The nation’s capital is awash in political uncertainty. But some fundamentals are occurring that will determine the direction of U.S. energy policy. Among those: new environmental regulations and the abundance of shale gas.

The energy sector is quietly divided. Those utilities that depend on coal to meet their daily demands say that they are unable to keep pace with pending environmental regulations. However, those power companies that are building natural gas plants say that the convergence of new rules along with ample shale deposits will give the country clean energy supplies for 100 years.

“We will meet the Environmental Protection Agency rules but we will need a little more time,” says David Owens, executive vice president of business operations at the Edison Electric Institute. Owens, who spoke before the Indiana Energy Association, says that the emergence of shale gas is a game-changer but he cautions that an over-reliance on it could have adverse consequences.

The EPA has a number of proposals that are intended to cut down on the levels of sulfur dioxide, nitrogen oxide, mercury and carbon. The regulations are aimed squarely at the those coal plants that are more than 40 years old and which must either be closed or fixed up, all in the next few years.

The Federal Energy Regulatory Commission has said that as much as 81 giga-watts of coal-fired power, or 8 percent of the generation capacity, would be closed. EPA says that the benefits of such retirements would outweigh the costs by a factor of 10 to 1 while some in industry say that consumers would be harmed.

The Edison Electric Institute, which represents investor-owned power and gas utilities, has a split allegiance. The American Gas Association does not. It says that natural gas is abundant and cheap: More than 2,000 trillion cubic feet of recoverable reserves are available at $4 to $6 per million Btus. Of that, 700 trillion cubic feet is shale gas.

Despite the pending EPA rules, “This nation can retire a significant amount of older, fossil-based generation,” says FERC Commissioner Philip Moeller, in testimony before Congress. “However, such retirements need to be handled in an orderly way to avoid regulatory, economic and reliability chaos.”

Industry Enlightenment

Shale gas may appear to be the goose that laid the golden egg. But a number of issues may hamper those aspirations. Clearly, hydraulic fracturing along with pipeline safety are the two most prevalent while trying to predict the future energy and economic landscapes are also problematic.

Five years ago, the U.S. Energy Information Administration did not even recognize  shale gas as a potential fuel source. Now, it says that natural gas could supply 82 percent of all power generation with shale gas making up a third of that.

The goal is to consider past and potential trends and to make the appropriate evaluations. The factors are always changing, says Karl Stanley, vice president of commercial operations for NIPSCO, before the Indiana Energy Association. That includes everything from drilling technologies to weather conditions to political climates -- things that have previously forced natural gas prices to skyrocket.

Shale gas, he says, will emanate from almost every region of the country. Because of that, the factors that have, previously, affected pricing should be offset. “The market must be very comfortable with where it sees future pricing,” says Stanley. “Even the displacement of coal is not seen to create price volatility.”

Shale gas developers are equipped to handle some economic trouble spots. But they must still do more to avert the political headwinds. The good news is that the natural gas sector and U.S. lawmakers are seriously discussing the issues.

The success of natural gas depends on the growth of the pipeline infrastructure. But with such progress comes  risks, namely pipeline leaks and explosions. Just recently, in a hostile environment, the U.S. Senate passed a pipeline safety bill by unanimous consent. The U.S. House is expected to pass its own legislation and a single, reconciled measure could get signed into law by year end.

Meantime, the American Gas Association that represents gas distributors is calling on producers to voluntarily disclose the fluids they use to drill for shale gas. Such “fracking” has come under increasing attacks from environmental and civic organizations that are concerned about safe drinking water supplies.

“Industry has come around,” says David McCurdy, chief executive of the gas association, before the Indiana Energy Association. Chesapeake Energy, for example, says that the  disclosure of fracking chemicals is the only way to move forward.

The coal sector wants to buck or delay the pending environmental rules. But if those proposals are finalized, the natural gas industry would, generally, benefit. As such, shale gas developers are now trying to enjoin communities to resolve the most controversial issues affecting their growth -- efforts that should result in concessions and compromises to allow the industry to accomplish its goals.

EnergyBiz Insider has been been nominated in 2010 and 2011 for Best Online Column by Media Industry News, MIN. Ken Silverstein has also been named one of the Top Economics Journalists by Wall Street Economists.

Follow Ken on  www.twitter.com/ken_silverstein

energybizinsider@energycentral.com

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