The National Petroleum Council (NPC) voted last Wednesday to conduct a comprehensive new study on natural gas at the request of the Department of Energy to “examine the potential implications of new supplies, new technologies, new perceptions of risk, and other evolving market conditions that may affect the potential for natural gas demand, supplies and delivery through 2025.”

“Natural gas is the fuel of choice at this time in history,” Energy Secretary Spencer Abraham told a meeting of the council. “Natural gas is coming to occupy the central place in America’s energy planning for the future. If we are to succeed, we need more information on the workings of the energy markets so that we can take the necessary steps to prevent disruptive price volatility.”

Abraham commended the energy industry leaders for two earlier studies the NPC completed on natural gas in 1992 and 1999, but noted considerable changes have occurred since the 1999 report. In commissioning the study Abraham cited “new concerns over national security, a changed near-term outlook for the economy, and turbulence in energy markets based on perceived risk, price volatility, fuel switching capabilities and the availability of other fuels.”

Natural gas use is projected to increase by 50% in the next 20 years, depending the availability of investment capital and infrastructure, the pace of technology progress, access to the nation’s resource base, and new sources of supplies from Alaska, Canada, LNG imports and unconventional resources such as methane hydrates, Abraham said.

NPC Chairman William A. Wise, also chairman of El Paso Corp., who will direct the start-up of a committee to conduct the study, told NGI he hoped to prepare it in stages, dealing first with “the most critical component, the near- term supply of gas.”

Despite the storage overhang, Wise said he was concerned about supplies, because it will take much longer for the industry to gear up to increase production, than it did to cut production. Wise cited the “steep decline in production” and the “velocity of the decline curve,” in response to lower prices, advising that new drilling and development will take much longer to respond to higher prices.”We have had two unusual events, the recession and a warm winter, but the economy is growing stronger and we don’t know what the summer is going to be like.”

The industry “can’t turn around very quickly,” Wise said, pointing to all the financial and regulatory elements that have to be in place, and the necessary personnel and equipment to fight the battle of declining production from mature fields.

“There probably has never been a more critical time for a re-evaluation of the potential for the natural gas industry and what kind of a role it’s going to play.” The pressure is on natural gas. Wise pointed to “wild cards” in the energy picture, such as the recent problems with the Davis Besse nuclear reactor, which is down for an extended period for repairs to the reactor head.

Earlier in the NPC Council meeting, DOE Under Secretary Bill Card responded to a question about possible problems with other plants in the nation’s nuclear baseload power structure, saying the Nuclear Regulatory Commission had found somewhat similar problems in other plants a year earlier, and the industry has been repairing and replacing reactor heads. “But if on further inspection this became a more urgent issue, then you could see several more plants coming off line, and we monitor this because you can actually see gas price spikes when you take a thousand megawatts offline. The loss is going to be replaced by gas over the short-term.”

Commenting on the progress of the energy bill through the U.S. Senate, Abraham said “the domestic production component is altogether insufficient.” He urged the industry leaders to lobby for inclusion of an ANWR amendment that would allow drilling in the Arctic National Wildlife Refuge. He predicted the Senate would not finish with the energy bill this week, and possibly not next week because it has to deal with a budget issue. He said the one remaining long debate would be ANWR, and was concerned that there would have to be 60 votes (cloture) just to get to a vote on the actual amendment. “We need a real up and down vote on the issue.”

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