Chairman's Report
of Activities of the Energy and
Environment Committee
at the 59th Annual Meeting of the Southern Legislative Conference
Mobile, July 30-August 3, 2005
October 7, 2005
The Energy
and Environment Committee convened on Sunday, July 31, for a program session and
on Monday, August 1, for a business session during the 59th SLC Annual Meeting.
The Committee also participated in a Technical Tour at the Sea Lab marine
research facility on Dauphin Island. The following is a summary of the speaker
presentations and Committee activities.
Program Session
Sunday, July 31
I. The
Increasing Price of Gasoline
Sara Banaszak
- Senior Economist, American Petroleum Institute, Washington, D.C.
Background
With gasoline prices on the rise for an extended period of time,
Americans have been perplexed as to the reasons behind this increase. Ms.
Banaszak’s presentation offered an explanation to this conundrum.
Presentation
Ms. Banaszak began
her presentation by noting that, even though gasoline prices currently seem to
be at record high levels ($2.37 per gallon as of August 1, 2005), when adjusted
for inflation, they are lower than 1981 prices ($2.89 per gallon). Answering
the question “where does a consumer’s money go?” she pointed out that every
dollar of the price of gasoline is composed of the following: $0.55 for crude
oil, $0.26 for refining and marketing, and $0.19 for tax. Therefore, with crude
oil selling at $1.44 per gallon in mid-July 2005, the price at the pump came to
approximately $2.30 per gallon.
Ms. Banaszak added that the prices of the two commodities largely mirror each
other. Sometimes gasoline prices increase when crude oil prices go up, and
sometimes when crude oil price falls, it takes a short while before gasoline
prices fall.
A small
change in global supply and demand can have a large effect in the oil market,
since spare capacity is very limited. With Asian demand increasing rapidly and
demand from the developed world remaining high, the limited supply of oil leads
to price increases. Furthermore, the global spare capacity of oil stands at its
lowest level in 30 years. Other factors play a role as well. The decrease in
the value of the dollar, the war in Iraq, a particularly cold winter, decisions
made by the OPEC cartel, and domestic politics in unstable producers such as
Venezuela and Nigeria all affect the price of gasoline. Ms. Banaszak added that
to combat reliance on unstable nations’ petroleum supplies, the United States
imports oil from a wide variety of suppliers, including from neighbors Canada
(10 percent of total U.S. consumption) and Mexico (8 percent). U.S. crude oil
imports have more than double in the last 20 years, increasing from 1.17 million
gallons in 1985 to 3.67 million gallons in 2004. Canada and Mexico continue to
be the largest suppliers.
In addition
to internationally oriented factors, domestic aspects of the increase of the
price of gasoline include continued strong demand, boutique fuels, and low
refining capacity. Regulatory measures such as phase outs of the harmful
chemical MTBE in New York and California have also driven up the price of
gasoline. In any case, industry profit margins remain closely aligned with
other domestic industries. First quarter 2005 earnings for the oil/natural gas
industry totaled 8.6 percent, compared to 21 percent for banks and 5.5 percent
for retail. Concerning refining capacity, the number of operating refineries
has fallen sharply in the last 25 years, driving up costs, but gasoline
production and gasoline in storage remain above average. The futures prices of
both gasoline and crude oil continue to increase as well.
Ms.
Banaszak continued with an overview of natural gas prices, which also remain
higher than in past years but, as with gasoline, natural gas storage is above
average. She added that the number of rigs drilling for natural gas has
increased to record levels, with 1,235 rigs drilling in July 2005.
Summing up,
Ms. Banaszak attributed the high price of gasoline to the following factors:
high crude oil prices resulting from strong global demand, restricted world
supplies and little spare capacity, the decisions of OPEC, and political
instability in oil-rich nations. Gasoline supplies remain adequate, with record
production, above-average inventories, high refinery utilization rates and an
increase in imports. However, the gasoline market faces challenges such as:
numerous and changing fuel specifications in various states; low rates of return
for refiners; strong demand spurred by a growing domestic economy; and an
increase in summer fuels requiring costly ingredients.
II. The Role
of Liquefied Natural Gas in the South’s Past, Present and Future
Kristi Darby
– Research Associate, Center for Energy Studies, Louisiana State University
Casi Callaway – Executive Director, Mobile Bay Watch,
Inc., Alabama
Background
Liquefied natural gas
(LNG) has received considerable attention in recent years as a source of
energy. This session highlighted both LNG's role in state economic development
and how industry and environmental groups can work together to find mutually
acceptable solutions in the debate over the use of LNG.
