From the May 2013 issue of Research Magazine • Subscribe!

May 21, 2013

Delivering the Promises of Natural Gas

Chairman, American Gas Association; Chairman, President & CEO of Questar Corp.*

I am going to tell you about the role natural gas currently plays in the United States and the role it can, and should, play in America’s future. The United States of America sits on one of the planet’s most abundant energy sources. It can be the key to our continued security and prosperity for generations.

Natural gas utilities make peoples’ lives better. We deliver essential energy. Our companies are at the forefront of an energy revolution—a sound investment for our customers and our shareholders.

The United States is the largest producer of natural gas in the world. Continuing to develop and deliver this resource in a responsible manner and ensuring public confidence in our demonstrated ability to do so will provide an opportunity to transform the energy industry.

One of the great advantages of gas shales in the lower-48 states is that this abundant natural gas resource is located near existing infrastructure. Shale plays such as the Marcellus in New York, Pennsylvania and West Virginia, and the Haynesville shale in East Texas and North Louisiana, are located near pipelines and markets that are getting this gas quickly, reliably, and cost effectively.

Total dry natural gas production averaged 53.3 billion cubic feet (Bcf) per day from 2000 to 2010. During 2012, it averaged nearly 64 Bcf per day. The AGA believes it is possible for the United States to produce more than 80 Bcf per day by 2022.

Future of Market Stability

For the next decade and beyond, domestic natural gas supplies are expected to be sufficiently robust to meet even significant growth in demand across all sectors. Furthermore, there is room to grow natural gas demand at reasonable and relatively stable prices.

Many of the identified but not developed shale gas resource plays and more traditional production models become economically available to the market at a projected development cost of $5–$6 per million metric British thermal unit (MMBtu).

Even significant increases in demand can be supported by North America’s robust and diverse natural gas resource base. We envision relative natural gas market stability during the next ten years and possibly beyond.

There are new markets for U.S. natural gas with significant potential for expanding its domestic use in homes, businesses, power generation, industrial plants and vehicles, as well as the export of liquefied natural gas. The goal of all stakeholders should be creating opportunities to better optimize our nation’s energy resources.

The low cost of energy due to the use of natural gas in an industrial capacity is bringing a manufacturing base back to U.S. We are seeing this with the chemical and steel industries, among others.

We are still a few years away from any liquefied natural gas (LNG) exports from the U.S. and further still from a significant impact on the market. At present, Cheniere’s terminal at Sabine Pass is the only facility that has been approved by our Federal Energy Regulatory Commission for exports to free-trade-agreement and non-free-trade-agreement countries. It is not expected to be operational until 2015 and will begin by exporting up to 1.2 Bcf per day.

Reliable Service, Safety

From the market forces that surround the price, to the pipeline network that delivers this commodity, natural gas is reliable. Even during unprecedented storms like we saw with Superstorm Sandy, natural gas service continued, uninterrupted, for hundreds of millions of Americans.

I would especially like to recognize some of our member utilities. They faced the challenges of Sandy and did an outstanding and, in many cases, heroic job in taking care of their customers and restoring the delivery of natural gas—they include New Jersey Natural Gas, Public Service Electric and Gas, Con Edison and National Grid.

Safety is the top priority for the American Gas Association and our members. My top priority as AGA chairman is ensuring that our customers, regulators, elected officials and investors are confident in our ability to safely deliver our product.

We have the largest integrated pipeline system in the world, with 2.4 million miles of natural gas pipelines. In order to continue to improve the safety of our systems we are consistently working to upgrade and expand that infrastructure, and while the financial commitment is significant, helping ensure the safety and reliability of our systems is paramount.

Initiatives in the year ahead include a continued focus on the integrity of our nation’s transmission pipeline infrastructure and continuing to work to modernize the distribution pipelines, which deliver gas directly to homes and businesses.

Cyber-security has become an increasing focus of safety programs across all industries. During my time as chairman, natural gas utilities in this country will raise the bar for protecting our nation’s critical infrastructure from those who seek to harm it.

We are working closely with the government to seek legislation, regulation, processes and procedures that will help enhance our ability to protect our infrastructure in a common sense and effective way. AGA is committed to helping its membership reduce the risk of cyber-security attacks that could significantly affect our businesses and the nation’s energy infrastructure.

Public-private partnerships are the foundation for effective critical infrastructure protection, and timely, trusted information sharing among stakeholders is essential. Cyber-security legislation should focus on what industry vitally needs: more robust information sharing between the government and private industry bolstered with liability protections.

Policies that change the existing and successful cyber-security public/private partnerships could potentially undermine productive working relationships already in place.

Cleaner & Greener

Methane emissions from systems operated by America’s natural gas utilities are low and getting lower, according to U.S. Environmental Protection Agency and the U.S. Energy Information Administration.

Greenhouse gas emissions from the natural gas system were lower in 2010 than in 1990 due to a more efficient natural gas distribution system.

Ninety-two percent of energy produced at the wellhead is delivered to customers, reducing environmental impact and lowering energy bills.

Households that use natural gas appliances for heating, water heating, cooking and clothes-drying spend an average of $518 less per year than homes using electricity for those applications.

