April 2012, Vol. 239 No. 4

Features

INGAA Chairman Ebel Takes On Significant Challenges

Saying that it’s an interesting time to be in the natural gas business is like saying that it’s good to be able to heat our homes and offices cheaply and efficiently while providing an essential feedstock for manufacturing and chemical plants. And maybe you can add being able to drive a motor vehicle.

Such is the world we live in these days when this cleanest of fossil fuels comes at a price and quantity that was unheard of just a few years back. Now we are talking about the preferred fuel of the 21st century. In truth, the breadth of the ongoing natural gas revolution is beyond the scope of our consideration.

It goes without saying that natural gas would not have its place today without the hundreds of thousands of high-pressure transmission pipelines that dot the U.S. and Canada with more seemingly on the way every day.

But this development has not and will not come without a myriad of technical, economic and public relations efforts that are a constant challenge to the biggest brains in the business.

Leading those efforts on behalf of the North American gas transmission pipelines companies is its voice in Washington, DC – the Interstate Natural Gas Association of America (INGAA). Those efforts are now being led by Greg Ebel, president and CEO of Houston-based Spectra Energy Corp.

In an extended interview with P&GJ Ebel discussed pipeline safety, natural gas as a source for electrical power generation, the shale revolution, legislative priorities, economic benefits of natural gas development, and the prospects for pipeline construction.

P&GJ: You became chairman of INGAA in early October 2011, you are halfway through your term, what are your priorities as chairman and how will you measure success?
Ebel: I’m halfway through my term – but never finished working on our industry’s behalf. We’ve had a productive year thus far, and we’re making good progress on our 2012 priorities: legislate, advocate and educate.

A big win on the “legislate” front was the recent passage of the Pipeline Safety, Regulatory Certainty, and Job Creation Act (“the Pipeline Safety Act”). This successful legislation resulted from a concerted effort among regulators, legislators, various stakeholder groups and INGAA’s board-level safety, integrity management and legislative committees.

INGAA is a dedicated advocate for the tremendous economic, environmental and energy security benefits of natural gas. Through our INGAA Foundation, we commissioned an important study on the economic effect of natural gas infrastructure investment. The results are compelling: The midstream sector will create more than 125,000 jobs a year through 2035. Beyond the employment benefits, growing investment in natural gas will produce a value-added contribution of approximately $260 billion; more than $511 billion in total output; and federal, state and local tax revenue generation of nearly $57 billion.

INGAA is also working to educate stakeholders on the important issue of gas-electric reliability and the need for firm contractual commitments between infrastructure service providers and electric generators.

P&GJ: What can we expect to see coming from INGAA this year as a result of its safety initiatives?
Ebel: Our member companies are committed to build, operate and maintain our nation’s natural gas infrastructure with an ever-increasing focus on pipeline safety and integrity. We know pipelines are the safest means to move large amounts of energy. We also know that there’s more we can – and must – do to make them safer, and to protect the public we serve.

Last year, the INGAA board established a board-level task force to pursue ways to further improve our industry’s safety performance and restore public confidence in natural gas pipeline infrastructure. We formally adopted a set of five guiding principles for pipeline safety: work every day toward our goal of zero incidents; commitment to a safety culture with continuous improvement measures; relentless pursuit of improvement through lessons learned and anticipating future events; commitment to system-wide integrity management principles; and broad-based stakeholder engagement.

The pipeline industry’s overall safety record is a good one. But, recent high-profile incidents have understandably heightened the need for INGAA members to clearly define a path toward the goal of zero incidents. Safety management is an ongoing effort, and we are committed to that work.

P&GJ: How will the new pipeline safety act affect operators? Will we see any significant changes coming out of Washington this year that will affect the industry?
Ebel: Both the Pipeline Safety Act and the proposed regulatory initiatives from the Pipeline and Hazardous Materials Safety Administration (PHMSA) encompass a common, central theme: determining the best way to enhance and ensure the safety and reliability of the nation’s pipelines. For America’s interstate natural gas pipelines, nothing is more important.

INGAA’s integrity management team developed a comprehensive action plan that addresses the issues raised by PHMSA and envisioned by the legislation. The plan will entail significant costs, and INGAA members are conducting the needed analysis to ensure that costs borne by customers are prudently incurred and achieve the greatest amount of safety assurance. INGAA is confident this action plan lays the appropriate foundation for enhancing pipeline safety and ensuring public confidence in the nation’s energy infrastructure.

P&GJ: What represents the greatest challenge to pipeline safety – aging infrastructure or third-party interference?
Ebel: Excavation damage is a far greater concern to pipeline safety than the age of the facility. We must work more effectively to educate all stakeholders regarding safe digging practices. In fact, INGAA member companies are also members or active participants in the Common Ground Alliance, a member-driven association dedicated to ensuring public safety and the integrity of services by promoting effective damage prevention practices. With respect to aging infrastructure, we’re focused on ensuring we have solid integrity maintenance and records protocols to ensure a facility is “fit for service,” regardless of its age.

