Little Optimism for Energy Bill to Clear Congress This Year

Given the poor track record for energy legislation, a top energy analyst in Washington, DC, has serious doubts that Congress will be able to push through a comprehensive bill this year. Christine Tezak of the Sanford Washington Research Group said she also has little hope that an upcoming Senate conference on natural gas supply and demand will produce tangible results.

"After watching energy legislation fail in very late stages for the second time in two congressional sessions, we're not yet optimistic that it will get done, even with the wider Republican margin in the Senate and the Bush administration's perceived mandate," she said in a "Winter Outlook" research report released Thursday.

"The failure of energy legislation to date is cited by politicians in both parties as largely the result of the Bush administration's unwillingness to really push for the bill when it counts," she said. Key indicators to watch for in the upcoming year: will the new energy secretary make much of a difference with respect to the energy bill; and will the White House be more involved, Tezak noted.

"After the Senate failed to pass the conference report on the energy bill (HR 6) in December 2003, many hoped that high heating prices would help push the Senate into sending the bill to the president in early 2004. That never happened... Gas prices are expected to be up another 4% this winter, but if another mild-ish winter ensues, there may be little grassroots push to move complicated and possibly 'expensive' comprehensive energy legislation."

In an attempt to jump-start interest, the Senate Energy and Natural Resources Committee plans to hold a half-day conference on Jan. 24 on natural gas issues, with 32 participants offering proposed solutions to problems in the industry. "We expect little new to emerge from these efforts. Consensus still is strong that there is little ability at the federal level to arrest the perceived slowdown or flatness in natural gas production over the short term," Tezak said.

Key issues to be addressed at the conference will be land access and the opening of the coastal plain of the Arctic National Wildlife Refuge (ANWR) to oil and gas drilling. "We think that industry seems more excited about seeing the Alaska Natural Gas Pipeline become reality than the opening of ANWR to oil and natural gas drilling, and we would not be surprised to see ANWR excluded (again) from an energy bill and ultimately fail to pass as part of a budget," she noted.

Tezak expects land access for producers to continue to be restricted. "When it comes to land access, advances in drilling techniques and geologic evaluation have done little to persuade environmentalists to soften their opposition to drilling in the Lower 48 states. We continue to think that new leases will be problematic, even if they are awarded; we expect no new leases to be offered off the Atlantic or Pacific coasts."

She views the "political, legislative and regulatory landscape for [liquefied natural gas] projects as positive," although local and state opposition have created problems for some projects. "We expect LNG projects in the Gulf region, such as those developed or in development by Sempra, Cheniere Energy and majors like ExxonMobil and Royal Dutch's Shell Oil to have the best chances of commercial success in the near term.." In addition, "we think that expansions at existing facilities planned by current operators Dominion, El Paso and Southern Union have good prospects for success given existing infrastructure, and more importantly, a resolved site," Tezak said.

On the gas pipeline front, a key issue in 2005 will be gas quality and interchangeability standards. These standards are important to both pipelines and distribution line owners, "as variations in the [quality of] natural gas moved on the system can give rise to additional operations and maintenance expenses not anticipated in existing tariffs," she noted.

"Pipelines advocate standard setting to force producers into providing consistent product into pipelines, or pipelines want the ability to charge differential rates to those who transport gas that creates operational issues. Local distribution customers support standards, too, both to protect system integrity and safely meet the needs of their customers. Industrial users and electric generators have concerns about getting gas that isn't quite what they need for their processes, giving rise to incremental costs on their end."

The competitive tension between gas shippers and pipeline owners "also took an interesting turn in the second half of 2004, without resolution thus far," Tezak said. The Court of Appeals for the District of Columbia Circuit vacated a FERC ruling that allowed an oil pipeline subsidiary of Kinder Morgan Inc. to obtain recovery for taxes in regulated rates that aren't actually paid. In December, FERC began an inquiry into whether this issue should be should be limited to just oil pipelines or extended to all energy market participants that it regulates (oil, natural gas and electricity).

"This quickly got the attention of natural gas suppliers, who have been trying to get the FERC to look at what they see as 'over-earning' situations in the pipeline industry...We think it is unlikely that the FERC will call in all energy industry participants that use partnership structures to account for their tax recoveries, and expect that complaints would have to be filed at the Commission against individual market participants," she noted.

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