[CU 1363 / November 3, 2008]

Summit Lays Out Hazards to Regional Economy of Ignoring Natural Gas

The Northwest's economy cannot afford to scorn natural gas on the road to a low-carbon future, posited a summit held Oct. 23 in Portland, Ore., by Energy Action Northwest, a recently formed coalition of business and labor interests.

"The energy industry has yet to articulate a clear and coherent policy statement," said Ed Finklea, EANW executive director. "We must look at all sources of energy."

Finklea's introductory comments to summit attendees harkened back to the last time the region's energy markets were in turmoil, less than a decade ago, an event that "some industries never recovered from," he said, citing the loss of most of the Northwest's aluminum smelting industry as an example.

"We can't afford a repeat of this," he said. "We can't lose other industries to a lack of policy. We can't continue to be whipsawed by foreign oil.

"We can't have dirty energy just because it's cheap," he continued. "We understand that. We also can't have clean energy at any price."

Energy Action Northwest was formed in July to help promote this message, to widen energy policy discussions in the Northwest, and to help bolster the region's economy (CU No. 1348 [9]). The group says it advocates for "clean, affordable and reliable energy supplies in the region."

In particular, he told Clearing Up, natural gas can be a transitional fuel that provides a "blue bridge to that perfect green future that everybody wants."

Summit speakers discussing the regional energy outlook for the next 20 years noted that other sources of natural gas were needed because the availability of Canadian natural gas supplies was expected to dwindle as some goes to more profitable markets in the U.S. and abroad, and other portions are retained to support Canadian needs.

Dan Kirshner, executive director of the Northwest Gas Association, also noted that Asian markets for LNG can fetch prices two or three times higher than in the Northwest, an issue for the near term.

Leslie Ferron-Jones, TransCanada's director of pricing and business analysis, said the region is losing 10 billion to 15 billion cubic feet of supply a day that isn't being replaced, and that in the long run, LNG seems to be the unavoidable answer to this problem.

She said this was so, despite the unexpected appearance on the scene of shale gas, which the industry "didn't see coming." Current high oil and gas prices have nurtured the production of this supply as U.S. and then Canadian producers mastered new horizontal well technology to develop this resource, which includes the extensive Barnett shale formation in Texas (CU No. 1359 [4/14]).

But as extensive as these supplies might be, Ferron-Jones said, LNG may be the long-term answer, given the 10 years or so of proven reserves of conventional, tight-sand, and U.S. shale gas, and the 40 years or so of unproven reserves.

While LNG prices are currently far higher than those for other natural gas sources, she says it will become comparable as more LNG comes online, along with the necessary infrastructure.

The region's three LNG importation projects--Bradwood, Oregon LNG, and Jordan Cove, and their associated pipelines--were presented as options for this future natural gas supply, as were new Alaskan supplies currently stranded for lack of a pipeline.

"We have 8.4 bcf per day that must be re-injected from the oil fields," said Bill Walker, with the Alaskan Gasline Port Authority.

With the recent selection of TransCanada to build the pipeline, Walker said a dual open season to be held in mid-2010 would help determine whether the pipeline's terminus would be in Valdez or Alberta.

"In six years, the project could be online," he said, adding that the Northwest could benefit from this.

Electricity generation using natural gas will need to confront unsteady fuel costs, future carbon regulations, and a regional hydro system that is fully subscribed, but unable to use its full capacity all the time due to salmon mitigation issues and, possibly, dam breaching.

Steve Wright, BPA administrator, told the summit that the reduced hydro output needs to be replaced to meet the region's needs, which is challenging because of the system's reduced flexibility in the face of growing wind-power penetration.

"We do not have adequate tools today to optimize for rates, reliability, CO2 emissions reductions and salmon mitigation," Wright said, adding that the issues are "upon us now, and so near term trade-offs must be made."