P&GJ: What was your reaction to President Obama’s comments on natural gas during his State of the Union speech?
Ebel: The President’s proposed “all-out, all-of-the-above” energy strategy and recognition of the major contributions the natural gas industry is making toward economic recovery, energy security and improved air quality are encouraging. And we’re encouraged by some provisions in the administration’s budget proposal that support a larger role for natural gas in fueling vehicle fleets – and timely investment in necessary natural gas infrastructure.

However, a number of provisions in the President’s budget proposal and framework for business tax reform would discourage investment in domestic natural gas production and create headwinds for U.S. competiveness relative to global competitors here in the U.S. and abroad. We will continue to make our voice heard on these critical issues.

P&GJ: Do you think the Keystone XL controversy is unique to that particular situation, or is this a portent of growing opposition to pipeline development?
Ebel: The development of any infrastructure, whether it’s bridges, light rail or pipelines, involves a high degree of public scrutiny and special- interest opposition. It’s therefore incumbent on developers to work closely with affected stakeholders throughout the siting and permitting processes, particularly in areas of the country unfamiliar with our industry and safety track record.

To deliver critically needed infrastructure, developers must be able to count on rational, reliable project development timelines. Increased costs and impacts to in-service dates drive down the economic benefits of a project such that a company may have to abandon crucial infrastructure development. Positive efforts are under way at the federal and state level to help eliminate or minimize permitting obstacles and adopt best practices for streamlining permit reviews.

P&GJ: How successful has the natural gas industry been in explaining the potential of natural gas to the public and to lawmakers of both parties, especially in an election year and in an era of great political polarity?
Ebel: INGAA and its members have worked hard to engage with federal and state officials to help them fully understand the tremendous opportunities that new, domestic shale discoveries are bringing to the U.S. – at a time when the American people need jobs and cost-effective energy options. The public and lawmakers are increasingly recognizing the benefits of natural gas from energy security, economic and environmental perspectives.

I spend a fair amount of time in Washington, DC meeting with officials and sharing our perspective on the potential of natural gas. We’ve designated an executive team from INGAA that meets regularly with officials to exchange constructive views and offer critical perspectives that can inform effective policy outcomes. Importantly, our peer industry organizations are likewise engaged and active in policy and regulatory discussions.

P&GJ: Recently, there have been a number of discussions regarding gas/electric issues at the Federal Energy Regulatory Commission (FERC), North America Electric Reliability Corp. (NERC), North American Energy Standards Board (NAESB) and other forums. What is INGAA’s position?
Ebel: INGAA and its members are active players in these discussions. Natural gas reserves are expected to be available for power generation and other uses over the long term at a competitive delivered cost, and the qualities of natural gas will allow the power generation industry to meet stricter air emission standards. Natural gas can and should be increasingly relied upon to fuel the country’s electric generation fleet.

Our hope is that FERC and NERC take leadership roles in promoting options that enable us to realize the benefits of maximizing the use of this abundant, low-cost, clean-burning, domestic resource. We’re already seeing strong engagement and interest from each of the FERC commissioners and we appreciate their recognition of the breadth of policy issues that need to be part of the discussion.

Gas-electric reliability is fundamentally a question of the electric industry ensuring electric reliability. As such, any discussion regarding electric reliability with respect to gas-electric interdependency issues must go beyond coordination and scheduling. Reliability is driven by the contracting decisions made by the electric industry, so it’s incumbent upon generators to develop a portfolio of services that is appropriate to their situation. The gas industry has a proven track record of building infrastructure in a timely, market-responsive manner for its customers. I’m confident we can reliably serve this growing demand, if the electric market can determine the firm transportation and supply needed to effectively meet their reliability objectives.

P&GJ: What do you see as the key impediment to gas-electric reliability?
Ebel: The primary impediment to gas-electric reliability is the fact that electric markets in some regions don’t reward an entity for subscribing an appropriate quantity of firm pipeline capacity and firm gas supply. If power generation isn’t able to access reliable natural gas supplies, it’s because that generation hasn’t been given the right incentives to subscribe to firm gas supply and transportation services.

Wholesale electric market design – which rewards generators for having the lowest marginal costs – operates as a disincentive for generators to sign up for firm transportation. Indeed, when power prices are high, neither pipeline Operational Flow Orders or pipeline penalties deter power plants from pulling gas above their scheduled quantities. Under the current regulatory model, potential profits in the wholesale markets far outweigh the risk of incurring pipeline penalties.

