."

The president addressed income inequality and the need to create jobs that pay a living wage. American Petroleum Institute (API) CEO Jack Gerard said if the administration wants to achieve a goal to create a living wage, he should look no further than energy jobs. Those jobs, said Gerard, "pay seven times the minimum wage." The president "has the opportunity to seize this moment by approving the Keystone XL pipeline, opening up new areas for responsible energy development and pulling back unnecessary and costly new regulations."

The "pro-growth energy policies," if enacted by the administration, "would create millions of stable, good paying jobs, which are the American people’s No. 1 priority. If the president is serious about combating income inequality, we must take full advantage of the opportunities in energy that are before us."

Don't increase taxes on the energy industry, Gerard said. "Punishing energy companies by raising taxes is not sound energy policy and could lead to less energy, less government revenue, and fewer jobs. The oil and natural gas industry already contributes $85 million a day to the federal government -- a larger contributor of government revenue than any other industry in the United States."

Don Santa, who helms the Interstate Natural Gas Association of America, welcomed the praise of domestic gas, "and, in particular, for recognizing how natural gas is driving a resurgence in U.S. manufacturing, creating good-paying American jobs, generating revenues, reducing emissions and lowering consumer energy prices...We must continue to expand America's energy infrastructure to ensure that this success story continues.

"This should include exploring how permitting for new and expanded pipelines can be streamlined, while continuing to protect landowners and the environment."

In a blog post, House Speaker John Boehner (R-OH) said the administration "has repeatedly blocked several different types of American energy production that would create jobs, bolster our energy independence, and support manufacturing."

The "real answer," Boehner said, "is to refocus his priorities and work with us on the things that we can achieve together to create jobs and promote greater opportunity: expanded markets for American exports, a solution to our broken immigration system, better skills and education programs, patent reform, new energy and water infrastructure, or any of the dozens of other House-passed bills awaiting action."

The president "appeared to give more job-related plaudits to end-use sectors -- manufacturing, power generation and transportation -- than the oil and gas upstream itself," wrote analysts with Clearview Energy Partners LLC. "Likewise, energy exports went unmentioned in both the speech and in the accompanying fact sheet released by the White House," Clearview analysts said.

Analysts with Tudor, Pickering, Holt & Co. said nothing in the speech would accelerate building more industrial facilities that consume gas, such as the petrochemical sector. It's "hard to see how a Presidential decree will accelerate these projects...but a nod from the Prez can't hurt.

"Sadly, there was no love for oil guys responsible for the remarkable renaissance in U.S. oil production...The good news is that there was no overt anti-fracturing rhetoric. Maybe the truth on this issue is sinking in...hydraulic fracturing does not contaminate groundwater," no matter how hard the U.S. Environmental Protection Agency "tries to find a link."

Environmental groups and coal proponents found little to like in the address.

U.S. gas "is a bridge to nowhere," said Sierra Club Executive Director Michael Brune. "We can't effectively act on climate and expand drilling and fracking for oil and gas at the same time...We must walk away from boondoggles like fracked gas. And we must seize on the opportunity and the obligation that the climate crisis has thrust upon us."

The president mentioned gas, oil and alternative fuels, but there was no mention of coal, which continues to power most of the domestic fleet. The speech alluded to imposing more restrictions on coal burners, now underway by the U.S. Environmental Protection Agency. Said the West Virginia Republican Party: the president has "kept his promise to destroy coal."

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