Natural gas growth potential and prospects for continued modest prices were talked up to a group of state regulatory commissioners meeting in Los Angeles last week, following keynote addresses earlier in the day touting gas and all of its traditional and renewable competitors.

The gas committee of the National Association of Regulatory Utility Commissioners (NARUC) heard from experts from the American Gas Association (AGA) and Colorado-based Bentek Energy LLC on the credibility of the current bullish North American gas reserve estimates. The NARUC committee received a clear-cut reaffirmation of the size and scope of the current gas boom.

General session speakers included Peabody Energy Corp. CEO Gregory Boyce touting coal; Aubrey McClendon, CEO of Chesapeake Energy Corp., offering his case for gas; and speakers from the nuclear, wind and solar sectors. The only thing they came close to agreeing on is that all will have to play a role in the changing worldwide energy mix.

In a separate session the following day, NARUC members were reminded that there are risks facing the natural gas industry that could upset the current “gold rush” mentality. Reserves estimates are but one concern. Regulators, environmentalists and other stakeholders still preach a portfolio approach that avoids putting too much emphasis on one energy source, according to Timothy Alan Simon, NARUC gas committee chairman and a member of the California Public Utilities Commission. Simon was reminded by other speakers that reliable, third-party sources now project that U.S. gas use will climb to 30 Tcf annually by 2030, compared to current annual use of 23-24 Tcf.

In the opening day session of Simon’s gas committee, AGA’s Christopher McGill and Bentek CEO Porter Bennett focused more narrowly on gas reserves mostly in talking to the NARUC members who serve on the association’s committee that is tracking current gas industry issues, including supply/demand, pipeline safety and price concerns.

Noting that gas producers have been “relatively conservative” in their reserve estimates, McGill said he thinks that allegations of the industry making bogus or questionable projections for future gas supplies are simply not true. “They have actually been relatively conservative in how they book these supplies they are trying to develop.”

McGill made his remarks while answering a question about what the Securities and Exchange Commission (SEC) has been trying to do in changing its definitions of reserves with the advent of the huge new shale gas plays.

Bennett talked about still-unfolding developments in the natural gas boom in terms of the hydraulic fracturing (fracking) technology that is underpinning it, the side effect on domestic onshore oil development and the dynamics all of this will have on energy demand.

“We have already redefined peak production, and we are continuing to do so,” said Bennett, citing the statistic that since August last year the nation has been steadily exceeding (by more than 120 days) all-time record peak production of natural gas set in 1971. “And in more than 50 days we have exceeded the 1971 record levels by as much as 2 Bcf/d.”

As an aside, Bennett said production has fallen in the past two weeks, but he characterized that as normal for this time of year when gathering systems and other pipeline upgrade and maintenance work is in full swing.

Bennett made a number of bullish observations about oil and gas supplies, but he added some caveats. On price, he said Bentek estimates now are for the average cost to stay less than $5/MMBtu through 2017. Other areas he touched on covered production costs, oil’s role and the fact that in the shale plays production growth is eclipsing demand.

While technology and other factors have allowed production per well or per rig to increase markedly, and costs of production to stay relatively low, the need for increased infrastructure, the advent of liquids and a shortage of fracking crews to keep up with the frantic expansion have all begun to drive up some of the upfront costs, Bennett said.

“You can’t really think about break-even costs in the same way you did about conventional wells.” A lot of the activity now is associated with oil and liquids, which are drawing much higher prices than the gas, Bennett said. Up to 1 Bcf/d of added gas supplies projected between now and 2015 is directly tied to oil and liquid development, what Bennett called “good, old-fashioned associated gas and liquids.”

Bennett said this was “one of the most important dynamics to recognize about the gas business right now. Prices for gas for producers right now are irrelevant; they are not what is driving production.”

Playing the devil’s advocate in the Tuesday session, the CPUC’s Simon asked whether “rushing” to embrace more natural gas development creates an “undue concentration for some states.” Ralph Cavanagh, energy program director at the Natural Resources Defense Council, said the concern was a critical reason to “redouble and redouble again the emphasis on efficiency. If there are concerns about overloading the distribution systems and overemphasizing the gas side, then we have to be sure to maintain emphasis on efficiency.”

Cavanagh reminded regulators that the United States still gets more than 40% of its electricity from coal-fired power plants — not natural gas, which is now providing about 30% of the nation’s power. “Getting more of the less-efficient coal plants off the grid, and in process lowering power costs, for me, would be a high strategic priority,” he said. He also warned of other factors.

“The thing that most concerns me is regulatory and political backlash that restricts the assumed availability of the resource [shale gas] as a result of a failure [by gas producers], particularly by some of the more fringe elements without a continuous record of environmental improvements,” said Cavanagh, adding that he is worried about the relatively small, inexperienced operators that may be getting into parts of the business.

“There has to be sustained and effective pressure on everybody from the regulators. This is also a job for the natural gas distribution companies on the procurement side to make sure the proper environmental safeguards are maintained throughout the extraction process.” If the producers cannot maintain the proper level of safeguards, then they are going to be at greater regulatory and political risk, Cavanagh said.

Greg Staple, CEO of the American Clean Skies Foundation, an energy advocacy group that supports more gas development, said efficiency should be pushed, but he also reiterated the need for “better understanding” of natural gas as a viable energy resource. Staple touted a report his organization released last March with the Bipartisan Policy Center on natural gas.

He said the report strongly recommends the responsible development of shale gas and managing the environmental issues associated with increased gas use. The 70-page task force report concluded that shale growth will bring more price stability and it recommended that government “encourage the development of domestic gas resources (see NGI, March 28).

In terms of increased shale development, Staple said there is “a legitimate debate” ongoing over what parts of the business should be state regulated and what parts should be “federalized.” He said many argue that the federal Clean Air and Clean Water Acts are good resources for overseeing the growing sector.

“I think this debate will go on, and the Obama administration has tasked the Department of Energy to introduce a new report, recommending best practices in the industry,” said Staple, citing a 90-day report due after Labor Day and subsequent report when the U.S. Environmental Protection Administration finishes a two-year study of hydraulic fracturing practices. “This debate is going to be with us for some time to come.”

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