More Emphasis Needed On Natural Gas, APGA Leader Says

December 2014, Vol. 241, No. 12

These are unquestionably exciting times in America’s natural gas industry as wide arrays of statistics continue to show. Homeowners and businesses that use natural gas are enjoying considerable cost savings and ample, reliable supplies that will only increase as the nation’s pipeline grid spreads to regions that have not been accustomed to using the environmentally friendly and domestically produced fuel.

Hundreds of thousands of jobs have been created directly and indirectly as a result of the shale boom with many more to come. But when you’re number one, you have to be on your guard because you’ve become the target of would-be competitors, those who oppose any fossil fuel development, and even those within your own industry who have different business agendas.

The American Public Gas Association (APGA) is the national association for publicly owned natural gas distribution companies, representing over 700 of the about 1,000 public gas systems in 37 states. These are not-for-profit, retail distribution entities owned by, and accountable to, the citizens they serve. They include municipal gas distribution systems, public utility districts, county districts and other public agencies that have natural gas distribution facilities.

Jose Lozano was elected chairman of APGA’s board of directors in July. He is the CEO of the Okaloosa Gas District, FL, a natural gas utility with 145 full-time employees, serving approximately 40,000 customers in four counties in the northwest Florida panhandle. He works closely with an executive management team comprised of the vice presidents of accounting & finance, corporate services, marketing and operations.

Lozano graduated from Texas A&I (now Texas A&M) in Kingsville, TX, with a degree in Natural Gas Engineering. He joined Okaloosa Gas District in May 1972 as a system engineer. He was later promoted to operations manager, then vice president of corporate services and senior vice president. He was appointed CEO by the district’s board of directors in September 2003.

He also serves on the boards of the Florida Natural Gas Association, American Public Gas Association Research Foundation, and the Southern Gas Association and is active in various civic organizations.

In this interview, Lozano reviews some of the constraints that are affecting more direct use of natural gas, the issue of LNG exports, transport vehicles, pipeline safety, infrastructure replacement and the future role of natural gas, which is where the discussions begins.

What do you see as the role of natural gas in our energy future?
We have often heard natural gas referred to as a “bridge fuel.” This represents a short-term and narrow view of natural gas that neglects the benefits provided by the direct use of natural gas. APGA has long maintained that natural gas is a foundation fuel. In particular, the direct-use of natural gas can play a critical role in meeting our energy needs, reducing greenhouse gas emissions and increasing overall efficiency.
Our national policy should facilitate the use of natural gas instead of other more carbon-intensive fuels where appropriate. Using gas-fired water heaters for homes instead of electric resistance water heaters, for example, ultimately reduces greenhouse gas emissions by one-half to two-thirds.

What challenges do you see to the direct-use of natural gas?
Unfortunately, over the years federal policies have tried to move the end-use market toward an all-electric society. These policy decisions fail to recognize the environmental and economic benefits of the direct use of natural gas. One example can be found in the manner in which the federal Department of Energy (DOE) calculates appliance efficiency. As a result of a 40-year old law that came about due to the oil embargos of the ’70s, DOE only considers energy consumed at the “site” for test procedures and energy-efficiency standards.

A site-based approach to measure energy consumption ignores the energy lost in the production, generation, transmission and distribution of electricity. For example, according to DOE’s point of use consumer disclosure labels for appliances, an electric water heater may appear to consumers to be over 60% more efficient than a gas water heater, despite the fact that current national generation, transmission and distribution efficiency for central station electricity is only 29.3%, according to the U.S. Energy Information Agency (EIA), while the transmission and distribution of natural gas directly to the consumer is over 90% efficient.

Ignoring these energy losses makes electric-resistance heating appliances appear more efficient (allowing them to receive a superior DOE efficiency rating). Simply put, this site-based measurement has placed natural gas appliances at a marketing disadvantage. As a result, there has been a marked increase in shipments of electric water heaters and a decrease in shipments of natural gas water heaters.

Rather than a site-based measurement for energy consumption, APGA continues to advocate a “source-based” or “total energy” analysis that measures energy from the point at which energy is extracted through the point at which it is used. A total energy analysis provides a more accurate assessment of energy use and efficiency as well as greenhouse gas emissions.

APGA has been active in opposing the export of liquefied natural gas (LNG). Why?
APGA opposes the large-scale export of LNG from the lower 48 states because it will increase gas prices and harm consumers. Every study on exports has concluded that the domestic price of natural gas will go up anywhere from 3% to 47% if exports are allowed to go forward. The consequences of this price increase are clear; homeowners and businesses of all types will see increased natural gas and electricity costs, reducing their disposable income.

Businesses of all sizes will be similarly affected by high energy costs and the manufacturing sector will likely be hit the hardest. The recent manufacturing renaissance has created 500,000 new jobs since 2010, and a Boston Consulting Group study shows the potential for 5 million more jobs to be created by 2020. However, if exports go forward and the domestic price of natural gas spikes, manufacturers will halt re-shoring and creating jobs here and go back to offshoring, taking millions of well-paying jobs with them.

