Senate climate bill boosts natural gas outlook

WASHINGTON Tue Nov 3, 2009 3:46pm EST

The U.S. Capitol is seen through the pillars of the Supreme Court building in Washington August 6, 2009. REUTERS/Richard Clement

The U.S. Capitol is seen through the pillars of the Supreme Court building in Washington August 6, 2009.

Credit: Reuters/Richard Clement

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WASHINGTON (Reuters) - The natural gas industry looks to be a big winner in U.S. Senate legislation to tackle climate change on expectations it would lead to more gas demand and a new wave of gas-fired power plants.

After getting few breaks in the House of Representatives climate bill earlier this year, the industry stepped up lobbying as the Senate wrote its version.

The industry won the support of lawmakers as it trumpeted gas as abundant, cleaner than coal and more reliable than wind and solar as a constant energy source to cut greenhouse gases.

The Senate bill would require the Environmental Protection Agency to help subsidize coal-fired power plants switching to fuels that emit much fewer greenhouse gas emissions.

The United States, which was recently overtaken by China as the top greenhouse gas emitter, will meet in Copenhagen in December with world leaders from 190 nations to try to hammer out an agreement to replace the 1997 Kyoto protocol on fighting climate change.

However, hopes of a binding global agreement are fading with the Senate bill still stuck in committee and Congress not expected to finalize legislation until next year.

In the Senate measure, the replacement fuel would have to result in at least 25 percent fewer emissions from 2007 levels through 2020. The reductions would rise to 40 percent and then 65 percent during the subsequent 10 years.

The bill does not mandate a specific fuel, but as the legislation is written, the energy source that would be able to meet the emission-reduction targets and also be the easiest for coal-fired power plants to switch to, especially in the early years, would be natural gas, analysts say.

"Clearly it was directed at natural gas, and natural gas would be the principal beneficiary of these subsidies," said Mary Anne Sullivan, an attorney specializing in climate change and energy at the Washington law firm of Hogan and Hartson.

The gas industry has acknowledged it was asleep at the switch as the House crafted its legislation to tackle global warming. There were incentives to help coal and renewable energy companies prepare for a clean energy economy but precious little for gas.

Sullivan said the Senate bill does not actually provide money for the EPA program, which would have to be approved by lawmakers under separate legislation.

Nonetheless, the industry could still claim a big win.

"That is a very important step forward, because it provides an economic incentive to switch from coal to gas," said Dan Weiss, energy analyst at the Center for American Progress.

If the funding comes through, it could result in about 140 new 500-megawatt power plants running on gas, said William Durbin with the Wood Mackenzie energy consulting firm.

"It will add about 5 to 6 billion cubic feet per day of natural gas demand. That's a big number," he said. The Energy Department forecasts U.S. gas demand will average about 62 billion cubic feet a day next year.

KING COAL

Still, the industry has a tough sell as coal accounts for half of U.S. power generation.

"Electric generators have shown a preference for coal," said Roger Cooper, executive vice president of the American Gas Association.

Coal has generally been cheaper than natural gas to run power plants. Any financial incentive to use natural gas in the climate change bill could cause power generators to switch to gas.

The industry argues natural gas is more reliable than solar and wind for electricity generation as these sources can be slowed by weather-related factors, such as cloudy skies or when there is little breeze.

Supporters also point to rising supplies of natural gas in the United States, which has increased its natural gas reserves by 40 percent over the last few years from gas trapped in shale rock thanks to advanced drilling techniques.

The industry also argues gas is a good fuel for national security. While America must import about 65 percent of its oil supply, nearly 90 percent of its gas is drilled domestically.

While environmental groups see natural gas as a better alternative to coal, they prefer using more renewables for future electricity generation. Green groups also oppose the gas industry efforts to expand offshore drilling.

"We do believe natural gas will be the winner in any reasonable carbon-constrained legislation," said Cooper of the American Gas Association.

(Editing by Jeffrey Jones and Lisa Shumaker)

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