Thursday, February 12, 2009

Natural Gas Vehicle Incentives Advocated to Congress

By ELIZABETH SOUDER / The Dallas Morning News

HOUSTON -- Chesapeake Energy Corp. chief executive Aubrey McClendon wants Americans to use more of his product, natural gas.

McClendon is pushing federal lawmakers to offer incentives for natural gas vehicles and to regulate carbon dioxide emissions. Most experts say natural gas, which emits less carbon dioxide than coal, could gain market share if Congress limits greenhouse gas emissions.

“I guess my real dream here is that we begin to transition our transport network away from products that are based on oil and replace that with a fuel that’s made in America,” McClendon said after a speech to the Cambridge Energy Research Associates conference on Wednesday.

He’s pitching natural gas as plentiful, thanks to drilling in four shale fields in the U.S., including the Barnett Shale. Chesapeake is the No. 2 producer of the Barnett Shale field in North Texas.

Those shale fields have boosted production beyond demand in the past year, contributing to a sharp decline in natural gas prices. McClendon said the shale fields are so rich and relatively cheap to produce, they could begin to crowd out production in older, conventional natural gas fields.

If natural gas prices are around $5 per million British thermal units, shale production can be profitable, he said. But prices need to be range of $8 to $9 per million Btu to keep total U.S. production steady, he added.

For now, he said, the industry must cut production to boost prices to a profitable level. He said the decline in the number of working rigs in the U.S. should do it.

“I think we’ll transition into 2010 with a lot peppier gas price than we have today,” McClendon said.

He’s also positioning his product as clean.

“We want to reposition natural gas as the best-known alternative fuel in the United States,” he said, adding: “Not as an alternative to fossil fuels. It will always be hard to get beyond the molecular origin of our fuel.”

So far, McClendon said, President Barack Obama's administration is listening. But the government hasn’t passed new laws to benefit natural gas.

One problem with using more natural gas is that prices are volatile. Texas wholesale power prices follow natural gas prices, and both have put consumers on a roller coaster the past few years.

Most energy executives say price volatility is a killer for both consumers and the industry. No one can predict what their costs or profit will be when prices go up and down.

McClendon, ever the maverick, said he likes volatility. His company has the expertise to protect itself with complicated financial trades, called hedges, giving him an advantage over other natural gas producers.

“It’s a way for us to make additional money,” he said.

Further, he said, natural gas isn’t to blame for high electricity prices in Texas. The problem is the way the Legislature set up the market, he said.

The least efficient power plant operating at any given time sets the electricity price for the entire Texas spot market. That plant is almost always a natural gas plant, so his fuel gets blamed for the problem, McClendon said. New, efficient natural gas plants can generate power as cheaply as some coal plants, he said.

"To price the whole stack of electricity by the least efficient generator is a crazy way to do it," he said.

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