Presentations
Ms. Darby’s Presentation
Ms. Darby commenced
the LNG discussion with a look at U.S. natural gas production and the monthly
rig count, now peaking at between 1,200 and 1,300 rigs. However, production
continues to decrease even as the number of rigs increases. Many areas around
the U.S. coasts are restricted as well. In any case, since 1994 Americans have
seen an 8.7 percent increase in the amount of natural gas delivered to end
users, from 18.0 trillion cubic feet (tcf) in 1994, to 20.6 tcf in 2004. The
increase in usage from the electric power industry has been tremendous, equaling
95 percent.
Ms. Darby related the fact
that the natural gas industry supports the construction of new LNG terminals,
both onshore and offshore. So far there are four operating LNG terminals, with
three of those in SLC states (Georgia,
Louisiana and Maryland). As of March
2005, the Federal Energy Regulatory Commission approved an additional five such
terminals, and 16 more had been submitted to the Commission.
By way of background, LNG is natural gas that has been turned
into a liquid by cooling it to a temperature of -256°F. It consists of
primarily methane (typically, at least 90 percent). LNG is odorless, colorless,
non-corrosive and non-toxic. Liquefying natural gas reduces its volume by a
factor of 610, and the weight of LNG is 45 percent of that of water. Many of
the world’s reserves of natural gas lie in unstable countries, with Russia
possessing the plurality of the energy source (31 percent) and Iran having the
second-largest reserves (15 percent).
The cost of transport of LNG plays a major role in its
feasibility as an energy source. The break- even point for onshore pipe is
2,200 miles, while that decreases to 700 miles for offshore pipe. The total
cost of LNG is constituted by the following links in the chain of supply: the
gas producer (23 percent of the total cost); the liquefaction process (28
percent); shipping, which depends on distance (35 percent on average); and the
receiving terminal (14 percent). At the receiving terminal, pumps inside the
tanks transfer LNG to the plant vaporizers as gas is required. Then, gas is
withdrawn from the tanks and compressed, and finally the LNG is warmed to the
point of vaporization, when it then travels to the end user on through a
pipeline.
Ms. Darby
noted that the United States is a relatively small importer of LNG, with imports
totaling just 1 percent of total natural gas consumption. On the other hand,
South Korea’s consumption of natural gas occurs entirely through LNG imports.
However, LNG is expected to supply 14 percent of American natural gas by 2025.
Sendout capacity, which currently hovers around 3 billion cubic feet per day (bcf/d)
is expected to reach more than 30 bcf/d by 2009.
Referring to her home state of Louisiana, Ms. Darby related the
reasons for her state’s interest in LNG. First, LNG regasification facilities
represent a major capital investment for the state. Second, LNG allows
Louisiana to leverage, and even extend, its existing energy infrastructure.
Furthermore, Louisiana has energy intensive users of natural gas and LNG expands
a vital energy resource needed to preserve these industries. Finally, the
development of LNG is an important national energy concern in which Louisiana
can make a significant contribution. Construction of facilities could bring an
economic boom to the state as well. There is potentially a $220.7 million
impact associated with the annual operation of LNG facilities in Louisiana and
the Gulf of Mexico
and the possibility of 1,607 jobs associated with the operation of these
facilities. Also, there is a potential of a $2.2 billion impact associated with
the construction of LNG regasification facilities in Louisiana and the
Gulf of Mexico.
As many as 13,877 jobs could be associated with the construction of these
facilities. In addition, if all Gulf of Mexico regional facilities are
developed, as much as a 237 percent increase in gas export volumes through the
existing pipeline system could result. Finally, a $350 million impact and
almost 3,500 jobs are associated with announced pipeline additions and new
natural gas storage facilities, according to Ms. Darby.
Focusing further on Louisiana, Ms. Darby noted that extensive
LNG development (15 or greater new projects) is forecasted to lower future
natural gas prices and have considerable impacts on energy intensive
industries. As much as a $929 million benefit may be associated with the lower
cost gas associated with high LNG development, and as many as 11,612 jobs could
be regained from recent losses. However, low LNG development (6 to 12 new
projects), and higher resulting prices, could hurt Louisiana industries. There
could be a significant negative fiscal impact associated with the higher cost
gas associated with low LNG development, and as many as 20,902 jobs could be
lost. Furthermore, the failure to act on LNG development (building fewer than 6
new plants), in addition to other negative resource development factors, could
lead to the worst case, “do nothing” scenario which would have devastating
impacts on Louisiana’s economy, with a maximum $2.8 billion cost associated with
the higher cost gas associated with low LNG development, and as many as 61,926
jobs could be lost.