Recently, electric industry representatives have stated that low natural gas prices and natural gas availability is a problem for the electric industry. If abundant supply and low prices are a problem to a market, that’s a clear indication of improper market and price drivers, which apparently reward rather than discourage market volatility. This isn’t a sustainable market model. As the electric-generation market increases its reliance on gas-fired generation, FERC and NERC should take steps to eliminate incentives to behaviors that disrupt electric reliability.

P&GJ: Now that we are into several years of the so-called shale revolution, how has this changed the nation’s pipeline grid? Also, how has this made pipeline development more challenging for transmission operators?
Ebel: The positive implications of shale on our nation’s geopolitical position, economic growth, environmental stewardship and energy security are profound. As it relates to the pipeline grid, a map is worth a thousand words. Historical flows on the interstate pipeline grid have begun changing in light of the development of major shale plays, such as the Marcellus, Utica, Barnett and Eagle Ford, to name just a few – all of which are located in close proximity to major gas-consuming markets. 

As these shale plays develop and production begins to outstrip demand in these market areas, the production is expected to flow to other gas- consuming markets in the country, and to Ontario and eastern Canadian markets, all of which will accelerate the changes in historical flows on the pipeline grid. An abundance of supply drives down prices which, in turn, stimulates an increase in demand. The expanded use of natural gas for electricity generation will likely further accelerate this change in historical flows. 

These developments also are raising considerable questions when it comes to hydraulic fracturing, which has generated a new level of issue education. Public concerns around resource development must be addressed thoughtfully and openly. We’re seeing greater disclosure and reinforced drilling practices, both voluntarily and through strengthened state regulations that reflect local geologic and hydrologic characteristics. As operators throughout the natural gas value chain, we must continue to be progressive in this area. We need to bolster public confidence in our industry as a whole – and reassert our commitment to responsibly meet our nation’s energy needs.

P&GJ: Do you think we’ll see more pipeline construction or less over the next 18 months, and where?
Ebel: I believe pipeline construction activity will remain steady over the next couple of years. There are numerous expansion projects queued up for execution. We’ll continue to see new infrastructure located and developed near these emerging natural gas supplies and markets, with the Marcellus, Utica and Haynesville being some of largest plays. We’ll continue to see incremental projects come online in the Northeast U.S. and in the Southeast as well.

The INGAA Foundation study I referenced earlier anticipates that the U.S. and Canada will require natural gas midstream investment of about $8.2 billion a year for the next 25 years – a quarter of a trillion dollars – to accommodate new gas supplies, particularly from the prolific shale gas plays, and in response to growing demand for gas in the power-generation sector. That investment will result in economic growth and create thousands of high-paying jobs at a time when they are needed the most. If we see a solid uptick in gas prices, especially in the 2014 and beyond timeframe, this will drive a significant increase in infrastructure development and expansion.

P&GJ: Finally, how did you get into the industry and how have you seen the business change during your career?
Ebel: Believe it or not, I began my career in politics as an assistant to Larry Grossman, former leader of the Progressive Conservative Party in Ontario, eventually holding positions as senior advisor and legislative assistant to the Minister of Privatization and Regulatory Affairs and as chief of staff to the Minister of Finance and Deputy Prime Minister of Canada. I left Ottawa in 1993 to serve as advisor to the executive director of the World Bank Group in Washington, DC.

My first job in the energy sector was as vice president of strategic development for Westcoast Energy. I joined Spectra Energy’s predecessor company shortly thereafter and held a number of roles in mergers and acquisitions, investor and shareholder relations, and as president of Union Gas, Spectra Energy’s Ontario-based local distribution company. I became CFO after we were spun off from Duke Energy in 2007 and assumed my current role as president and CEO in January 2009.

Today, we’re seeing phenomenal changes in the industry. Abundant shale reserves are recasting North America’s energy equation. This is an incredibly exciting time for the industry, and some of the shifts we’ve seen just in the past five to 10 years are pretty amazing. Shale comes to us by way of technical and scientific innovation. Hydraulic fracturing and horizontal drilling are among those advances. They’ve helped us move – in just a decade’s time – from preparing to import increasing amounts of natural gas from abroad, to where we are today – envisioning North American exports – and new and expanding domestic markets.

Infrastructure expansion goes hand-in-hand with supply development, and the U.S. is currently experiencing one of the largest pipeline construction booms in U.S. history. We’ve invested $51 billion this decade to maintain and expand our natural gas transmission system, including construction of more than 10,800 miles of new, high-capacity interstate pipelines.

The scale of the natural gas revolution makes it vital that public discussion and policymaking be based on hard facts and rigorous analysis. Our industry has a proven track record of responsibly investing, developing and operating the pipelines of opportunity that serve our nation’s economic, energy security and environmental needs. We need to build on that record – and be emphatic in our call for a productive regulatory climate that promotes responsible infrastructure expansion.