I believe that every single American should have access to the promises of natural gas. We can see greater benefits from natural gas if we:

  • Promote the expansion of the natural gas delivery infrastructure and enhance the operation of the energy network to provide real-time information to customers about their energy use.
  • Deploy energy efficiency programs that fully leverage the efficient use of natural gas for space and water heating.
  • Expand the use of combined heat and power in commercial and industrial applications to unlock the potential for fuel cells, micro-grids and future energy innovation using natural gas.
  • Encourage public-private partnerships to expand the network of refueling options for natural gas vehicles

Growing Infrastructure

Expanding our natural gas infrastructure is a capital-intensive process, and we have to find ways to balance the needs of our investors, our customers and our regulators.

America’s natural gas utilities are working with policymakers at every level to develop innovative models for making the capital investments necessary to enable the expansion of the natural gas delivery network. Several states have developed innovative rate designs, working with their natural gas utilities, to build and maintain an advanced energy delivery system while continuing to deliver natural gas at affordable prices.

Combined heat and power (CHP) generates electricity and captures useful heat simultaneously to increase the overall efficiency of an energy system. This proven technology should be included in state renewable portfolio standards and federal clean energy standards. CHP can help enhance reliability, as we saw when New York University and Princeton University both kept the lights on during Sandy due to their use of CHP.

Driving a More Secure Future

On average, natural gas is 57% less expensive than an equivalent gallon of gasoline and 64% less expensive than an equivalent gallon of diesel. Compared to gasoline and diesel powered vehicles, natural gas vehicles (NGVs) can reduce tailpipe greenhouse gas emissions by 20 to 30 percent.

Natural gas producers and utilities are working together to build refueling stations throughout the country and spur advances in home refueling technology.

We are seeing major progress in the medium and heavy duty markets with companies such as Waste Management, UPS, AT&T, Comcast, Sysco and Ryder, which have made significant commitments to NGVs in their national fleets.

One-fifth of city transit buses run on natural gas today, and market share of is growing. More than 35 U.S. airports use NGVs in their fleets or encourage NGVs in private fleets operating on natural gas.

The governors of 22 states are teaming up to start replacing thousands of fleet vehicles with ones that run on natural gas. The time is right for a low-cost home compressor unit for vehicles.

Fueling Economic Growth

Natural gas delivers jobs. In June, IHS Global Insight projected that unconventional gas development in the United States will support nearly 1.5 million jobs in 2015, and more than 2.4 million jobs in 2035.

And natural gas benefits our economy as a whole, both now and in the long run. By 2015, unconventional gas activities will contribute nearly $50 billion in federal, state, and local government tax and federal royalty income. This is projected to rise to almost $85 billion by 2035.

From helping to create economic growth and increasing energy security to improving our environment, securing a role for natural gas as a foundation fuel in a national energy policy will help address many of our national priorities.

We are pleased that the American Taxpayer Relief Act addressed one of our highest advocacy priorities and will preserve and make permanent 15 percent tax rates for dividends and capital gains for individuals earning up to $400,000 or couples earning up to $450,000, while dividends and capital gains for families who earn more than $450,000 will be taxed at 20 percent.

The importance of low tax rates for dividends and parity with capital gains is significant. Keeping the taxes on dividends low will help utilities expand and rebuild our infrastructure, in turn, helping to meet the nation’s energy needs. Tax rate parity between dividends and capital gains creates a level playing field and allows investors to make decisions rather than creating a tax-code-driven bias for one over the other.

Only through a comprehensive agreement to address the long-term deficit, can we reassure the financial markets, restore public confidence and create the foundation for long-term economic growth and prosperity that our industry, the business community and the American people need.

Positive Financial Health

Our industry continues to demonstrate a strong record of creating shareholder value. This past year, shareholders invested in our industry are happy that we continue to pay strong dividends. As you know, most of our energy utilities have paid dividends continuously for more than 50 years.

Moreover, our industry’s bond ratings continue to reflect the positive financial health of energy utilities. These ratings are generally in the BBB/BBB+ range or higher—which is significantly higher than the average ratings of the rest of corporate America—with the average natural gas utility rating at the BBB+/A- just as strong or greater.

For overall investment performance, the shares of our investor-owned AGA member companies, as measured by the performance of the AGA Stock Index, has performed very strongly against the S&P 500 and Dow Jones Utilities Average.

Based on the AGA Stock Index, the Gas Utility Index Fund, managed by Hennessy Funds, has provided strong returns over the 3, 5, and 10-year period. Of course, past performance does not guarantee future results.

Conclusion

The country has experienced a transformational shift in the perceived role of natural gas—from an energy source sometimes seen as unreliable and scarce 10 years ago, to one that is now recognized as a foundation fuel for a clean and secure energy portfolio.

Since there’s been so much focus on Abraham Lincoln lately, I’d like to agree with Abe when he said: “I am a firm believer in the people. If given the truth, they can be depended upon to meet any national crisis. The great point is to bring them the real facts.”

For years, we’ve been stressing that natural gas is the most promising solution to our nation’s energy, economic and emissions challenges. I’m more optimistic about our energy future today than I’ve ever been.

*These remarks were delivered before the New York Society of Security Analysts on Jan. 30, 2013, in New York, and were expressed by Jibson in his capacity as chairman of the board of the American Gas Association and not in his role with Questar.

The AGA represents more than 200 local energy companies that deliver clean natural gas to 177 million Americans throughout the United States.

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