Ms. Darby noted that
Louisiana remains the second-largest producer of natural gas, behind only Texas,
and is the third-largest consumer of the energy source, trailing only California
and Texas. This high consumption ranking results from high industrial use per
customer, with industrial consumption in Louisiana ranking second (again behind
Texas). Louisiana also boasts an extensive pipeline system for transporting
natural gas as well as 91 natural gas fired power plants.
Ms. Darby continued by pointing out that Americans pay a higher
price for natural gas than consumers in other developed countries. The cost
here equals $5.32 per million British thermal units (MMbtu), while Western
Europeans pay only $4.12 on average. She concluded her presentation by
noting that Louisiana’s industrial and power generation gas consumption is
larger than a number of countries, including that of Australia and Spain.
Ms. Callaway’s
Presentation
Ms. Callaway tackled
the subject of LNG from an environmental perspective, asking how stakeholders
can work together to make LNG a feasible energy alternative for everyone. Ms.
Callaway represents Mobile Bay Watch, Inc., an organization with more than 3,000
members in Alabama with a focus on protecting the Mobile
Bay watershed. Her organization’s
experience with LNG began in 2003, when ExxonMobil proposed the construction of
an onshore facility near Mobile.
Ms. Callaway expressed her organization’s concern about the
potential danger of LNG terminals, including the possibility of deliberate
attacks on the sites, decrease in neighboring property values, and removal of
local control.
Addressing one topic of contention, how LNG is reheated (regasified),
she mentioned that the Gulf of Mexico is a warm area and has the best potential
for zero impact to the environment by using solar energy to reheat the gas. Two
possibilities exist for reheating: The first is the closed loop system, which
uses boilers to reheat the LNG. This requires 1-2 percent of the natural gas in
a tanker to accomplish and results in low air emissions and zero impact to the
fisheries. On the other hand, according to Ms. Callaway, the competing open
loop system uses an average of 150-200 millions gallons per day (mgd) of Gulf
water daily to reheat LNG. This results in maximum impact to fisheries, which
Ms. Callaway believes is preferable to industry because of the low cost. She
opined that the open loop method will kill anything that goes through the
piping, and that anything that does make it through alive will be treated with a
chlorine solvent to keep the system clean. The final impact is from the
discharge back into the Gulf of waters at an average of 15 degrees cooler than
the intake.
Concerning the impact on the local fisheries, Ms. Callaway
offered evidence that as much as 26 percent of the redfish or red drum landings
in Alabama and Mississippi would be destroyed by an open loop system. Ms.
Callaway asserted that ConocoPhillips had undertaken no studies on crab, shrimp
or other invertebrates and that 220 billion zooplankton would be impacted every
year with no knowledge of how this impacts the marine ecosystem.
Regarding the economic impact of the fisheries, Ms. Callaway
noted that according to a 2001 study by the American Sportfishing Association,
saltwater recreational fishing alone had a $463.5 million impact on the state’s
economy and sustained 5,477 jobs. In addition, Alabama’s commercial fishing
industry brings an additional $400 million to the state annually, along with
numerous jobs.
Ms. Callaway reiterated that her organization is not opposed to
the use of LNG, which she regards as a clean burning fuel which offers a level
playing field for economic development, is excellent for industrial recruitment,
will possibly lead to a price reduction at the gas station and is easily
transportable. However, she would prefer to see more cooperation among industry
and local stakeholders. She said that there currently are 19 approved
facilities around the country, and that there are 21 new facilities proposed for
the Gulf of Mexico in the Federal Energy Regulatory Commission or the Coast
Guard permit processes. She asked whether this makes economic sense, with only
one of the four facilities presently operating in the United States having
remained open while gas prices were low.
She suggested the following strategies for cooperation:
allowing local citizens be the bellwether for LNG projects; insisting that
economic impacts to the local community be fully analyzed; not allowing money to
be the driving factor for the natural gas industry alone; and looking long-term
at these facilities.
III. Closing
Comments
Spirited conversation
followed the presentations, with some audience members disputing some of the
statistics used by the presenters. Chairman Ullo thanked the participants for
their presentations and adjourned the meeting with no further discussion.
Business Session
Monday, August 1
I. Update
on the Federal Energy Bill and on Nuclear Power
Kenneth J. Nemeth,
Executive Director, Southern States Energy Board,
Georgia
Background
Alternative energy
sources are the genesis of much debate over the current federal energy
legislation being discussed in Congress. This session highlighted relevant
sections of the Energy Bill as they relate to states and provided more detail on
one source of energy that may be making a comeback: nuclear power.
