AMERICAN CHEMISTRY
COUNCIL
STATEMENT FOR THE RECORD
SUBCOMMITTEE ON CLEAN
AIR, CLIMATE CHANGE AND NUCLEAR SAFETY
Committee on Environment
and Public Works
UNITED STATES SENATE
HEARING ON
S.485, THE CLEAR SKIES
ACT
MAY 8, 2003
The American Chemistry Council
welcomes this opportunity to comment on the Clear Skies Act as it relates to
the all-important issue of natural gas supply and demand. Our country’s standard of living and the economic health of our
citizens and our industries that provide the wealth of our jobs are tied
intimately with the energy supply including a competitively priced natural gas
component.
It
is impossible to discuss the benefits of Clear Skies legislation without first
asking Congress how it plans to address the larger issue of restoring balance
to the natural gas markets.
Over
the past decade, environmental legislation and policies, like the Clean Air
Act, have had the effect of triggering a dramatic run-up in demand for natural
gas. Other environmental policies have put
the nation’s most promising natural gas reserves off limits. As a result, all
consumers are hurt by the high prices that result from the increased demand and
shrinking natural gas supply.
American
manufacturers are being priced out of the marketplace. Plants are closing. Jobs
are moving overseas. Over 35,000 well paying jobs in the chemical industry are at risk
due to the latest run-up of natural gas prices and sustained natural gas prices
of over $6.00/MMBtu will threaten over 200,000 jobs economy wide. Natural gas pricing forecasts call for more
of the same.
At
the end of the day, the real environmental benefits that could be achieved by
Clear Skies legislation will mean little to American manufacturers, if current
energy policies continue, and more manufacturers and jobs are driven off shore
because America now has the world’s highest energy prices.
Last month an energy-consulting
firm, Energy and Environmental Analysis, issued a report saying that, “US
natural gas prices will average $6.00/MMBtu at Henry Hub through the current
storage injection season.”
Prices next winter will
increase further, averaging $6.40 from November through March and peaking as
high as $6.60 between December and February, the firm said. "Declining gas
productive capacity due to the anemic drilling activity in 2002 has resulted in
extremely tight market conditions,” EEA said in its monthly report.
Those US prices are more than double the price of natural gas in Europe, more than triple the price in parts of Asia, and nearly ten times the price of natural gas in the Middle East, North Africa, Russia, and Venezuela.
Natural gas is a regional commodity, but industries that depend on natural gas compete in a global marketplace. The chemical industry is an example. Chemical makers use natural gas to power their plants and as a raw material that is converted into plastics, fibers and other materials that are bought and sold around the world. In recent years, when the price of natural gas was at its historic average, the chemical industry posted a $20 billion trade surplus. Today, the US is net importer of chemicals. Today, the US is the world’s high cost producer of chemicals because it pays the highest prices for natural gas. With its competitive advantage gone, US chemical production capacity is being shut down and thousands of good-paying jobs are moving overseas.
What’s happening to natural
gas is simple - the oft proven laws of supply and demand at work. Demand for natural gas is booming and supply
is declining. The gap is growing
rapidly and, as a result, the price of natural gas has tripled since 1999. Compounding the problem – the inventory of
natural gas is now at historic lows.
These inventories are unlikely to be replenished over the summer to a
level sufficient to drive down prices in the face of next winter’s heating
demand.
What America faces
is not a seasonal disturbance, but a fundamental structural imbalance in supply
and demand for natural gas. America has
developed a tremendous demand for natural gas.
It is clean. It is efficient. It
is critical to making important products Americans use every day. And until recently, it was abundant and
competitively priced.
Consumers demand it
for heating their homes. Half of new
homes are now heated by gas.
Environmentalists demand it because it is clean burning. Industries, including the chemical industry,
demand it because it is an excellent raw material for making thousands of
products that we each use, every day.
More recently the electric
utility sector of the US economy has turned to natural gas. Because of the low capital costs, shorter
construction lead times, and environmental policies, natural gas used to
generate electricity has increased by 35 percent in the past five years. Natural gas consumption for electricity
generation is projected to increase from 5.3 trillion cubic feet in 2001 to
10.6 trillion cubic feet in 2025.
America’s economy is becoming one that is increasingly
reliant on natural gas.
