Natural gas prices are skyrocketing on supply fears because the industry has done a poor job convincing America that there really is an abundant domestic gas resource that can be developed without harming the environment, according to Questar CEO Keith Rattie, who spoke at the annual GasMart conference in Denver.

The problem will only get worse if the industry loses faith in the marketplace’s ability to bring prices down, he said, or if it calls for government intervention, demands Alaska pipeline subsidies and requests financial support for alternative energy sources.

“I don’t think that the status quo will prevail if Americans come to recognize that the high energy prices are a consequence of policy choices that are being made on their behalf. Job No. 1 for our industry has to be to educate the public,” said Rattie. “Americans’ standard of living depends on it. But the first thing we have to do is to stop shooting ourselves in the foot.”

While there is an abundant gas resource available in the United States, Rattie said the industry has failed to gain public support to develop it. It also has been ignoring its own history of technological innovation and failing to refute those who assert that America is running out of gas.

“If in fact we are running out of natural gas and oil, it would not be the first time,” said Rattie, whose company engages in exploration and production, gas utility operations in Salt Lake City and pipeline development. “We were running out in the 1890s…after World War I, after World War II. We were running out again in the early 1970s and again in the late 1970s. Each time we have one of these chicken little episodes the industry responds that this time the situation is different. The rules of economics, they argue, have somehow been repealed, and therefore we are going to be much worse off in the future.

“They were wrong in the past, and my bet is that they are going to be wrong again. Yes, natural gas resources are finite, but human ingenuity is not and technology is never static.”

By some estimates there are 1,300 Tcf of technically recoverable gas reserves just in the United States, which is about 50 years of supply at today’s consumption levels, he noted.

“The bottom line: we are not running out of natural gas. The earth’s crust is full of gas,” said Rattie. “Those who tell you otherwise often have another agenda.” The industry is doing itself a disservice by not proving them wrong.

Rattie also said that by opposing domestic natural gas development, environmentalists in effect are advocating that more harmful emissions, such as NOx, SOx, carbon dioxide, carbon monoxide and mercury, be put in the air and more nuclear waste be produced. The irony, he said, is that by choosing not to develop an “environmentally benign fuel we’re burning more coal, importing more oil and running our aging nuclear plants longer than ever.”

The environmentalists offer no viable alternative, said Rattie, “only a vision of a planet free from the scourge of oil and gas. But they are prevailing by exploiting outdated stereotypes of the oil and gas industry, by intimidating lawmakers. The result of the opposition has been higher prices, fewer jobs, a weaker economy and lower gas drilling and development.”

He said environmental activists across the country currently are lobbying to add more than 200 species to the threatened and endangered species list under the Endangered Species Act. Most of the impact would be felt in the Rocky Mountain region. Rattie noted there is a significant threat from putting the Sage Grouse on the endangered species list, as some activists are advocating. If that happens substantial drilling and development will simply be shut down, he said.

“Don’t expect a lot of science to support this movement; it is mostly about perceptions and emotions. But also don’t be surprised if the public is told that gas and oil development is driving wildlife to extinction; this is pure hogwash. In most cases wildlife can adapt and survive in harmony with energy development. And there are things that we can use to mitigate the impact where the threat to wildlife might be real,” said Rattie.

“The story not getting told is that our industry has proven that we can do our jobs without harming the environment,” he said. He said the industry shoots itself in the foot when it does things to corroborate the stereotypes of the industry — for example when a producer chooses to flare gas, sending a cloud of black smoke into the air rather than doing the environmentally responsible thing, which is using technology to limit flaring.

It’s also bad for the entire industry when a respected gas company says that high prices are the result of market manipulation by speculators and then “asserts a groundless allegation that confirms in the minds of many that the energy industry is run by crooks,” said Rattie.

Another way the industry has been stepping back rather than forward, he said, is by supporting an energy bill “so full of pork that if you held a match to it, it would sizzle and pop like bacon.” The energy bill fails to do the one thing that really would help to bring down gas prices, he said, and that’s amend the policies that are holding back supply, particularly in the Rockies.

The limits on gas supply are mostly political rather than geological, but the failure of Congress to pass the energy bill in its present form may be a “blessing in disguise,” said Rattie. He acknowledged that there are some good things in the bill but most of it is based on several false premises: “that we can’t count on markets to solve our supply problem and therefore government needs to step in…; that we will never overcome the opposition to drilling on federal lands so why try; and the third is that so called renewables…would simply replace oil and natural gas if only the government would mandate that it be so.

“The energy bill does more for farmers, politicians and the lawsuit industry than it does for supply and for consumers,” he said. Rattie suggests that the industry lobby for some of the provisions in the bill that would foster supply growth. “If this proves undoable in an election year — and I suspect it will — then let’s regroup after the fall election and take another run at it.”

He also said that the industry needs to make it clear that Arctic gas and LNG are not a replacement for more domestic production. Although LNG imports and Arctic gas are needed, they are not the “silver bullet of supply,” he said.

Global LNG production today is only 15 Bcf/d and nearly all the available capacity is designated to existing long-term contracts to non-U.S. countries who will pay up to preserve their share of the LNG because they have minimal domestic gas resources.

A lot of the exuberance over LNG in the United States stems from the 40 proposed import terminals. But Rattie reminded the audience that the terminals represent only 20% of the total LNG investment. The investors in the other 80% of the supply chain will be the ones who decide which terminals and how many are built.

“The magnitude of the LNG supply problem is even more daunting when one puts a finger on the map of the world where the major stranded gas reserves are located,” said Rattie. “I’ve been to every one of these places: Qatar, Angola, Nigeria, Venezuela and Russia — they’re not exactly the investment grade places to invest billions of dollars needed for gas production and liquefaction facilities.” There’s also substantial local opposition to siting LNG terminals.

Rattie also bashed the Alaska pipeline proposal, concluding that it would be far too expensive and would replace Lower 48 production and mean producers’ jobs. “Get this: to move an incremental 4 Bcf/d of Rockies gas to market will require an incremental investment of less than $4 billion to build the new pipelines needed to do so,” he said. “By subsidizing the $15-20 billion Alaska pipeline project, Alaska gas will replace lower cost Rockies gas and in the process do serious financial harm to the U.S. independents that operate here. Only politicians can find logic in this.

“The inescapable conclusion is that much of the incremental supply for the growing U.S. market must come from the U.S. Lower 48. We can get that job done, but we can’t get it done if we are not allowed to do so. And we won’t be allowed to do so until we first convince a skeptical and confused public that we can get the job done without harming the environment.”

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