Shaping a Progressive Energy Policy: Natural Gas

Brief Analyses | Energy and Natural Resources

No. 434
Thursday, April 10, 2003
by H. Sterling Burnett, Ph.D.

National energy policy is a more prominent issue now than at any time since the "energy crisis" of the 1970s. Congress is debating legislation that would create a new national energy policy in response to electric industry deregulation, rising and wildly fluctuating energy prices, deteriorating relations with energy exporting countries, energy implications of the war with Iraq and various environmental concerns.

Critical to a sound national energy policy is the lowering of barriers that now prevent the development of new natural gas fields and the expansion and modernization of natural gas pipelines.

The Importance of Natural Gas.
The Department of Energy estimates that U.S. electricity demand will rise by more than 45 percent over the next 20 years. Meeting this demand will require 1,300 to 1,900 new power plants, most of which will be gas fired. These plants will account for as much as 95 percent of new electric generation capacity. Natural gas - which currently heats some 53 percent of U.S. homes and generates about 16 percent of the nation's electricity - is the fuel of choice for the new power plants. Compared with older technologies, combined-cycle gas plants are quicker and less costly to build, burn fuel more efficiently and emit fewer pollutants.

Environmental Benefits of Increasing Natural Gas Use.
Natural gas has several environmental advantages over other energy sources. Compared to renewable energy sources, for example:

  • New natural-gas-powered utilities require less land and fewer raw materials to construct and maintain than wind power farms and solar power arrays.
  • Their small footprint creates less visual pollution than wind and solar plants.
  • Natural gas plants deliver a reliable supply of electricity, whereas wind and solar power are intermittent and require backup conventional power supplies.

Natural gas also compares favorably with other fossil fuels:

  • Natural gas burns more efficiently than other fossil fuels, producing more power per unit of input and emitting much lower levels of various pollutants.
  • Compared with coal or oil, its combustion emits less CO2, which many environmentalists fear is contributing to global warming.

Lower CO2 emissions are a key factor in some environmentalists' grudging acceptance of natural gas as a preferred future fuel source.

Natural Gas Abundant but Off Limits

While demand for natural gas is increasing, U. S. production is falling. For instance:

  • Until 2001, U.S. natural gas production remained steady at approximately 52 billion cubic feet delivered (BCFD) per year for a decade.
  • Gas production is expected to decline to approximately 47 BCFD in 2003, a 10 percent decline.

North America has an abundance of potential new natural gas fields. The key is developing them and expanding the delivery infrastructure. One problem is that many natural gas fields on public lands and in offshore areas are unavailable for development due to legal and administrative bans. 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.
  • Exploration and development of another 52 TCF of natural gas off the east and west coasts has been banned.
  • Another 24 TCF are blocked because drilling is banned in portions of the Gulf of Mexico.

Some public lands have been placed off limits due to environmental concerns. However, natural gas fields can be explored and developed in an environmentally sensitive manner. Indeed, the Audubon Society, the Nature Conservancy and other conservation groups allow fossil fuel development on a number of their preserves. And environmentally significant accidents along the 270,000-mile U.S. natural gas pipeline system are few and far between.

On environmentally sensitive lands, a thorough risk-benefit analysis should be undertaken to weigh the economic and environmental merits of natural gas development against the alternatives. To the extent that the benefits of opening some or all of the off-limits public lands exceed the potential costs, development should be allowed with appropriate environmental safeguards.

Transporting Natural Gas from Alaska and Canada

The lower 48 states do not have a monopoly on significant natural gas reserves:

  • The North Slope of Alaska has 35 TCF of proven reserves.
  • Canada has between six and nine 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 tapped, although production is not banned. The problem in this case is the lack of a pipeline to transport the natural gas to market. Accordingly, one component of the national energy plan should be the development of a natural gas pipeline from Alaska to the Lower 48. This would encourage exploration of potential reserves and development of known reserves. ba434 figure

For more than 20 years, the proponents of two potential routes for a trans-North America natural gas pipeline have vied for approval. As the map shows, one route travels from Alaska's Prudhoe Bay to Canada's Mackenzie Delta and down the Mackenzie River Valley to Edmonton. The second route requires two pipelines, one running from Prudhoe Bay across Alaska to Fairbanks, then along the Trans-Alaska Highway to northeast British Columbia and from there into Alberta, where it connects to a second line running from the Mackenzie Delta through the Mackenzie River Valley. Both routes end at Edmonton. However:

  • The single-line route would cost an estimated $8 billion to construct, just over half the approximately $15 billion cost of the dual-line route.
  • At current gas prices, the single-line route could be expected to produce gross revenues of $20 billion to $25 billion and deliver tax and royalty revenues to Alaska alone of up to $5 billion over the life of the project.
  • The dual-line route would require significant tax subsidies; last year Congress considered a $15 billion to $45 billion tax subsidy to make its construction attractive.
  • The single-line route would be less than 1,700 miles long, whereas the dual-line route would stretch almost 3,500 miles, with more than 900 miles crossing mountainous terrain.
  • Because it requires fewer pipeline miles and avoids environmentally sensitive areas, the single-line route is environmentally preferable.

For all of these reasons, politically diverse public interest groups including the American Conservative Union, Taxpayers for Common Sense and the National Environmental Trust have opposed subsidies to build an Alaska natural gas pipeline. Perhaps out of a concern for short-term job gains from pipeline construction, and despite the obvious advantages of the single-line route, Alaska legislators continue lobbying to have the national energy plan mandate the dual-line route.

Congress and the Bush administration should reject the dual-line route. At a time of rising national deficits, energy price fluctuations, supply shortages and fear of terrorist attacks on energy infrastructure, the national energy policy should endorse the route that is most likely to deliver natural gas supplies at the lowest cost, in the least amount of time, and in the most secure and environmentally prudent manner: the single-line route. Unfettered by politics, this route would surely be the free market's choice.

H. Sterling Burnett, Ph.D., is a senior fellow with the National Center for Policy Analysis.

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