Chesapeake CEO Offers Natural Gas As Answer To US Energy Woes
Dow Jones

WASHINGTON -(Dow Jones)- The chief executive of natural gas producer Chesapeake Energy Corp. (CHK) on Wednesday tried to broaden the market for natural gas by appealing to political concern over the U.S.'s energy crisis, telling Congress that the fuel can provide a solution to both high gasoline prices and climate change.

Hours after presiding over the release of a new report showing that the U.S. has enough natural gas supplies to meet more than 100 years of demand at current levels, Chesapeake Energy Chief Executive Aubrey McClendon told a U.S. House committee that the country could build more natural gas vehicles and gas-fired power plants without raising prices for fertilizer, chemicals and other products that are made with natural gas.

"Three years ago I would have said no," McClendon told Rep. Ed Markey, D- Mass., chairman of the Select Committee on Energy Independence and Global Warming. Markey had asked whether natural gas supplies were enough to reduce the nation's reliance on coal-fired plants to about 35% of electricity from 50% currently, without raising natural gas prices. "Today, I say yes," said McClendon.

The pitch comes amid skepticism from companies that use natural gas and regulators who are currently focused more on high natural gas prices. This summer, regulators warned that high natural gas prices will mean higher summer electricity bills. Dow Chemical Co. (DOW), a major chemical maker, told Congress on Wednesday that it was wary of government policies that might increase demand for natural gas, saying that the U.S. may not be able to handle higher demand for natural gas without putting further strains on manufacturing, a heavy user of the fuel.

"We are concerned that adding new uses for natural gas such as in transportation will create new and relatively inelastic demand that we may not be able to meet without high prices," Rich Wells, a Dow Chemical vice president, said in prepared testimony.

Recent discoveries in northern Louisiana and Texas, along with discoveries in an area that stretches from western New York to Virginia, are changing that, the industry argues. A new report financed by The American Clean Skies Foundation - a group started and now chaired by McClendon - on Wednesday said that the country has more natural gas than previously thought. U.S. reserves total some 2,247 trillion cubic feet, according to the study by Navigant Consulting Inc. The country consumed more than 20 trillion cubic feet of gas last year.

McClendon had been invited to Capitol Hill to talk about natural gas vehicles as Democrats explore ways to reduce oil consumption, which in spite of recent price declines is up more than 20% so far this year.

Democrats also are seeking to lower greenhouse-gas emissions, giving the natural gas executive a chance to make a push for even broader use of the fuel. Cars that run on compressed natural gas generate 25% fewer carbon-dioxide emissions than cars that run on conventional gasoline, according to the U.S. Environmental Protection Agency. Natural gas fired plants emit about half as much carbon-dioxide as coal-fired plants.

"What these guys have to fully grasp is that all the things they'd like to do - deemphasize coal, deemphasize foreign oil - it's all built on one hope which our industry is delivering today, which is more natural gas year after year after year," McClendon told a reporter during a break in the hearing. "I know these shales are so prolific that we can deliver on the promise of natural gas."

He was referring to fields known as the Haynesville Shale, the Marcellus Shale and the Barnett Shale. A relatively new technique known as horizontal drilling that allows access to gas embedded in the shale - or rock layers - has led companies to buy up mineral rights. Chesapeake Energy alone has estimated that its reserves in the Haynesville Shale total about 44 trillion cubic feet, almost twice the amount the U.S. consumed last year.

McClendon's message that natural gas is cleaner than other fuels, such as coal, is familiar to state and local officials. In Texas two years ago, he funded a group called the Clean Sky Coalition that ultimately helped fight plans by Texas power company TXU Corp. to build 11 new coal-fired power plants. The company ultimately canceled most of those plants.

Although McClendon has softened his tactics, his opinion remains unchanged, and no less of a threat to the coal industry. On Wednesday, the National Mining Association, which represents coal interests, put a fine point on it, noting that natural gas power plants still emit their share of carbon dioxide. "You can't get to the CO2 reductions Markey and others want and still use natural gas," said Carol Raulston, a spokeswoman for the group. She said that is why developing technology to inject carbon-dioxide emissions underground is "so important."

-By Siobhan Hughes, Dow Jones Newswires; 202-862-6654; Siobhan.Hughes@

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  07-30-08 1658ET
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