Monthly Archives: January 2009

Melanie Lyons Tom Skains at the New York Society of Security Analysts

Posted on January 30, 2009 by Melanie Lyons | Comments Off


Earlier this week, AGA’s chairman Tom Skains spoke before the New York Society of Security Analysts. He told the packed room that in today’s current financial and economic crisis, natural gas can help revitalize the economy, fight global climate change and enhance America’s energy security. You can download Tom’s presentation and remarks here.

AGA executives also told attendees about our organizations top issues for 2009:  supply, dividend tax, LIHEAP funding and the environment.  An Associated Press reporter who was in attendance captured the event nicely.

090130nyssaenergydemand Tom Skains at the New York Society of Security Analysts

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Andrew Soto Speculation in the natural gas market

Posted on January 29, 2009 by Andrew Soto | 2 Comments


Energy market speculation remains an area of concern. On January 22, I participated in a teleseminar sponsored by the National Regulatory Research Institute discussing speculation in commodity markets, and whether speculation was a cause of the significant price increases in the natural gas market experienced last spring and summer.   The main feature of the seminar was a paper written by Ken Costello entitled, “Speculation in the Natural Gas Market:  What It Is and What It Isn’t; When It’s Good and When It’s Bad.” All in all, the paper did a very good job of describing a complex issue, and properly focused on the potential for investment capital to flow into commodity markets in ways that adversely impact consumers, businesses and financial markets.

In general, commodity consumers should be protected from harmful price movements that may be caused when investment capital flows into commodity markets in ways that produce prices untethered to supply and demand fundamentals.  However, efforts to prevent those kinds of capital flows should not result in “good” speculators exiting the financial markets in ways that impair the efficient functioning of the financial markets. Follows is an overview of my remarks.

nrrccover Speculation in the natural gas marketNatural gas consumers have, on balance, benefited and continue to benefit from competitive wholesale natural gas markets.   Gas utilities purchasing on behalf of natural gas consumers have an interest in making sure that both physical and financial markets for natural gas are efficient and deliver the benefits of competition to natural gas consumers.  Physical wholesale natural gas markets should be workably competitive and produce accurate price signals that reflect not only the momentary balancing of supply and demand but also long term investments costs for the production, transportation and storage infrastructure needed to bring gas supplies to market.   Financial markets should allow gas utilities to hedge their gas procurement costs to reduce the impact of price volatility on customers.  Both physical and financial markets should be sufficiently liquid with geographically diverse counterparties, transparent as to price formation and risk allocation, and free from manipulation and the sustained exercise of market power.

When capital flows into commodity financial markets in sufficient quantities that result in prices that are untethered to the underlying fundamental supply-demand balance or long-term infrastructure costs (whether it’s speculative bubbles or herd mentality), markets eventually correct such flows.  However, these events can adversely affect consumers, businesses and financial markets.   The concern is not so much that investors should be protected from the adverse impacts of the bursting of a bubble they helped to create.  Rather, the concern is that commodity consumers should be protected from significant and harmful price movements that may be caused when capital flows in ways that do not reflect the momentary balancing of supply and demand or the long-term infrastructure costs needed to bring supplies to market.

That said, the prescription for protecting commodity consumers should not itself have an adverse impact on the efficient operation of physical or financial markets.  We have all seen well-intentioned legislative and regulatory initiatives to correct certain market flaws succumb to the law of unintended consequences in ways that adversely impact consumers.  With regard to speculation, efforts to prevent the kinds of capital flows that generate harmful price movements should not result in so many “good” speculators exiting the financial markets that the remaining potential counterparties are able to exercise market power or that the cost of hedging becomes unreasonable thus raising prices to consumers or exposing consumers to greater price volatility.

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Paula Gant A renewable fossil fuel? Naturally.

Posted on January 28, 2009 by Paula Gant | 3 Comments


Last week, Senator Ben Nelson, D-Nebraska, introduced a bill that would extend renewable fuel tax credits to cover the production of biogas, or renewable natural gas.  AGA President David Parker released a letter  commending the senator and the bill’s co-sponsors for their action to help increase cost-effective production of a renewable fuel.  But some may wonder – what exactly is “renewable” natural gas?  How can a fossil fuel be renewable?

