Beyond the direct capital investment in crude oil, gas liquids and natural gas infrastructure that has increased during the past four years by more than $30 billion, Tony Clark of the Federal Energy Regulatory Commission (FERC) believes there are still choices that must be made if the U.S. is going to become energy secure and independent.

“It’s not a fait accompli. We can choose to do things that will make America more energy independent, or we can choose to do things that will make it less so. But it’s a choice either way,” Clark told an audience of oil and gas industry professionals at Hart Energy’s recent DUG East Conference in Pittsburgh.

What makes these choices necessary, the commissioner said, is the flood of natural gas flowing in the U.S. and the reversal of a long-held assumption that the country would be an importer rather than an exporter of natural gas.

To make his point, the commissioner discussed both the 11 existing LNG import terminals in the U.S. and 13 proposed export terminals, including the one under construction—Cheniere Energy’s Sabine Pass plant in Cameron Parish, La.—and the potential for another 13.

Scratched out

“All those applications that reside at FERC that used to say import terminals, a pen has scratched over that, and they all say export terminals now,” he said.

“But,” Clark continued, “if this gas is going to be exported or even if it’s going to be used here in the U.S., one of the things we have to know is we have to be able to get that gas to the market.” The commissioner added that the first of two choices that must be made to ensure energy independence is whether to maintain the status quo, particularly as it relates to the regulation of LNG and infrastructure.

“In this case, the comprehensive regulation of E&P at the state and local level has worked. It’s brought us to the brink of energy security, and tens of thousands of wells have been drilled safely,” he said. “If there’s anything remarkable about it, it’s actually the lack of the number of problems we’ve had, given this vast expansion that we’ve seen.”

At the federal level, Clark gave credit to his own agency: “FERC’s comprehensive siting authority over interstate natural gas facilities and physical markets has worked quite well since restructuring of this industry about 30 years ago.”

The commissioner is midway through his first five-year term following an appointment by President Barack Obama. He also addressed the political and oppositional challenges to the status quo of developing natural gas resources.

“It should caution us against drastic and dramatic federal regulations or wrongheaded interpretations of existing statutes such as NEPA [National Environmental Policy Act] regulations or trying to use the permitting process to delay and stall projects that are absolutely in the public interest and that are perfectly safe and need to be built,” he said.

And with that, Clark honed in on another choice: infrastructure development, in general, and more specifically—and importantly, in his estimation—an increase in pipeline construction.

Moving the flow

“For liquid fuels, in some of these large growing plays, rail options have been a good alternative, perhaps in the short-term, medium-, maybe even a longer-term solution in some specific market situations. But it’s hard to believe that there aren’t going to be a lot of new pipelines built to deal with the inflow,” he said.

As proof of the need, he cited a comparison of gas prices on the coldest days of the past winter in parts of the country considered resource rich with adequate pipeline capacity at $5 to $10 per thousand cubic feet (Mcf) vs. those regions that were more pipeline constrained, including East Coast markets such as New England, which saw prices of $20 per Mcf or more.

“All of this, in my mind, makes it imperative that we continue to support policies that support the responsible development of the safest, most efficient ways of bringing energy to the marketplace, and that means pipelines,” Clark said.

According to the commissioner, pipeline projects that are either in service or in some stage of FERC processing or permitting total about 3,500 miles of pipe, delivering about 31 billion cubic feet per day (Bcf/d) with a total investment of over $18 billion.

He also noted that the Marcellus and Utica shale plays have more than 25 projects already in service or nearly in service, totaling more than 7.2 Bcf/d capacity with 559 miles of associated pipe.

A question for regulators

Clark, a veteran regulator who was previously chairman of North Dakota’s Public Service Commission as well as the state’s labor commissioner, did not stop at simply giving advice to the oil and gas industry. He also put a question to regulators: What are some of the best lessons that we can take away in this industry to help some of these pipeline projects get developed?

The commissioner offered several answers and started by saying that regulators must make sure agencies, such as FERC, are prepared by having an adequate staff and workload to process applications in a timely manner, including the ability to contract with outside entities, if necessary.

“Streamline siting processes where it makes sense,” Clark added. “In North Dakota, we had the opportunity to change a little bit of our laws so that projects that were needed but didn’t impact the public interest were able to move through on a more streamlined and expedited process.”

Clark also advised against regulators cutting corners while at the same time not permitting any unnecessary red tape to block projects.

And along the same lines, agencies, he said, also should avoid acting in haste and circumventing due process, which can mean years of delays on the back end of a project.

Court challenges

“What we’re finding,” he went on to explain, “is that all these infrastructure projects now, however needed or not, are being challenged in the courts—almost each one. So, when we release an application, deem it to be in the public interest and site it, we want that to be ironclad. We want to make sure the courts are going to uphold that,” he said.

Lastly, he added, “From a developer’s standpoint, I’d simply urge those who develop these projects to do it in the right way. It’s pretty basic stuff, but hiring people who know the local landowners and ensuring you have land agents who do a good job when they meet with public landowners. They’re the face of your company.”

Clark ended his presentation by reminding the oil and gas conference attendees that the U.S., with its vast wealth of natural resources, is the envy of the world.

“And that’s a good reminder for us all to understand,” he concluded. “It’s a blessing, but it’s also a reminder that we have to take seriously and handle and develop these resources in the right way. Our nation’s been given a gift, and it’s up to us to make sure that we develop it and use it wisely.”

Veronica Bucio can be reached at vbucio@hartenergy.com or 713-260-4615.

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