When Exxon Mobil and XTO Energy Inc. announced their $41 billion merger last month, the news was big enough to penetrate the fog of war in Copenhagen – and to prompt Representative Ed Markey (D-MA), co-author of the House climate and energy bill, to call a hearing on the merger’s impact on U.S. energy markets. Congress and the natural gas industry have a lot to talk about this year, and as the hearing, which took place last week in the House Subcommittee on Energy and Environment, revealed, concerns over consolidation in the industry will be only a small part of the agenda.
After their notable absence from the table while the House crafted climate and energy legislation last year, natural gas interests began the new year with newfound momentum. Natural gas caucuses have formed in both the House and Senate, and environmental leaders including Worldwatch Institute president Chris Flavin and former Sierra Club president Carl Pope have expressed optimism about the role that natural gas, which emits less than half as much carbon dioxide as coal when burned, can play in the transition to a low-carbon economy.
In the coming year, Congress will consider the NAT GAS Act (H.R. 1835, S. 1408), which creates and expands incentives for natural gas vehicles. Natural gas could offer numerous benefits over gasoline and diesel as a transportation fuel, chiefly its lower emissions and domestic availability, now thought to be almost a hundred year supply thanks to technological advances unlocking vast reserves of shale gas.
The natural gas industry will also have an opportunity to redefine its role in the national discussion of climate and energy legislation. As the cleanest fossil fuel, natural gas stands to gain in the power and transportation sectors – if Congress succeeds in putting a price on carbon.
At Wednesday’s hearing, Rex Tillerson, CEO of Exxon-Mobil, and Bob Simpson, XTO’s Chairman of the Board, proved that they are polishing their message. In virtually identical language, each declared that their companies’ merger would “support our nation’s economic recovery, strengthen our nation’s energy security, and help meet our nation’s environmental goals.” These sentiments were echoed by congressmen on both sides of the aisle, who expressed interest – and in some cases, outright glee – over the jobs the merger might bring to their state, and the supply of abundant and relatively clean energy that the companies could unlock in American shale gas formations. Nevertheless, hydraulic fracturing, the controversial technique driving the shale gas boom, quickly emerged during Wednesday’s hearing as an area of concern for congressmen on both sides of the aisle.
Representative Joe Barton (R-TX) lamented congressional attempts to restrict hydraulic fracturing. “If we can prevent the Congress or EPA from mucking around in hydraulic fracturing,” Barton noted, “this merger should go through….Because you have a codicil in your pending merger agreement that if Congress passes legislation then I guess either party has the right to call the merger off.”
Actually, as Representative Doyle (D-PA) quickly noted, the clause in question would only allow Exxon to withdraw from the deal if Congress made fracturing illegal or commercially impracticable. “Okay, let’s get one thing out of the way. Mr. Tillerson, do you have any knowledge of any member of the House or the Senate or the Obama administration that is calling for outlawing hydraulic fracturing?” Tillerson did not. Neither did Simpson or any other congressmen in the hearing, although Barton interjected that he believed some congressmen would if they could. Representative Diane DeGette (D-CO), co-author of the FRAC Act, a bill she introduced last June along with 50 co-sponsors, did her best to clarify: “I support the use of hydraulic fracturing,” she declared in her opening remarks. “Let me say that again. I support the use of hydraulic fracturing, but I also support that it be done in an environmentally responsible way.”
The FRAC Act (H.R. 2766, S. 1215) would require drillers to disclose the constituents – but not the proprietary formulas companies are anxious to defend – in the fluids they pump thousands of feet into the ground, passing through the water table en route to the gas shale formations. If the bill passes, the EPA would regulate fracturing under the Safe Drinking Water Act as it does any other form of underground injection. Currently, thanks to the so-called Halliburton Loophole, fracturing is regulated ad hoc by state agencies which may not have the manpower or experience with fracturing to do so effectively. Last year, Mayor Bloomberg of New York City and the EPA joined environmental advocates in stating that New York’s state regulators were not adequately equipped to deal with fracturing in the state’s Marcellus shale.
As the Exxon-XTO merger foreshadows, 2010 is shaping up to be a big year for natural gas. The industry’s success in the short term will depend on its ability to demonstrate – to the public’s satisfaction – that hydraulic fracturing can be done without endangering the environment or public health. In the long term, it will have to demonstrate that it can be a constructive player in the nation’s efforts to reduce its emissions and combat climate change.