Sunday, October 26, 2003

With negotiations between House and Senate conferees winding down, the details of the new National Energy Policy are becoming clear. Among the points of negotiation was a crucial question, critical to continued U.S. economic progress. Where will the United States get future natural gas supplies?

This is critical since the Energy Department estimates electricity demand will rise more than 45 percent over the next 20 years, with natural gas accounting for as much as 95 percent of new generation capacity. Clean-burning natural gas is the fuel of choice for new power plants. Accordingly a critical component of a sound national energy policy should be lowering barriers to developing new natural gas fields and the expanding and modernizing of the natural gas pipeline network.

The problem is that, while demand for natural gas is increasing, U.S. production is falling and government policies hinder the search for and production of new natural gas fields. Unfortunately, the energy bill’s natural gas provisions at present do nothing to improve the situation.

For example, North America has abundant potential natural gas fields, but many are on public lands or offshore and closed to development. These fields contain more than 213 trillion cubic feet (TCF) of natural gas, according to National Petroleum Council estimates. In the Rocky Mountain region, an estimated 40 percent or 137 TCF of all the natural gas in the ground is off-limits. In addition, exploration and development have been banned of another 52 TCF of natural gas off of the East and West Coasts. And another 24 TCF are blocked because drilling is banned in portions of the Gulf of Mexico.

The National Petroleum Council has estimated that increased access to U.S. natural gas resources in the Rocky Mountains, off the East and West Coasts and in the Gulf of Mexico could offset areas where production has plateaued and save consumers about $300 billion in natural gas costs during the next two decades.

Unfortunately, “green” members of the House, more concerned about keeping environmental lobbyists happy than keeping the average American’s energy bill affordable, stripped language from the energy bill that would have required an accurate inventory of America’s offshore oil and natural gas reserves. They probably feared that if the public was aware of the enormous energy potential in U.S. coastal waters, citizens would push to open offshore areas to energy production.

In addition, the North Slope of Alaska has 35 TCF of proven reserves and nearby Canada has between 6 and 9 TCF of proven reserves. Estimated potential natural gas reserves in Alaska and the Canadian Arctic top 160 TCF, more than all current U.S. reserves combined.

These reserves are not being used because there is no pipeline to transport the natural gas to market. Accordingly, the national energy plan has a provision to encourage development of a natural gas pipeline from Alaska to the Lower 48 states.

Unfortunately, the provision is flawed, thus the pipeline is unlikely to be built. For more than 20 years, two potential routes for a Trans-North American natural gas pipeline have vied for approval: the northern and southern routes. The northern route would cost approximately $7.8 billion to build and produce revenues of between $19.5 billion to $24.5 billion. By contrast, the southern route would require nearly twice as many miles of pipeline, would cost approximate $14.6 billion to build and could require tax subsidies topping $45 billion dollars.

Despite the clear advantages of the former route, powerful Alaskan legislators have successfully made the southern pipeline the required route in the national energy plan. In contrast to the northern route, a large percentage of the southern route would be built in Alaska. Thus Alaskan politicians see this provision as a job bill for their constituents

While they have agreed to require the most expensive route, the House and the Senate conferees at last report were deadlocked over whether to provide the subsidies, in the form of tax breaks, needed to get the pipeline built.

President Bush should end the deadlock by calling on the conferees to go back to the drawing board and adopt the northern route. Establishing the ability to supply the growing demand for this clean energy is too important not to pursue the route most likely to deliver natural gas supplies at lowest cost, in the least time, and in the most secure and environmentally prudent manner.

Pete du Pont, former governor of Delaware, is policy chairman of the National Center for Policy Analysis

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