The gas industry’s share of the U.S. energy market is projectedto soar to 35% in 2010 from just 24% in 1996 if the U.S. followsone possible scenario to meet the requirements of the Kyoto Treaty,the Energy Information Administration said in a report to Congress.In contrast, the industry will grab only two percentage points moreof the energy market over that same period without the treaty.

In a report titled “Impacts of the Kyoto Protocol on U.S EnergyMarkets and Economic Activity,” which was presented to the HouseScience Committee, EIA confirmed what the Clinton Administration sofar has been unwilling to admit: the Kyoto Treaty will send powerprices soaring and will be a serious financial burden on thenational economy.

Those were among the results that prompted Sen. John Ashcroft(R-MO) to pass legislation that would block the president and theEnvironmental Protection Agency from attempting to carry out anyterms of the treaty. The legislative language was included in theEPA’s appropriations bill. Prior to EIA’s report, the treaty wasexpected to have little luck passing the Senate. With EIA’s direconclusions, its chances are even slimmer (please see globalwarming report).

U.S. power prices would jump 20-85% and the prices of fossilfuels would rise by similar percentages by 2010, EIA said. TheKyoto treaty calls for a reduction of carbon dioxide emissions to7% less than 1990 levels between 2008 and 2012. That would requirethe U.S. to cut carbon emissions by 542 million metric tons/year.The treaty, however, also allows for trading of emissions creditsand other measures that may allow countries that signed it to meetits requirements without having to make the maximum emissions cuts.

EIA studied six different scenarios in which the U.S. might meetthe Kyoto requirements. In the reference case, which does notincorporate the impact of the treaty, natural gas consumptionincreases more rapidly than consumption of any other major fuelfrom 1996 to 2010. Natural gas use increases in all sectors, butconsumption by electricity generators more than doubles. By 2010the generating capability of combined-cycle plants increases morethan six-fold, and the generating capability of combustion turbinesmore than doubles. More than four-fifths of the new consumption issupplied by increased domestic production. The remainder comes fromincreased imports, primarily from Canada. Wellhead prices risemoderately in the reference case through 2010.

With the impact of the treaty, however, gas consumption,production and prices jump sharply in all scenarios studied by EIA.Although electricity generation would fall under the treaty, moregas would be used in place of relatively high-carbon coal. In 2010,with CO2 emissions cuts to 3% below 1990 levels (1990-3%), gasconsumption by power generators climbs to 12.2 Tcf/year, 5 Tcfhigher than in the reference case and more than four times the 1996level.

The projections for gas use in the other sectors, however is notso good under the Kyoto proposal, EIA concludes, because with sucha dramatic rise in consumption in the power sector, gas pricesinevitably rise. Gas use in the residential, commercial,industrial, and transportation sectors is lower in the carbonreduction cases from the reference case because those sectors havesignificantly less opportunity to switch fuels and are forced tomake cut backs because of higher gas prices.

In fact over a longer term, EIA finds medium reductions in CO2emissions (1990+9%, for example) have a more positive impact on gasuse because gas prices rise less. In the 1990-3% case, gas startsto feel competitive pressure from renewable generation.

The treaty, while good for gas producers because of increasingdemand, will put the industry through its most rigorous test yet.In 2010, production is projected to be 26.2 Tcf in the 1990-3%case, 25.9 Tcf in the 1990+9% case, and 24.1 Tcf in the 1990+24%case. But a historic production increase is going to be required inthe 1990-7% case because competing coal prices will rise fasterthan in any other case. The projected increase in productionbetween 2005 and 2006 is 1.75 Tcf in the 1990-7% case, a pace neverbefore reached. The last one-year record was set in 1983-84 at 1.37Tcf. The reference case calls for a 0.39 Tcf rise that year.

“Increasing natural gas consumption during the initial phases ofa carbon emissions reduction program may be the biggest challengefacing the oil and gas industry, and careful planning will berequired,” EIA said in its report. “Sufficient natural gasresources are available, however, and infrastructure can be madeavailable, if the price is right.”

The interstate pipeline industry also won’t be immune from thedemand tidal wave expected from the treaty. In the reference case,pipeline capacity is projected to increase to 52.5 Tcf/year ofdesign capacity in 2010 from the 1996 capacity of 43.0 Tcf (or 0.68Tcf on average each year). But in the relatively less stringent1990+9% and 1990+14% carbon reduction cases, between in 2011 to2012 pipelines will have to add 1.6 Tcf/year of capacity, whichwould tie the record for the largest annual increase set between1991 and 1992 with construction of Kern River, Mojave, El Paso andTranswestern Pipeline.

Gas prices are higher in the carbon reduction cases than in thereference case, both at the wellhead and at the burner tip. In thereference case, Lower 48 wellhead prices are projected to rise from$2.24/Mcf in 1996 to $2.33 in 2010 in 1996 dollars. In the 1990-3%and 1990+9% cases, wellhead prices in 2010 are more than 40 cents(19% and 29%) higher. The highest wellhead prices in 2010 are seenin the 1990-7% case at $3.03/Mcf.

The projected end-use prices for natural gas in the carbonreduction cases are double the prices in the reference case attheir peak in the most extreme cases. In 1996, gas prices forresidential end users averaged $6.37/Mcf. In the 1990-3% case,residential prices are expected to peak in 2013 at $11.31/Mcf (in1996 dollars), compared with $5.71 in the reference case.Rocco Canonica

Preparing for New Global Warming Restrictions With Early Credits

Touting the strong position of natural gas in any newinitiatives to reduce global warming, former Sen. J. BennettJohnston urged support for an early action program to give creditfor companies taking early steps to reduce greenhouse gasemissions.

While the Kyoto Treaty is not likely to be ratified by theCongress, the Administration “has signed on to its goals,” andthere is a strong possibility there will be some further mandatesto reduce emissions. That prospect encourages companies to holdback on emissions improvement projects now since that would meanthey would go into any program with a lower baseline which theywould have to reduce even further.

Johnston pointed out that while the Kyoto Treaty would berejected, there was increasing evidence of global warming caused bygreenhouse gases that this nation will have to address. Recentlypublished studies show “temperatures in the 1990s have been thewarmest in six centuries; five of the warmest years of the centuryoccurred since 1990, with 1997 the warmest year on record; andAugust was the eighth consecutive month to set a worldwide recordfor average high temperatures.”

Johnston emphasized two points, first that “greenhouse gasescontinue to accumulate at alarming rates. The skeptics can say allthey want, but the greenhouse gases are there, they’re measurableand we can quantify them. Secondly, there is an increasingconsensus among climate scientists that the observed increase intemperatures is neither an isolated phenomena nor randomvariations.”

Johnston said he wanted to eliminate the disincentive forcompanies to act now before the legislative and regulatorymachinery cranks up to address the problem.

The former chairman of the Senate Energy Committee was thefeatured speaker at the 30th anniversary luncheon of the NaturalGas Roundtable in Washington.

The Interstate Natural Gas Assoc. of America also is supportinga bill sponsored by a bipartisan group of senators to allowemissions credits to be used later for voluntary reductions now.

Ellen Beswick

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