Presentation
Mr. Nemeth began his
presentation by noting that President Bush has sought passage of an energy bill
since 2001. After failing to reach agreement on two previous occasions,
Congress passed the current $14.5 billion bill in late July 2005. Mr. Nemeth
hypothesized that today’s higher energy prices convinced Congress to move on the
bill. However, with oil prices staying around $60 per barrel and gasoline
prices averaging almost $2.40 per gallon, the legislation is not expected to
reduce current energy prices.
Mr. Nemeth added that the
United States imports 60 percent of the oil consumed by its population, and this
number is expected to increase to 68 percent by 2025.
The 2005 Energy Bill will neither lower the price of gasoline at
the pump nor allow drilling in the Alaska National Wildlife Reserve.
Furthermore, it will not mandate the use of renewable fuel sources by utilities
or increase automotive fuel efficiency standards. Finally, the legislation will
not provide product liability protection for MTBE (methyl tertiary-butyl ether).
On the other hand, according to Mr. Nemeth, the Energy Bill will
extend daylight savings time by one month, increase imports of LNG, require
utilities to meet federal reliability standards, require the inventory of
offshore oil and gas resources, and provide coastal impact assistance. The
Energy Bill also encourages the domestic exploration and production of energy,
the construction and utilization of new nuclear power plants, and the expansion
and modernization of the national energy grid. In addition, Mr. Nemeth
mentioned that the new legislation offers incentives for alternative energy
sources such as solar power, biomass, wind and hydropower, as well as clean coal
technologies. About 60 percent of the tax incentives are earmarked for
traditional energy industries, including coal, natural gas and electric, aimed
at promoting new technologies.
Switching to the topic of nuclear power, Mr. Nemeth posed the
question of whether new nuclear plants were on the horizon. While no one can
answer this question, he mentioned that a new plant has not been built since
1973. The nuclear power industry has welcomed the Nuclear Regulatory
Commission’s new licensing process, which focuses on early site permits and the
combination of construction permits and operating licenses. Mr. Nemeth noted
that all six sites undergoing review for permission to serve as the location for
new reactor designs are in SLC states, including Alabama,
Mississippi
and South Carolina. Two sites will be
selected in October 2005. Taxpayers will share the cost of licensing the first
generation of these new plants, with the Energy Bill capping industry liability
in case of an accident. Mr. Nemeth stated that the Bush Administration wants to
protect investors against regulatory delays, and some policymakers want
protection against fluctuations in electricity prices.
Mr. Nemeth then enumerated the reasons cited by advocates of
nuclear power. According to champions of this source of energy, nuclear power
would reduce America’s dependence on foreign energy sources, reduce greenhouse
gases, and would become more attractive as the cost of other fuel sources
increases. On the other hand, opponents of nuclear power cite security concerns
and the increasing taxpayer liability as reasons for their opposition. Both
supporters and opponents have expressed concern about the lack of a long-term
nuclear waste disposal facility.
In conclusion, Mr. Nemeth said that there may be a new nuclear
power plant in the region’s future, but it is too early to be certain.
II. SSEB
Legislative Digest
Senator John Watkins
of Virginia, who also serves as Vice Chairman of the Southern States Energy
Board, updated the Committee on legislation passed in the SLC states in this
year’s legislative sessions.
III.
Consideration of Policy Positions
The Committee voted
to recommend the adoption by SLC of all 11 policy positions before it, dealing
with the issues carbon sequestration, liquefied natural gas, biogas energy, the
EPA’s new Clean Air Rules, coal to liquids, global climate change, LIHEAP,
natural gas and New Source Review (NSR).
IV. Election
of Officers
At the recommendation
of the Nominating Committee, chaired by Representative Warren Chisum of Texas,
the Committee elected Senator Chris Ullo of Louisiana and Representative Ron
Peters of Oklahoma to their second terms as Chairman and Vice Chairman,
respectively.
V. Closing
Comments
The Chairman thanked
Mr. Nemeth for his presentation and the members of the Nominating Committee for
their work, then adjourned the meeting with no further discussion.
Technical Tour
Tuesday, August 2
I. Sea Lab
Marine Research Facility, Dauphin Island, Alabama
Dr. George Crozier,
Executive Director of Sea Lab, led a committee tour of the facilities, enabling
legislators and staff to visit the laboratories and estuarium at Alabama’s
premiere marine research center. Dr. Crozier also gave a presentation on his
facility’s interaction with the natural gas industry and their cooperation in
exploring how LNG can best be utilized in a delicate ecosystem.
