Remarks by
Robert W. Gee
Assistant Secretary for Fossil Energy
U.S. Department of Energy
at the
Interstate Oil and Gas Compact Commission
Spring Quarterly Meeting
Washington, D.C.
March 13, 2000

I welcome the opportunity to address you again today. I say again, because to me this is a momentous occasion.

It is the second time I have addressed you in my role as an Assistant Secretary. Nearly two years ago, you invited me to speak when I was the Department's Assistant Secretary for Policy and International Affairs.

On another front, it is special to be here on the 65^th anniversary year as an organization and I appreciate the chance to speak at your first meeting of the millennium. This group has been a good friend to DOE and continues to promote and advance the conservation of oil and gas in an environmentally responsible manner.

Like I said, DOE has many good friends in this organization and we appreciate your support. Speaking of friends, Christine, I did not mention you earlier because we go way back.

My remarks today focus on "Meeting the Challenges of the Nation's Growing Natural Gas Demand." As most of you in this room know, this is a topic that has been examined several times over the last 20 years and, as a government, we haven't been able to accurately predict energy consumption and use. Twenty-five years ago we thought we were running out of gas. But once the industry was deregulated, we discovered significant new quantities of gas. And now, gas makes up 97 percent of new power generation. And we expect to produce and use a lot more gas.

Not only do we expect to discover more gas, we at DOE expect a significant increase in gas consumption, particularly in the power generation sector. The demand for electricity will grow even faster than overall energy demand, as much as 37 percent between 1997 and 2020 according to our Energy Information Administration.

Energy experts agree the world has ample supplies of fossil fuels. And many nations will turn to gas because its lower levels of SO_x and NO_x content is considered an environmental plus. As improved technology hits the market, resources once considered impractical can become economical.

Again, according to EIA, fossil fuels - particularly natural gas - are projected to pick up the bulk of the growth in demand (from 67 percent to 82 percent) through the year 2020.

Some gas industry analysts predict the U.S. demand for natural gas to increase by another 30 percent - possibly approaching the 40 TCF mark in the next 15 or 20 years, especially if strong climate change strategies are implemented. At a minimum, we must prepare for at least a 30 TCF per year natural gas market by 2010. That means that annual domestic gas production needs to increase by about 400 billion cubic feet per year.

For instance, at its meeting on December 15, the National Petroleum Council issued a report to the Secretary stating that natural gas demand has the potential to increase to 29 trillion cubic feet (TCF) per year in 2010 and could increase beyond 41 TCF in 2015.

This growth is forecast notwithstanding that the use of other energy resources is also expected to grow in the next 20 years or so. Energy experts expect natural gas use to predominate. For example:

• We see the use of natural gas growing in every major consumption sector - residential, commercial, industrial, and power generation. But the largest demand growth - in fact, almost 50 percent of the increase - is projected to come in the electric power generation market.
• Ninety-six percent (96%) of the more than 200 new electric power generation projects recently announced in the United States plan to use natural gas.
• More than 110,000 megawatts of new gas-fired generation capacity are projected to go into service by 2010, and 140,000 megawatts between now and 2015.

As energy use trends emerge, we continue to modify and tailor our Fossil Energy budget priorities to reflect where we foresee energy consumption headed. Accordingly, in our FY 2001 budget request we are emphasizing research on natural gas use technology. Such R&D will play a significant role in determining whether natural gas continues to be an economical energy source as demand for it increases substantially.

The theme of our budget is "Strength Through Science." It is an investment in our energy future and the role it will play in the global economy. Our budget request is an opportunity to reach new heights in helping America to become more energy efficient and to focus on how we can manage our earth's limited resources.

The DOE Office of Fossil Energy is requesting an overall increase of 7.2 percent (or just over $28 million) in FY 2001 above what was appropriated in FY 2000.

In this regard, our Natural Gas Program shows a 22.6 percent increase over the last fiscal year. This is the largest line item increase in our entire Fossil Energy program, amounting to a nearly $39 million total outlay for research and development in this area.

This is important. Why? This outlay must be spent wisely because the Nation's investment in future gas technologies is declining. Within the next three years the Gas Research Institute will phase out its traditional regulatory-funded research program. DOE's gas R&D program will be the last remaining, nationally-funded research effort.

As public stewards responsible for fashioning energy policy, we do not take this lightly. The Secretary announced in December the creation of a new Center for Advanced Natural Gas Studies within the Energy Department, located in our Office of Fossil Energy. This came on the heels of his announcement in Morgantown, West Virginia, that the former DOE Federal Energy Technology Center would become the Nation's newest national laboratory, the National Energy Technology Laboratory (which is also part of the Fossil Office).

Sited at NETL, the Center will coordinate gas technology development and gas-related analyses for the Department, working with the gas industry to identify and implement critical areas of research from "the borehole to the burner tip."