Natural gas prices and subsequent
impacts leave us with questions about how much Clear Skies will help our
situation. While Clear Skies could slow
the drive to natural gas for power generation, and could even promote clean
coal technologies for future generating capacity, additional action is
needed. Environmental policies like
Clear Skies will have little bearing on businesses like ours if our operations
continue to be driven off-shore by runaway energy prices.
Unfortunately, the
nation’s current natural gas supply is running low. Production capacity is lower today than it was 30 years ago when
Americans were consuming far less natural gas.
The paradox is that
America has adequate domestic natural gas reserves to meet current and future
needs. Unfortunately, Congress won’t
allow access to those natural gas reserves.
The most promising – and desperately needed - reserves are currently
off-limits to development. Many of these
reserves are in partially restricted areas like the northern Rocky Mountains, Alaska,
or in fully restricted areas such as the eastern Gulf of Mexico and off the
East and West Coasts.
In the final
analysis, the natural gas crisis is a domestic political and public policy
problem. Environmental policies are
driving new demand for gas to generate electricity and heat homes. Other environmentally driven policies keep
critically needed supplies off limits.
As a nation, we can’t have it both ways. We can’t demand more natural gas and continue to cut off the
natural gas supply.
This economic and
energy context shapes how we look at environmental policies like Clear
Skies. National air quality policies
have sharply accelerated the switch from coal to natural gas by electricity
generators. The Clear Skies proposal,
in its current form, has the potential to slow the stampede from coal to gas
and to partially help secure a period of more stable, diverse and sustainable
supply of competitively priced energy.
Clear Skies does not
go far enough, however, to promote the development and use of clean coal
technologies for future generating capacity.
Clear Skies largely supports the continued use of existing generating
capacity with add-on technology controls, but does little to encourage the
adoption of control technologies that will actually grow the use of coal in
America and mitigate the demands on natural gas.
When compared to other multipollutant legislation that has been introduced, Clear Skies would best promote continued fuel diversity. Clear Skies attempts to balance the demand for continued Clean Air progress with maintaining energy diversity. The debate surrounding the introduction of Clear Skies highlights this delicate and tenuous balancing act - even minor changes to the bill could drive utilities to switch to natural gas.
Clear Skies does not
put mandatory controls on CO2 emissions.
If Congress does enact mandatory CO2 controls, the days of coal-fired
power generation are numbered. Coal, the one domestically abundant
energy source that keeps energy prices in reasonable balance will no longer be
used. Natural gas prices will skyrocket
with even greater demand and subsequent shortages of supply. The
three-pollutant approach, described in Clear Skies with implementation carried
out over a reasonable timeframe will enable utilities to make use of the latest
clean coal technology and move forward with development of additional coal
technologies.
The right timelines
also could enable power generators to maintain their diverse fuel base, and
assure market entry of advanced fossil technologies, including natural gas and
coal technologies. The same holds true
for timelines and stringency chosen to control mercury emissions. Too tight a timeline or too stringent
mercury reduction will force utilities to fuel-switch.
Clear Skies should
provide an exemption for all energy efficient and low-emitting combined heat
and power (CHP) generators. Many of our
member companies rely heavily on CHP systems to provide the steam and electricity
for internal manufacturing processes.
These systems are universally recognized as being ultra-efficient when
compared to traditional fossil fueled utility power generators because they
capture the heat from the electricity generation process for use in the host
chemical plant. Today’s systems can
reach or exceed efficiencies as high as 80 percent, nearly twice that of the
best combined-cycle gas fired utility generator. Obviously getting twice the energy outputs from the same energy
inputs is beneficial. Congress should
be encouraging greater CHP usage by commercial, industrial and residential
interests.
The American
Chemistry Council has not yet finalized our position on Clear Skies legislation
as environmental policy. But Clear
Skies also has implications on national energy policy, and in that regard, our
position is clear: Clear Skies can slow the stampede in power generation from
coal to natural gas and Clear Skies can help America maintain a more diverse
fuel base. But Clear Skies cannot, by
itself, restore balance to natural gas markets and it will not stop new
generating capacity from being almost exclusively natural gas fired and
increasing the price of natural gas.
Lastly, Clear Skies alone cannot make American manufacturing more
competitive and help our economy regain and maintain its strength in global
markets by lowering energy prices.
Congress
must open up the domestic
natural gas supply and restore balance to our nation’s fuel diversity. A strong long-term economy that includes an energy policy that
improves the economic well being of all citizens must be coupled with the
actions that lead to improved health and environment.