Attendance List
Southern Legislative Conference 59th
Annual Meeting
Energy and Environment Committee
July 30 – August 3, 2005
Mobile, Alabama
Alabama
Representative Warren Beck
Representative Lynn Greer
Representative Howard Sanderford
Senator Gary Tanner
Representative Jack Williams
Judy Busby, Secretary to Senator Tanner
Jarrett Grover, Guest
Andrea James, Mobile Register
Dean Peeler, Alabama Petroleum Council
Bruce Windham, Drummond Company
Casi Callaway, Mobile Bay Watch, Inc.
Arkansas
Senator Denny Altes
Representative David Cook
Representative Frank Glidewell
Representative George Overbey
Representative Bill Pritchard
Representative Robbie Wills
Sammie Cox, American Electric Power
Tom Parker, American Petroleum Institute, Southern Region
Canada
June Dewetering, Canada U.S. Inter-Parliamentary Group
District of Columbia
Steve Blackistone, National Transportation Safety Board
Timothy Kichline, Edison Electric Institute
Sara Banaszak, American Petroleum Institute
John Felmy, American Petroleum Institute
Florida
Representative Carl Domino
Representative Dwight Stansel
Alexander Mack, Florida Energy Office
Georgia
Senator Ronnie Chance
Representative Harry Geisinger
Representative Chuck Martin
Representative Jon David Reinhardt
Senator Nancy Schafer
Representative Roger Williams
Steve Allen, Georgia Power Company
Kathryn Baskin, Southern States Energy Board
George Bullock, The Center for Energy and Economic Development
David Buxbaum, Southern Regional Environmental Office of the U.S. Army
Mark Crews, Southern Company
Todd Edwards, Association of County Commissioners of Georgia
Angie Fiese, Senate Research
Susan Gibson, Southern Regional Environmental Office of the U.S. Army
Douglas Jacobson, Southern Legislative Conference
Kenneth Nemeth, Southern States Energy Board
Tom Park, Southern Company
Leigh Parson, Southern States Energy Board
Kimberly Sams, Southern States Energy Board
Brian Sernulka, Southern States Energy Board
Canissa Summerhill, Southern States Energy Board
Rudy Underwood, American Chemistry Council
Sam Whitehead, Colonial Pipeline
Josh Young, American Chemistry Council
Kentucky
Representative Rocky Adkins
Representative Eddie Ballard
Representative James Carr
Representative Perry Clark
Representative Jim Gooch
Representative J. R. Grey
Representative Fred Nesler
Senator Joey Pendleton
Senator Dick Roeding
Senate President Pro Tem Katie Stine
Representative Robin Webb
Representative Brent Yonts
Eric Gregory, East Kentucky Power Cooperative, Inc.
Hank Marks, Legislative Research Commission
Tim Mosher, Kentucky Power Co.
Van Needham, Cinergy
Greg Pauley, ARP, Kentucky Power
John Talbert, Big Rivers Electric Corporation
Louisiana
Representative N. J. Damico
Representative James Fannin
Senator Butch Gautreaux
Senator Chris Ullo
Senator Mike Smith
Robert Baumann, Center for Energy Studies
Dave Cagnolatti, ConocoPhillips
Mary Beth Chevalier, Exxon Mobil
Malcolm Hood, Hood and Associates
Warren Privette, Roy O. Martin Lumber Company, LLC
Kristi Darby, Center for Energy Studies
Maryland
Senator John Hafer
Senator Kathy Klausmeier
Mississippi
Representative Jamie Franks
Senator Hillman Frazier
Representative David Gibbs
Representative Steve Holland
Allison Graves, Entergy, Inc.
Will Mayo, Entergy, Inc.
Giff Ormes, Mississippi Power Company
Oklahoma
Senator P.J. Hogan
Representative Ron Peters
Paul Renfrow, Oklahoma Gas & Electric Energy Corp.
Larry Smith, Oklahoma Gas & Electric Energy Corp.
Mike Smith, Southern States Energy Board
South Carolina
Scotty Griffin, Piedmont Municipal Power
Janelle McCain, Progress Energy
Tennessee
Charlie Sorrells, Eastman Chemical
Ellen Tewes, Office of Legal Services
Texas
Mike Cooper, Alcoa
Randy Eminger, The Center for Energy & Economic Development
Mark Shilling, Southern States Energy Board
Crayton Webb, Mary Kay, Inc.
Virginia
Senator Emmett Hanger
Delegate Harry J. Parrish
Senator John Watkins
Edward Rissing, Rissing Strategic, LLC
West Virginia
Senator Shirley Love
Senate President Pro Tem William R. Sharpe, Jr.
Jerry Bird, Public Service Commission
Steve Hannah, Department of Agriculture
