As the old adage goes, “don’t put all your eggs in one basket.” You don’t need to have been in the energy industry long to see examples of the dangers of relying on a single fuel source to meet essential needs. The more you rely on one source for a particular fuel, the more vulnerable you become to price changes in that fuel source. Having a diverse supply portfolio helps protect consumers from the adverse impacts of price volatility by limiting the impact of significant price changes that may occur in any one source.
Supply diversity is important both within and across fuels. I often hear people advocate that we should generate electricity with: ___ (pick your source – wind, solar, fuel cells, nuclear, natural gas, etc.). But in my view, we need a diverse electric generation fleet that draws from ALL sources of supply in order to mitigate the impacts of price volatility in any one particular fuel source. I think a large part of our concerns about the price of oil and our dependence on foreign sources of it stems from the fact that nearly all of our transportation needs are met by a single fuel source. According to the Energy Information Administration’s 2008 Annual Energy Review, the transportation sector relies on petroleum products to supply 95 percent of its needs.
Even within a fuel type we need a diverse resource base. As my colleague, Chris McGill, has said, when it comes to natural gas, North America is blessed with resource abundance. And that abundance is diverse geographically and geologically. Whether on-shore or off-shore, conventional or non-conventional, we are fortunate that we have many sources of natural gas supply to meet our energy needs. And, that diversity has helped keep natural gas prices low for consumers. For example, in 2005 when hurricanes shuttered much of our off-shore natural gas production, prices rose dramatically in response to the supply constriction. In 2008, however, when off-shore supply was again taken off-line due to hurricanes, natural gas prices fell. What changed? On-shore production from new shale plays as well as increased LNG imports more than made up the supply shortfall. Indeed, according to Pan EurAsian Enterprices, Inc., increased LNG imports this winter helped stabilize natural gas prices in New England. See AGA’s Natural Gas Market Indicators (Feb. 26, 2010).
I believe that our ability to import natural gas via LNG import terminals is an important element of our diverse natural gas resource base that helps keep natural gas prices affordable for consumers. Several U.S. Senators have introduced legislation (S. 3056) that would remove from the Natural Gas Act provisions that make clear that the Federal Energy Regulatory Commission (FERC) has exclusive jurisdiction over the siting of LNG import terminals. The Natural Gas Council, of which AGA is a member, opposes this legislation with good reason. The legislation, if passed, would create uncertainty in the siting process and may ultimately lead to fewer import facilities being sited or built. While some local interests might cheer at that result, in the long run we only hurt ourselves by chipping away at our natural gas supply diversity.
We should not put artificial limits on LNG imports. The market should decide where and how many of these facilities should be built, with FERC ensuring that each facility is sited and constructed in an environmentally responsible manner. For the benefit of all natural gas consumers, we should not remove one of the “baskets” that has contributed to our diverse natural gas resource base.