Tools that might help, Wright said, include R&D toward wind forecasting, storage and smart-grid technology, accelerating energy efficiency efforts, broadening the reach of balancing authority across many transmission control areas, and new transmission construction facilitated by BPA's network open season process.

Gregg Kantor, president and COO, and future CEO, of Northwest Natural Gas Co., said that from a strictly transmission viewpoint--ignoring gas prices--a pipeline from an LNG terminal on the Columbia River would be the least-cost resource for his company on a 20-year, net-present-value basis.

He said this would save NW Natural customers a half billion dollars in transmission costs.

Angus Duncan, chair of the Oregon Global Warming Commission, and former head of the Bonneville Environmental Foundation, noted the irony that low-carbon measures such as energy efficiency, wind, solar, nuclear and IGCC suffer because they are capital-intensive up front, whereas in the current capital crunch, higher-carbon resources such as natural gas and pulverized coal do well because fuel costs can be pushed into the future.

On the other hand, he said, "the country invested, not consumed, its way out of the Great Depression," which should be the model for the current situation.

Duncan's priorities would be to invest in efficiency, with a focus on decoupling; deficit financing for infrastructure; levelizing green-energy subsidies; and prompt implementation of carbon policies to remove market uncertainty.

Michael Early, the executive director of Industrial Customers of NW Utilities, had concerns about the impact of carbon policies on Northwest industries, and urged caution.

"Go slow, and let's be careful imposing obligations before we understand the implications of those obligations," he said.

Echoing Early's concerns, Gaylan Prescott, with the United Steelworkers of America, said energy prices have a big impact on industry, and noted that the region's energy crisis led to the loss of seven aluminum smelters. "Forty percent of the cost of this product is energy," he said.

Reducing the carbon footprint of the transportation sector using natural gas and plug-in hybrids was also briefly discussed by Chris Butler, with Boone Pickens' Clean Energy company. Butler noted that there were already four natural-gas refueling stations in Washington, and next year all garbage trucks used in Seattle by waste collection franchisee CleanScapes would run on compressed natural gas.

During a policy discussion, which wrapped up the summit, Robert Kahn, executive director of the Northwest and Intermountain Power Producers Coalition, whose members generate about 5000 MW, said there were hazards to not diversifying the region's energy portfolio.

"If not, we will be fighting over what's left," he said.

New ways to integrate wind are needed, he said, but with "hydro maxed out . . . that leaves thermal power" fueled by natural gas as the bridge, until something else comes along.

Phil Jones and Ray Baum, utility regulators from Washington and Oregon, respectively, spoke on their own behalf, and noted that the region's regulators would face challenges from both financial and resource issues.

"Climate change is not just a big deal," Jones said. "It's a huge deal."

Baum said regulators must "get ahead of problems to exert some control," and to try to avoid sticker shock when coal is removed from the energy mix.

"If we don't, we will lose political support from the ratepayers," he said. "We just hope people will allow us enough time to do a rational job," which he said would take 5 to 10 years. "We hope we don't lose ourselves to federal control. We've go to figure out ways to do it with local control."

Speaking on his own behalf, Jim Luce, chair of the Washington Energy Facility Site Evaluation Council, said the current financial market turmoil had provided a once-in-a-generation opportunity to accelerate transmission construction in the Northwest by increasing Bonneville Power Administration's borrowing authority.

In later comments to Clearing Up, Finklea said the Northwest is currently a 3-bcf/d market, and that likely load growth through 2020 would grow this to 4 bcf/d, which a single LNG facility could support. If the Jordan Cove project were to accommodate northern California, then the region could likely support 8 bcf/d with two new facilities.

"The people that supply the capital will ultimately make that decision," he said.

He added that if "Oregon and Washington and Idaho were burning Alaskan gas--how would that be a problem?"

Gas can back up renewables, which he said provided an opportunity to partner.

"It's marriage time," he said. "More gas can accommodate more wind, and it will relieve stress on the hydro system for fish mitigation purposes" [Rick Adair].

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