Power generators and oil and natural gas producers Wednesday touted the benefits of natural gas in reducing carbon dioxide (CO2) emissions and called on Congress to expand its role in climate change legislation by providing incentives (see Daily GPI, Oct. 20). But a large industrial company and major gas consumer cautioned lawmakers about making a “dash to natural gas.”

“We urge you to act now to make policy choices that increase and do not limit our energy actions. [However,] we must be careful to avoid a dash to natural gas,” said Edward Stones, director of energy risk for The Dow Chemical Co., during a hearing of the Senate Energy and Natural Resources Committee on the role of natural gas in mitigating greenhouse gas (GHG) emissions.

“Congress created such a dash in the 1990 Clean Air Act amendment. It then followed with restrictions to access that disconnected supply from demand. We cannot afford to replay that scenario,” he said.

“We hope the predictions about increased natural gas supply [as a result of shale production] are right. But we think it’s too early to declare natural gas a silver bullet for a bridge fuel solution.”

Richard Newell, administrator of the Energy Information Administration, reported that domestic production met 90% of the dry gas consumption in the United States last year. He further noted that proved gas reserves rose 13% in 2007, and grew an additional 3% in 2008. The agency said there was a “significant decline” in gas demand by industrial consumers, which had been “roughly offset by significant growth” in demand for gas by power generators.

Stones countered that “driving natural gas preferentially into power generation could further erode our manufacturing economy and increase the [price] volatility of natural gas.” If predictions about bulging gas supply are on target, he believes “it’d be a greater value to our economy for the fuel to spur increased manufacturing investment,” rather than power generation. “More industrial users of natural gas will…help dampen volatility,” Stones said.

Dow Chemical consumes the energy equivalent of 3,500 MMcf/d in its global operations, half of which is used in its U.S. operations, according to Stones. The company spent $27 billion on energy last year, compared to $8 billion in 2002.

Calpine Corp. CEO Jack Fusco was more bullish. “I’m here today to tell you that the near- to mid-term solution to our climate change challenge solution is at hand. Natural-gas fired generation is a compelling solution,” he told the Senate panel. Calpine is the largest independent power producer in the U.S., one of the largest consumers of gas for generation, and has achieved the lowest GHG emission footprint in the industry, with 62 gas-fired generation plants and 16 geothermal facilities. It uses approximately 3% of the natural gas consumed in the nation.

“We could today, simply through the increased use of existing modern natural gas-fired power plants, meaningfully reduce the [CO2] emissions in the power sector,” he said.

Neither the House nor Senate climate change bills provide incentives to encourage the full use of existing gas-fired facilities, Fusco said. Both bills also “unduly favor dirtier generation to the point, [incentives] to switch to existing gas generation or build new gas generation are severely blunted,” he noted. And he said neither bill provides incentives to utilize existing highly efficient combined heat and power technology.

Currently only 42% of the U.S. combined-cycle gas-fired generation capacity is in use. If that was increased to more than 55%, it would reduce GHG emissions by 135 metric tons, said Dennis McConaghy, senior vice president of business development for TransCanada PipeLines. This is almost equal to the projected reduction level in the first year of the House climate change bill, he noted (see Daily GPI, June 29).

Instead of promoting natural gas usage, the climate change legislation pending in Congress “may actually constrain [the] opportunity to take advantage of natural gas,” McConaghy said.

He noted that North America has an “enormous” long-term supply of natural gas due largely to the production of shale gas, which has become a “game changer in terms of how we think about natural gas supply.” He estimated that shale formations hold about 650 Tcf of technically recoverable gas in the Lower 48 states, enough to supply gas for years to come and dampen price volatility.

David Wilks, president of energy supply for Xcel Energy Services Inc., said the investor-owned gas and electric utility is making significant inroads in GHG emissions by retiring coal plants and replacing them with gas-fired generation, as well as making use of solar and wind technologies. He said he supported Congress providing incentives to utilities to retire their aging coal plants.

“Natural gas conversion is an excellent method for reducing emissions. As a rough rule, natural gas combined-cycle plants emit about one-half as much carbon dioxide as coal-fired electricity [plants]. Natural gas generation is a proven technology. It has a lower capital cost and [is] easier to permit than some of the other technology options, such as nuclear energy,” he said.

On the downside, gas-fired generators face the volatility of gas prices, but Wilks said the development of abundant shale gas supplies has helped to lessen the impact somewhat.

“We support a national climate change policy that creates a level playing field for all forms of energy that produce carbon emissions,” said BP America President Lamar McKay. In climate change legislation “gas is being squeezed out of the power sector by mandates for increased use of alternatives and protection of high-carbon coal generation.”

If all sources of carbon are treated equally, “we believe natural gas will deliver the greatest emissions reduction at the lowest possible cost using technology available today,” he said.

“We strongly believe” that coal is an “absolutely essential part of the nation’s energy future, and we are working on technology to reduce carbon emissions from stationary sources, which could be ready for commercial use by 2020. But many of the least efficient, most carbon intensive [plants] may not be candidates for carbon capture and sequestration,” McKay noted.

BP’s analysis shows that a phased replacement of about about eight to 10 of these [facilities] would deliver 10% of the cumulative 2010-2020 emissions reduction targets now being considered by Congress, he said. If this happens, it would raise annual gas consumption by 1 Tcf over the next decade, he said.

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