US Gas Industry Hopes To Hone Stalled Energy Bill

WHEN it comes to energy legislation crawling through Congress, the natural gas industry is in a tantalizing position. The industry hopes the legislation will get moving again in time to be passed this year, but slow enough that some objectionable provisions can be removed.

Last week the Senate's version failed to come to a vote because President Bush and senators from Western states objected to a tax on all coal to pay for the health benefits of 84,000 retired union coal miners in Eastern states.

"Completely stalled" is how Denise Bode, president of the Independent Petroleum Association of America, assessed the Senate bill's status.

"It's kind of scary," adds Urban O'Brien, who deals with government issues for Apache Corporation, a Houston-based company that is the nation's fourth-largest independent oil and gas producer.

Mr. O'Brien and Ms. Bode note that once the coal-tax issue is resolved, the bill still must be reconciled with the House version in a conference committee. The impasse in the Senate leaves little time, in view of other Senate business, an August recess, and elections in the fall.

However, Michael Baly III, president of the American Gas Association, remains confident that Congress will pass an energy bill. "Too much hard work has gone into this," he says.

The bill would likely contain a number of provisions the gas industry likes.

Most important is partial relief from the alternative minimum tax, which discourages drilling.

This year the number of drilling rigs at work in the US hit 596, the lowest weekly average in 52 years. As a result, the nation will probably replace only 60 percent of the natural gas it consumes, says George Mitchell, chairman of Mitchell Energy and Development Corporation, a large independent gas producer in The Woodlands, Texas. "That's going to be very serious," he warns.

The energy bill is also expected to make it easier for natural gas transmission companies to build pipelines to serve new markets. Federal, state, and private vehicle fleets would be required to convert to alternative fuels, including natural gas. Individuals would be given a tax incentive to convert their vehicles to alternative fuels.

And the electric-power generation market would be opened wider to independent power producers, which are expected to favor natural gas as fuel. Electrical generation is the gas market with the largest potential for growth.

In 1978, coal interests helped to pass the Fuel Use Act, prohibiting construction of natural gas power plants and ordering the phase-out of existing ones by 1990. Although repealed in 1986, coal's share of the power generation market rose to 56 percent by 1990, while that of gas shrank to 9 percent.

The natural gas industry, however, expects to make a comeback in power production because gas-fired plants can be built faster and cheaper than nuclear or coal plants, cost less to operate, and emit fewer pollutants than coal plants.

On the down side for the industry, the energy bill, because of environmental concerns, could ban drilling off much of the US coast and buy back some exploration rights from oil companies. "I'm hopeful that some of that [language] will come out in conference," says Kenneth Lay, chairman of Houston-based Enron Corporation, the nation's largest natural gas transmission company.

The buyback might include a group of leases off the North Carolina coast that could hold 5 trillion cubic feet of natural gas. Mr. Mitchell, whose company has a real estate arm, owns an oceanfront development called Baldhead Island which lies directly onshore from the North Carolina leases. He dismisses the possibility of environmental damage to his property from the drilling.

"I think they ought to [drill]. We're going to need the gas because we don't have enough oil," he says.

Another measure that could make it into the energy bill is language intended to prevent gas-producing states from restricting production in order to drive up prices. The amendment came in response to Texas and Oklahoma, which recently revised the system by which allowable production limits are set.

O'Brien says the systems were revised to correct a situation in which a company that owned part of a gas field could take more than its share. He calls the previous systems "a license to steal," and insists the revision was meant to reallocate, not reduce, gas production.

"The last thing producers in this industry want is a monster price spike like in 1977," O'Brien says. That increase helped bring on disastrous governmental regulation. "We learned that lesson."

He adds that leaders of both parties in both houses of Congress have assured the gas industry that the amendment will be removed in conference.