EIA officials stand by natural gas predictions

The U.S. may have a 100-year supply of natural gas locked underground, but how much of it gets extracted hinges on what the federal government does to promote the fuel, energy experts told a Senate panel today.

For instance, Congress could drive demand for natural gas by encouraging utilities to retire coal-fired power plants and creating new tax incentives for alternative vehicles that run on the fuel.

Proposed environmental laws putting a price on carbon dioxide emissions and other “regulatory changes could increase the use of natural gas in the electric power sector,” said Howard Gruenspecht, acting administrator of the government’s Energy Information Administration.

But senators at an Energy and Natural Resources Committee hearing on the issue Tuesday signaled they are still skeptical that tremendous natural gas supplies in the U.S. can and will be commercially recoverable at today’s relatively low prices.

“There are many reasons to be optimistic,” said Sen. Jeff Bingaman, D-N.M. “But recent history suggests we should be cautious as well.”

Bingaman noted that the U.S. has already been through several boom-and-bust cycles with natural gas, including in the early 2000s, when once-rosy predictions about supply were replaced by concerns the U.S. would not have enough natural gas. That fear inspired investments in terminals for importing liquefied natural gas that now are operating at low capacity, Bingaman said.

With a turnaround in domestic supply, Houston-based Cheniere Energy Partners LP now is modifying one such LNG terminal in southwestern Louisiana so it can export the product.

Manufacturers that depend on natural gas not just as a power source — but also as a building block for the products they make — warned that that big swings in prices could jeopardize their bottom line.

Dow Chemical Co. Vice President George Biltz told the energy committee that the projected abundance of natural gas “can fuel a renaissance in American manufacturing,” but only if prices remain stable and the federal government encourages domestic production. Biltz implored Congress to “avoid legislating natural gas demand,” lest those policies lead to “massive natural gas price spikes.”

“This is at least the third time that I’ve been told we have an abundance of natural gas that will solve all of our problems. so we would be very concerned about assuming that natural gas is s a silver bullet,” Biltz added.

Energy experts from the EIA and the Massachusetts Institute of Technology said they were still grappling with the potential effects of any global market for natural gas — and the prospect that U.S. producers could export the product.

“If an international gas market develops globally — and that’s a big if — what we find is that has substantial impact on the United States, lower prices, but also the potential for substantial imports in 20 to 30 years,” said Ernest Moniz, who helped develop a study released last month that is bullish about natural gas supplies.

Bingaman said he was concerned that in a global marketplace, natural gas could be “subject to the same kind of volatility and price shocks that we’ve seen in the world market for oil.”

Biltz echoed those fears. “We support free trade,” the Dow executive said. But it would be better, he argued, for the U.S. to export products made with natural gas than the fuel itself.

The MIT and EIA energy experts both stood by their predictions about expanding shale gas resources in the U.S., and criticized a June 26 New York Times article that warned the estimates may be overly optimistic.

Gruenspecht said that e-mails that were released by the newspaper in conjunction with the report were heavily redacted “in ways that provide misleading information about their context.”

“I believe EIA is doing a solid job of effectively tracking the emergence of shale gas in the U.S. energy system and thoughtfully reflecting that in our projections,” Gruenspecht said. “We’re very comfortable with where we are. We’ve seen nothing in the New York Times report that would cause us to change our view.”

The MIT’s Moniz also defended the calculations and stressed that his report used data from sources other than the EIA, including the university researchers’ own well-by-well analysis.

The growth in government estimates about technically recoverable natural gas is driven by technical advancements in horizontal drilling and hydraulic fracturing techniques that are being used to extract the energy source from dense shale formations nationwide.