Energy Law 5 – Natural Gas Fall 2014 September 30, 2014 Alan Palmiter Not for distribution- for study purposes only

Topic roadmap 1.Natural gas in the energy mix – Compared to other energy sources – History of natural gas 2.Natural gas production / transport – US natural gas production – Transport from extraction to consumption 3. Regulation of natural gas – Regulation of production – Regulation of transport – Natural gas markets 4.Future of natural gas – Unconventional extraction – fracking – Liquid natural gas exports

5 5 Energy Flow, 2011 (Quadrillion Btu) 1.Natural gas in the energy mix EIA, Annual Energy Review (2011)Annual Energy Review

Energy Sources  Uses

Source: EIA, MANUFACTURING ENERGY CONSUMPTION SURVEY (MECS)MANUFACTURING ENERGY CONSUMPTION SURVEY (MECS)

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1.True or false? Natural gas is the only energy input that has decreased in price during the period Which is false – a.Most natural gas is extracted on its own without and not in combination with crude oil. b.The predominant hydrocarbon in natural gas is propane. c.Natural gas is not sold in global marketplace. d.Most natural gas consumed in the United States is produced in the United States. 3.Which is false -- a.Natural gas is simply organic matter that was subject to millions of years worth of heat and pressure. b.The first use of natural gas as a fuel source was in cooking stoves. c.Originally, natural gas was considered a bi-product of oil production. d.When Edwin Drake struck oil in Pennsylvania, it was in conjunction with natural gas. 4. True or false? The process of hydraulic fracturing was invented in the 1940s? Pop Quiz Natural gas and the energy mix Answers: 1-T / 2-b / 3-b / 4-T

EIA: Natural gas production by stateNatural gas production by state Production by state 2. Natural gas production / transport

Source, BP Petroleum (2012)BP Petroleum (2012)

Source: Petroleum Geology, Shale Gas and Hydraulic FracturingShale Gas and Hydraulic Fracturing

Source: EIA, Analysis and Projections – Shale Oil Study (2013)Shale Oil Study

Source: EIA, Analysis and Projections – Shale Oil Study (2013)Shale Oil Study

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Oklahoma City

Source: EIA, About US Natural Gas PipelinesAbout US Natural Gas Pipelines

Natural gas Pros:  Abundant domestic energy source  Burns cleaner than coal or oil  Cheaper than other fossil fuels  Utilized in a variety of sectors across economy  Generates natural gas related jobs Cons:  Still fossil fuel (non- renewable)  May lead to over- dependence and be dis- incentive for innovation  Fugitive methane contributes to GHG  Safety considerations – highly explosive and potentially dangerous

Production Rule of capture (once again!) Split estates (once again!) Permitting & operations – oversight falls to states (unless federal lands) Federal environmental statutes Transport Rates and practices – FERC Safety and standards – DOT Intrastate – state level Markets Spot (Henry Hub) Futures Well head 3. Natural gas regulation

Missouri v. Kansas Gas Co. (US 1924) Natural Gas Act (1938) FERC Order 436 (1985) Natural gas- timeline Edwin Drake well in PA (1859) PUC of R.I. v. Attleboro Steam & Elec. Co. (US 1927) Pipeline improvement, expansion (1940s – 1950s) Fracking (2005) DOI Fracking Regs. (2013) Natural Gas Policy Act (1978) Pennsylvania v. West Virginia (US 1923) Bunson Burner – NG for lamps and stoves (~1900) FERC Order 636 (1992)

1.True or false? The Rule of Capture applies to fracking operations just like traditional gas extraction operations. 1.Which is false – a.FERC ensures the safe operation of interstate natural gas pipelines. b.The Department of Transportation plays a role in overseeing interstate pipeline transport. c.The horizontal portion of fracking operations can extend for miles away from the well head. d.States have primary jurisdiction over natural gas extraction, except if it is taking place on federal lands. 3.Which is false -- a.Drillers are required by law to disclose the chemicals used in fracking fluid. b.The Natural Gas Policy Act of 1978 sought to de-regulate prices for natural gas. c.Natural gas is regulated like a utility. d.FERC licenses and regulates onshore LNG terminals. 4. True or false? The EIA estimates that the cost of producing natural gas will decrease in coming years? Pop Quiz Natural gas – production, transport & regulation Answers: 1-T / 2-A / 3-A / 4-F

4. Future of natural gas

Source: EIA, Natural GasNatural Gas

Source: EIA, Today in Energy – Project sponsorsProject sponsors seeking Federal approval to export (April 24, 2012 )

Energy federalism Natural gasFederalState ProductionDOI licensing (fed, OCS) State property law State regulation Local fracking regs Gas transportation DOT (pipeline safety) FERC (pipeline rates/service) States (intrastate pipeline) LNG FERC CAA, CWA – regs + enforcement State (oversight) DistributionCAA, CWAState (oversight)

Class Hypo Many communities in the State of Serenity are considering whether to impose moratoria on fracking. The state legislature has not yet acted on the question, so that fracking remains subject to current mining rules and has actually begun in some locations. Please submit a comment to the City of Columbia reflecting your group’s position: Group 1: Abundant American Energy Association Group 2: Natural Gas Producers Association Group 3: Environmental NGO You may want to consider the status of fracking moratoria in New York state California Colorado Pennsylvania

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