Here’s the scoop.  Natural gas is comprised primarily of methane, which can be produced through two different natural processes.  Traditional natural gas comes from methane that forms underground by geologic pressure over millions of years – this is the process that makes it a conventional fossil fuel.  Renewable natural gas, on the other hand, is comprised of methane that is being produced and released continuously from the decomposition of organic materials found in places like swamps, manure bins, and landfills.  Once purified and upgraded, both sources of methane can be used as the same fuel we know and rely upon to heat water, cook food, and warm our homes and businesses.

So what’s so great about renewable natural gas?  Plenty. Let’s consider the following points.

cow manure biogas011 A renewable fossil fuel? Naturally.
A vat of liquid cow manure at the Vintage Dairy Biogas Project. The gas produced is injected into PG&E’s pipeline, where it will be shipped to a power plant in Northern California.

It’s abundant. A 1998 U.S. Department of Energy study estimated that, worldwide, between 25 and 37 quadrillion Btu of methane (between 25 and 37% of annual energy usage in the U.S.)  is released each year into the atmosphere due to natural decomposition of organic material.  The study predicts that 6% of all natural gas used in the U.S. could be displaced by encouraging production of naturally occurring renewable natural gas.

It’s clean. When burned for energy, biogas has the same low-carbon properties as natural gas, but with an added unique benefit.  When captured for conversion into renewable natural gas, methane that would otherwise have entered directly into the atmosphere ultimately is combusted resulting in the release of a much less-harmful greenhouse gas.  In other words, the heat-trapping (or greenhouse) effect resulting from burned methane is less potent than that resulting from directly-released methane, so capturing these gases for biogas production is a positive step towards global warming mitigation.

It’s versatile. Once biogas is purified to pipeline quality standards, it can be used in place of traditional natural gas.  Whereas other renewable fuels, such as ethanol, can require the construction of new infrastructure in order to bring them to our everyday lives, biogas can be distributed and used wherever natural gas is used.

Thanks to relentless technological progress, doors are opened daily to new sources of fuel for our energy-intensive lifestyles.  What is it that makes an energy source renewable?  In the case of renewable natural gas, it can be sustainably produced as a product of our waste-producing (landfills, agricultural processes and animal farms) lifestyle.  Now that’s efficient.

As with other “renewable” energy sources, renewable natural gas is not yet ready to displace large amounts of fossil fuels, but it does have serious potential as a alternative fuel source.  And you thought natural gas was just a boring fossil fuel option.

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Bruce Kauffmann Energy independence or…energy interdependence

Posted on January 27, 2009 by Bruce Kauffmann | 2 Comments


In 1980 when President Ronald Reagan assumed the presidency in great part because of America’s domestic economic woes, America depended on international suppliers for 40 percent of its petroleum products.  Last year that percentage was more than 65 percent, and although there are a number of other factors that have contributed to our current economic problems, the high price of energy certainly has not helped.

Small wonder that the just-launched White House blog recently spoke of President Obama signing “two Presidential Memoranda aimed at getting us on the path to energy independence.”

Granted, anything that can reduce our over dependence on foreign energy imports is a good thing and in his two memoranda President Obama directed the Department of Transportation to establish higher fuel efficiency standards for vehicles – known as Corporate Average Fuel Economy (CAFE)- while paving the way for California and more than a dozen other states to raise emissions standards above and beyond the national standard.

yergincoverweb Energy independence or…energy interdependenceBut to play Devil’s Advocate for a moment, which is the more important goal – energy independence or energy security? I would argue that Daniel Yergin, the Pulitzer Prize winning author of The Prize: The Epic Quest for Oil, Money and Power, is right when he says energy security is more important – and certainly more achievable – than energy independence, and  achieving energy security will actually necessitate more energy interdependence.  According to Yergin, the key is diversity, not only diversity of energy sources, including renewables and the expanding global liquefied natural gas market, but also diversity of energy suppliers.  The more buyers and sellers there are, freely trading as many different forms of energy as currently exist, the less likelihood of supply disruptions and the more likelihood of a moderating effect on both price and volatility.

Of course, using less energy is also a critical goal, and the more that government at all levels can facilitate energy conservation and efficiency, the better – not only for our economy, but also for our environment.  But the larger point remains.  Our political leaders have been talking about “energy independence” since the Nixon Administration in the late 1960s and almost 50 years later we are more dependent than ever.   I doubt very much we can ever achieve energy independence.  But if we strengthen our ties to the global community of energy suppliers and buyers, I believe we can achieve energy security.

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