Within our FY 2001 request, the largest requested dollar magnitude increase ($13.2 million) is found in what we call our "Gas Infrastructure," request which is part of our "Energy Reliability" initiative. (This compares to a $1 million FY 2000 appropriation.)

These program initiatives reflect what we believe to be one of our Nation's most significant challenges in meeting increased demand for natural gas - the financial investments that will be needed to find, develop and deliver the necessary gas supplies. According to the NPC Study, over $1.5 trillion will be required by the U.S. gas industry through 2015 - more than half of which is expected to be for capital investments.

Many of these expenditures will involve higher risk projects - large deepwater projects or pipelines to new frontiers - each of which can easily exceed $1 billion.

Specifically, the NPC study forecasts that:

• More than 38,000 miles of new transmission pipelines will need to be built.
• Another 263,000 miles of distribution lines will be needed to serve 14 million new customers.
• The number of wells drilled annually will have to double.
• New resources will have to be found, including a large portion on Federal lands.
• Additionally, much of the current 300,000-mile interstate pipeline network could need future upgrading to maintain a system throughput. This will be quite a challenge in itself, not counting the new lines and mains.

Our program priorities reflect these challenges. The budget request for FY 2001 will support the development of advanced materials and technologies needed for longer life, high-strength, non-corrosive pipelines. We are proposing the development of new obstacle detection systems that can speed the boring of tunnels for gas distribution pipes. In addition, we will promote advanced sensors capable of inspecting and sealing leaks from inside of pipelines.

By August, DOE will conduct two workshops with representatives from the gas industry on enhancing gas system reliability and publish a report on infrastructure technology needs in the emerging gas market.

As part of that effort, we will explore novel gas storage methods that can site future gas supplies closer to the consumer. It may be possible in the future, for example, to store gas in steel-lined caverns in places where conventional geologic storage would not be practical.

A large portion, $5.9 million, is going toward an international infrastructure effort recommended by the President's Committee of Advisors on Science and Technology. Specifically, Russian gas pipelines may leak as much as 20 percent of their throughput, releasing up to two trillion cubic feet of methane (natural gas) into the atmosphere annually. Innovations in portable and aerial remote gas sensing could offer a more affordable and effective approach to detect leakage. Some of this technology was developed for military use during Operation Desert Storm.

Looking to the longer range future of natural gas, we are continuing our work to determine the true potential of methane hydrates. These are naturally-occurring ice crystals that we've found on the ocean floor and beneath the Arctic tundra. There could be huge new supplies of natural gas in these formations - perhaps 5,000 times more than all of the gas in conventional reserves throughout the world. If we could only produce a small portion of it safely and economically, we could keep natural gas in our energy portfolio for literally decades to come.

The Japanese are interested in hydrates, and we could possibly coordinate our research efforts with them, perhaps in a test well being planned for Canada.

The Office of Fossil Energy is also conducting crosscutting budget research. We anticipate pumping $26 million into the Coal and Power Systems advanced gas turbines program. Several weeks ago, I joined the Secretary in Greenville, South Carolina for General Electric's unveiling of its new gas turbine for power plants. This is the most advanced and cleanest gas turbine in the world, one that can be sited in even the most environmentally constrained regions of the country. I'm pleased to say that it is the product of a joint DOE-industry development effort.

The turbine we saw in Greenville will be more economical to operate than any turbine manufactured to date, and that means lower electric bills for consumers. It will produce fewer greenhouse gases, and that will be good for addressing future climate change concerns.

When you realize that more than 80 percent of all the new electric power generation capacity to be added in this country over the next 10 years will be in the form of natural gas turbines, you get a better picture of why it is important to develop the cleanest, most economical turbine possible. Its benefits will ripple throughout our economy - and that means continued economic growth, more jobs, and a stronger economic base.

It also reinforces President Clinton's State of the Union address where he pointed out that new technology can keep powering our unprecedented economic expansion while, at the same time, continuing to improve our environment.

As you can see, the Department's Fossil Energy office has focused our program priorities towards the future, a future where natural gas remains one of the Nation's most valuable energy choices. It is a future, however, that requires continued advances in technologies to explore for and produce new supplies of gas. It is a future which requires more infrastructure to be built, one which requires innovative and efficient methods for consuming gas.

It is a future which will require more, not less, coordination both within government...and between government and industry. The National Petroleum Council made that point in their December report. They called for an interagency working group to be set up at the White House to focus specifically on the future of domestic natural gas production. We are working with the White House to set up that group. It will bring together agencies from across the government in a focused effort to ensure that we tap the full potential of our natural gas resource.

Winston Churchill said, "the price of greatness is responsibility." When it comes to our Nation's energy future, we take that responsibility very seriously. We owe it to ourselves, our heirs and to our country to prepare for the future -- to find, develop and deliver tomorrow's energy supplies. And increasingly, that means natural gas.

It is a big part of our energy legacy. It will be our mark on history.

Thank you.