Hearings - Testimony
 
Subcommittee on Clean Air, Climate Change, and Nuclear Safety
Impact of Clean Air Regulations on Natural Gas Prices
Thursday, February 9, 2006
 
Jack N. Gerard
President and Chief Executive Officer, American Chemistry Council

Good Morning. My name is Jack Gerard. I am President and CEO of the American Chemistry Council. Thank you for the opportunity to testify on behalf of the 900,000 men and women who work for the US chemical industry, an industry that is essential to America’s economic and national security.

 

I would like to focus my comments today on the consequences of the high cost of natural gas on the chemical industry and, by extension, on the entire manufacturing economy.

Chemistry consumes more than 10 percent of the nation’s natural gas. We use it to run our plants and as the key ingredient in the products we make. And since our products are found in 96 percent of all manufactured goods, it’s safe to say that natural gas is a key ingredient to the nation’s manufacturing economy.

Last year, the nation’s natural gas bill topped $200 billion for the first time in history. In 1999, the last time natural gas prices traded in its historic price band, the national gas bill was just over $50 billion. Higher natural gas costs, according to the National Association of Manufacturers, are a major reason why the nation has lost 2.9 million manufacturing jobs since 2000.

My industry’s share of the gas bill topped $30 billion last year, up from $7.5 billion in 1999. In a few short years, the US has gone from having the lowest cost natural gas in the industrialized world to the highest cost market. The impact has been staggering.

In a few short years, the US chemical industry has lost more than $50 billion in business to overseas operations and more than 100,000 good-paying jobs in our industry have disappeared. Put another way, the chemical industry went from posting the highest trade surplus in the nation’s history in the late 1990s to becoming a net importer by 2002. Other industries include forest and paper, agriculture, aluminum and steel, carpets, bedding and furniture, have a similar story to tell.

How did it happen? When you look at the data, the answer to us is clear. Too little supply being chased by rapidly increasing demand. For example, since the 1990s, there has been a 35 percent spike in natural gas consumption by the utility sector. That is 1.5 trillion cubic feet of new demand.

In that same period of time, domestic natural gas production remained flat. Prices spiked at the end of 2000 and have been on an upward trajectory ever since. In recent years, supply and demand have been balanced largely through industrial demand destruction. Simply put, when natural gas prices climb too high many industrial facilities simply cut back or shut down.

In the 1990’s natural gas became the fuel of choice in the power sector for several reasons: low prices, lower capital costs, and burning natural gas helped bring utilities into compliance with new Clean Air Act requirements. At the time, it made a lot of sense for utilities to invest in gas-fired power generation.

What nobody seemed to know at the time was that existing sources of supply were unable to meet new sources of demand. When a supply response was needed, it didn’t come.

To us, the real failure in government policy was that it did not open up new sources of natural gas supply to meet demand growth. Government stood by while short supplies of natural gas led to a price bidding war that drove more than 10 percent of industrial demand out of the market.

For too many years, US policy has been trying to have it both ways. It can’t continue. It is failing millions of Americans whose livelihoods depend on reliable supplies of natural gas at affordable prices.

The high price of natural gas is driving the global chemical industry out of the US. For example, today there are more than 120 world-scale chemical plants -- plants costing more than $1 billion -- under development around the world. Only one is being built in the United States. Business Week calls it the “hollowing out of the nation’s industrial core.” By contrast, fifty of those new plants are being built in China.

It is in the nation’s interest to urgently bring new sources of natural gas supply in order to bring price relief to the market and to stop the erosion of the manufacturing economy. That will mean changes to 25 years of policies that have locked up more than 85 percent of the Outer Continental Shelf to deep water energy development. The resource potential is enormous.

That is why it is so frustrating to see proposals in Congress that would extend the off-limits signs in the OCS out to 150 to 250 miles off Florida’s coast even as Cuba is hiring Chinese energy interests to explore for energy in waters that are barely 50 miles from Florida.

It is time for a change. It is time to strive for balance and reason. Here are three things Congress can do:

First, curb demand. Congress should continue to encourage all natural gas users to become more efficient. Last year’s energy bill has many good efficiency and conservation measures. Those measures should be fully funded and implemented.

Next, diversify fuel sources. In the 1990’s natural gas fired power generation emerged as the technology of choice. Today, there are other good choices, including advanced coal, nuclear and renewables technologies. They should become the backbone of the power sector.

Finally, increase supply. We can no longer escape the fact that our nation’s currently available supply of natural gas can no longer meet the nation’s growing needs. We must increase access to new sources of supply that are currently off limits to use.

In conclusion, the issue is restoring balance to the US natural gas policy in a way that helps manufacturers compete in global markets, permits utilities to branch into leading edge technologies, and ensures a reliable and affordable supply of natural gas for America’s homes and businesses.

I’d be happy to answer your questions.

 

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