Harkin Urges Senate Energy Committee to Tame Skyrocketing Natural Gas Prices

HARKIN URGES SENATE ENERGY COMMITTEE TO TAME SKYROCKETING NATURAL GAS PRICES

Cites damaging economic impact on agriculture, rural America

Concerned about the impacts high natural gas prices are having on agriculture and rural America, Senator Tom Harkin (D-IA) today urged the chairman and ranking member of the Senate Energy and Natural Resources Committee to address these high costs in comprehensive energy legislation they will consider in the coming weeks. Also signed by Senator Pat Roberts (R-KS), the letter emphasizes that agriculture is a huge consumer of natural gas, using it for everything from producing nitrogen fertilizer to drying grain. Harkin is the ranking Democrat on the Senate Agriculture, Nutrition and Forestry Committee.

"High natural gas prices are placing an increasingly heavy burden on farmers, fertilizer companies and many others in agriculture," Harkin said. "As the Energy and Natural Resources Committee considers a comprehensive energy policy, it is critical they address soaring and volatile natural gas prices in a commonsense and effective manner."

The Harkin/Roberts letter notes that natural gas now accounts for 90 percent of the cost of nitrogen fertilizer production. In addition, rising U.S. natural gas prices have caused U.S. nitrogen fertilizer production costs to jump from about $80 a ton during the 1990's to over $300 a ton last year, despite substantial improvements in efficiency by the domestic nitrogen fertilizer industry. The result is that 30 percent of the nitrogen fertilizer production in this country has moved overseas, with much more at risk of moving overseas in the near future.

Farmers are already doing much to reduce natural gas consumption by aggressively pursuing renewable energy development, by improving energy efficiency, and adopting best management practices to optimize fertilizer use. Since 1980, U.S. farmers have increased nitrogen use efficiency by 35 percent while boosting corn yields by 40 percent. Still, most major field crops depend on nitrogen-based fertilizers to sustain crop yields.

"Rising natural gas prices threaten the livelihoods of farmers, and farm suppliers, and threaten to destabilize U.S. and world markets," Harkin said. "We need a comprehensive, environmentally sound approach to bring supply in line with demand and bring the cost of natural gas under control."

Harkin has been a leader in trying to bring natural gas prices under control and has authored and introduced legislation to increase the use of renewable sources of energy to supplement natural gas supplies, particularly for electricity production. Harkin has pushed for a long-term extension of the wind production tax credit (PTC) and for an ambitious national renewable fuels standard (RFS) to promote the use of ethanol and biodiesel. For more information on Senator Harkin's efforts to control natural gas prices and promote renewable sources of energy, please visit www.harkin.senate.gov.

A copy of the letter is attached.

# # #

April 5, 2005

The Honorable Pete Domenici

The Honorable Jeff Bingaman

United States Senate Committee on Energy and Natural Resources

364 Dirksen Senate Building

Washington, DC

RE: Comprehensive Energy Policy- Natural Gas and Agriculture

Dear Chairman Domenici and Ranking Member Bingaman:

Thank you for the leadership you both have shown in addressing the challenge of soaring natural gas prices in the United States. The natural gas conference you hosted in January brought much-needed attention to the critical imbalance between supply and demand of natural gas in this country.

In addition to the testimony at the natural gas conference, we urge you to consider the threat that this imbalance poses to our nation's farmers and the U.S. agricultural economy. Agricultural producers are especially hard hit by high natural gas prices, and with the increasing dependence of electric power generation on natural gas, rising gas prices increase already high electricity bills for farmers. Farmers depend on natural gas for food processing, irrigation, crop drying, heating of farm buildings and homes, and especially for production of nitrogen-based fertilizers such as ammonia and urea.

Natural gas now accounts for 90 percent of the cost of nitrogen fertilizer production. Rising natural gas prices have caused U.S. nitrogen fertilizer production costs to jump from just over $80 per ton in the 1990s to over $300 a ton last year, despite substantial improvement in efficiency by the domestic nitrogen fertilizer industry. As a result, nearly 30 percent of the nitrogen fertilizer production in this country has moved overseas, with another two to four million tons of U.S. production capacity at risk of closing in the next two years.

The current trend means that the United States and its farmers are increasingly dependent on foreign sources of nitrogen fertilizer. More than half of U.S. nitrogen fertilizer production is now outsourced to such countries as Trinidad, Saudi Arabia, Indonesia, Oman, Qatar, Russia and Venezuela, where natural gas is cheaper. Yet fertilizer costs continue to climb. The cost of ammonia to U.S. farmers has increased 80 percent since 1999, threatening their already slim margins.

Farmers are doing their part to reduce natural gas consumption by installing renewable energy and energy efficiency systems, and by adopting best management practices to optimize fertilizer use. Since 1980, U.S. farmers have increased nitrogen use efficiency by 35 percent while boosting corn yields by 40 percent. Nevertheless, most major field crops grown in this country depend on nitrogen-based fertilizers to sustain crop yields.

Unless future U.S. energy policy helps to bring natural gas supply in line with demand, this troubling shift in fertilizer sourcing and cost will only get worse. Rising, volatile natural gas prices threaten the livelihood of U.S. farmers and farm suppliers, and destabilize U.S. and world markets. This country needs a balanced, comprehensive natural gas policy that ensures the viability of U.S. agriculture for years to come.

We urge you to take our concerns into account as you work on a bipartisan basis to formulate energy legislation for the 109th Congress. Thank you.

Sincerely,

Tom Harkin Pat Roberts
United States Senator United States Senator

http://harkin.senate.gov/news.cfm?id=236144