Moreover, LNG exports not only harm our economy, but also imperil the national goal of reducing our dependence on foreign oil. If exports are allowed to go forward, the price of natural gas will go up and conversely, the price advantage of natural gas over gasoline will shrink, extending the payback period for natural gas vehicles (NGVs) to where they are no longer economically viable. In so doing, America’s best chance to reduce its energy dependence and enhance its security will be lost.

Speaking of NGVs, APGA supports the transition of the U.S. transportation system to natural gas. What are the policy arguments that support this position?
APGA strongly supports the transition of the U.S. transportation fleet to affordable and secure domestic natural gas. Despite the boom in domestic oil production, imported oil still accounts for over 35% of the U.S.’s $461 billion trade deficit. The largest supplier of this foreign oil is our ally and friend, Canada; however, included in the top five suppliers are Venezuela and Saudi Arabia. These two countries, to say the least, have policies that are not in the best interests of the United States.

Our dependence on these unstable, hostile and autocratic governments harms U.S. national security as our economy and transportation sector depend on their oil. Disruptions in oil supply due to unrest in these countries or regions could cause oil prices to spike, wreaking havoc on consumers and businesses which suffer under high energy prices.

In contrast, by transitioning the U.S. transportation system to domestic natural gas, the U.S. can reduce its dependence on foreign energy, thereby reducing our trade deficit and helping the environment as NGVs have lower emissions than conventional vehicles. In addition, switching to compressed natural gas (CNG) or liquefied natural gas vehicles can save consumers $1 to $2 a gallon compared to gasoline or diesel. These significant energy savings increase homeowners’ disposable incomes and free up business capital to make new investments and hire new workers, thereby stimulating the economy.

USA Today recently ran a series of articles about aging distribution piping. What is APGA’s position on accelerating the replacement of aging pipe?
First of all we don’t believe “aging” is the issue. Steel and plastic don’t lose strength with age or we’d all be worried about the 85-year-old steel beams supporting the Empire State Building. Even though the articles relied on statistics from the Pipeline and Hazardous Materials Safety Administration’s (PHMSA) annual report data, the way those statistics were presented painted a very distorted picture of distribution safety. One local TV station even identified one utility’s integrity management plan as “secret lists that identify high risk natural gas service areas.” The articles also equated unaccounted-for-gas (UAF) with leaked gas when most experts agree that UAF is mainly a metering issue.

The fact is there is no safer way to deliver energy to consumers than through buried pipelines. That said, we support replacing bare steel and cast-iron piping, which was the bottom line of the story. Also, public gas utilities tend to be newer than the utilities in older Northeast cities. Out of approximately 1,000 public gas utilities, less than 100 have any bare steel or cast iron. Those that do have bare steel or cast iron are prioritizing replacement through their integrity management programs.

The American Petroleum Institute is writing a Recommended Practice For Pipeline Safety Management Systems (PSMS). Does APGA support this effort?
Managing safety is the number one priority of every APGA member, so yes, we support what API is doing. We have one representative on the API working group that is writing that recommended practice. As one would expect, the majority of the members are focused on writing a document about managing the safety of large organizations with thousands of employees operating oil and gas transmission pipelines.

Managing a local distribution utility is much different. In terms of number of employees, my organization, with 145 employees, is in the 99th percentile of public gas systems. We’re one of the very largest. The typical APGA member has five employees who all report in and out of the same building every day. There are no pumping or compressor stations, no SCADA systems or control rooms and very few moving parts.

We’re pleased the latest draft of the API document recognizes that, for small systems with just a handful of employees, all the provisions of the recommended practice may not be appropriate. APGA is developing guidelines for managing safety in public gas systems, building off of the same 10 basic elements in the API document, but at a level appropriate for public gas utilities. We hope our guidance document will be ready by the middle of 2015.

Does APGA foresee any major construction projects by its members?
We do not and that is more a function of how a local utility operates compared to a transmission pipeline. Local utilities transport gas from their transmission pipeline supplier to residential, commercial and industrial customers. To the extent new residential, commercial or industrial developments are added in any utility’s area, these tend to result in incremental additions to the distribution piping network. There is nothing on the distribution end of the business that is equivalent to what is occurring at the production end where new pipelines have to be built to connect new gas supply sources into the pipeline system.

The Pipeline Safety Act is due for reauthorization in 2015. What issues does APGA expect will come up?
I expect we will continue to see issues stemming from the 2010 San Bruno incident. The USA Today articles as well as the methane emission project undertaken by the Environmental Defense Fund and Google will likely make bare steel and cast-iron replacement an issue for discussion. We may also have debate over leak detection technology and practices, whether leak detection and repair should continue to focus on safety or be driven by concerns about methane as a greenhouse gas.

Our overriding concern is that public gas systems are often an afterthought when regulations are written. If you look at the major regulatory issues of the last few years – public awareness, control room management and now PSMS – all addressed problems that arose on the big interstate lines. The final products, however, did not differentiate between the needs of the larger interstate pipeline operators and the smaller local public gas utilities. We will continue to encourage Congress and PHMSA to carefully consider the impact their laws and regulations will have on the citizens of communities served by public gas systems.

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