From our national energy analyst reader, his Public Utility Fortnightly July essay:
The U.S. natural gas industry has had a great run over the past eight years. It has helped the economy by creating new jobs and significantly reducing energy bills for households and businesses. This was particularly important during the Great Recession, when a boost from that major industry prevented a further downward spiral of the economy.
Natural gas also benefited the environment by accelerating the retirement of coal plants. The shift from coal to natural gas pushed down U.S. energy-related carbon dioxide emissions by twelve percent over the period 2005-2015.
Even accounting for methane emissions, the most credible studies show that switching from coal to natural gas would mitigate global warming. Besides, natural gas emits fewer air pollutants than coal – pollutants such as sulfur dioxide, mercury and nitrogen oxide.
And, the U.S. expects to be a net exporter of natural gas, which will reduce our trade deficits. At the beginning of this decade, we worried that we would be importing increasing amounts of natural gas from vulnerable areas of the world.
Because of the rapid development of natural gas resources, highlighted by advanced technology for hydrocarbon extraction, natural gas appears to have a bright future. That future is the product of 3D seismic, horizontal drilling and hydraulic fracturing stimulation. About sixty percent of U.S. natural gas production comes from fracking techniques applied in shale formations, whereas just ten years ago that percentage was virtually zero.
Today’s Lay of the Land
Like most things that matter these days, people seem to have different interpretations of whether something is good or bad. One would wonder how folks could believe that natural gas has been harmful for the U.S. Well, they do.
We have seen attacks on natural gas both around the edges and at the core. We have strong rhetoric coming from climate hawks: natural gas is “a bridge to nowhere”, “more of a gateway drug than a pathway to a clean energy future”, “best left in the ground”, and “a death sentence.”
Rather harsh language, wouldn’t you agree? Their agenda is to eliminate the use of fossil fuels, the sooner the better, whether economical or feasible, or not.
Up until the last few years, most environmental groups had viewed natural gas favorably as a “bridge fuel” to facilitate the transition to a low-carbon environment. Natural gas would be relied on until renewable energy becomes more economical and more feasible. It was important to avoid jeopardizing electric power system operability and reliability as the major source of electricity generation.
In other words, natural gas would accompany growth in renewable energy for some time, but would then fade away, with renewable energy picking up the slack. Supporters envision renewable energy becoming more economical and self-sufficient with advanced battery storage.
Today, environmental groups have become increasingly vocal in their opposition to natural gas. They see natural gas as a barrier to achieving climate change targets that, in their minds, will help assure against devastating global warming.
They advocate phasing out, as quickly as possible, the use of natural gas for electricity generation. They also want customers to switch their energy consumption away from natural gas and other fossil fuels for space heating, water heating, and other end uses, to electricity.
Proponents of this so-called “electrification” argue that in order to dramatically reduce carbon, retail customers must switch from fossil fuels. They contend that this option to reduce carbon is often overlooked by policymakers.
These proponents aim to accelerate the market penetration of renewable energy so that we have a chance at limiting the temperature increase to the proverbial 2°C level, which is the goal of international climate policy. That goal is not necessarily based on science. Even if this target has validity, leapfrogging from coal to renewable energy is a risky bet from both an economic and power system operating perspective.
Some local citizens and environmentalists have even resorted to blocking new gas infrastructure projects such as LNG export terminals, and new gas pipeline construction. They aim to discourage gas usage and supply.
In the minds of some observers, they are emulating the Tonya Harding approach to energy. Break your opponent’s kneecap if you can’t win within the rules. Their nip it in the bud strategy aims to prevent new infrastructure from being built. That’s because once built and deployed, that new infrastructure will be hard to shutter before the end of its physical life, typically about thirty to forty years.
It’s not a bad strategy, given the fact that natural gas in the U.S. is so abundant and much of it is inexpensive to drill. IHS Markit has estimated that we have over fifty years of domestic natural gas resources available at four dollars per Mcf or less. One goal of the adversaries is preventing natural gas from reaching its intended destination.
Another adversary of the natural gas industry is, of course, the coal constituency. Since the Trump administration promises to revive the coal industry, the loser may be natural gas. How the Administration is going to revive the coal industry and create additional jobs remains to be seen.
The odds are that it won’t, as retirements of old coal plants will likely only intensify in the future, making the coal industry’s revival highly improbable. Of course, the citizen-backed movement to green energy and climate-change mitigation has targeted coal.
Overall, the sharks in various disguises are out attacking the natural gas industry. For its own sake, the industry needs to fight back. Otherwise, even with the abundance of competitively priced natural gas, the industry’s future may be less than bright. For comparison, look no further than the coal industry: the U.S. has an abundance of coal resources, but the industry’s prospects look extremely bleak.
The Pro-Gas Arguments
The first argument is that cleaner energy sources like natural gas and zero-emitting sources such as renewable energy have increasingly displaced the use of dirtier fossil fuel sources. This shift has led to an even larger decline in carbon emissions per dollar of real GDP, which is more than eighteen percent lower in 2015 than it was in 2008.
A second argument is that natural gas is abundant and competitively priced, with expectations that prices will remain low over the next several years. A strong economic argument therefore exists for staying with natural gas and even expanding its use.
The technology for gas-fired electric generation is also well-known and inexpensive, relative to alternative energy systems such as nuclear power, carbon capture and sequestration, and renewable energy.
On a level playing field, these alternative energy systems would only be able to compete effectively with natural gas over the next several years with significant cost breakthroughs or very stringent carbon dioxide reduction targets or carbon pricing.
As a bridge fuel, natural gas provides a cleaner alternative to coal, and is still cheaper than alternatives – according to the often-cited Lazard cost estimates.
But with continued tightening of carbon dioxide constraints beyond 2050, carbon dioxide emissions from natural gas generation eventually will require deployment of cleaner technologies. Among them, carbon capture and sequestration for combined cycle turbines and the inclusion of biogas in the natural gas system.
Natural gas has plenty going for it: domestic availability, low price for the foreseeable future, relative cleanliness as compared to the dirtiest fossil fuels, and flexibility in electric power production. It can provide baseload power, peaker power, and back up to renewable energy.
As a bridge fuel, natural gas can serve both as a cost-effective way to reduce greenhouse gas emissions, and as a supplement to renewable energy in maintaining reliable and well-operating electric systems. Those conclusions are supported by a number of objective studies.
The Bottom Line
Natural gas-fired electricity generation today constitutes about thirty percent of total generation, a sharp increase from seventeen percent in 2003. Phasing out natural gas for electricity generation in the next ten years in order to replace it with renewable energy doesn’t seem feasible, let alone economical.
The most rational policy, at this time, is to continue relying on natural gas for electric generation for the next two decades and probably even longer.
Our national energy policy should encourage the expansion of natural gas use rather than its suppression. A proper balancing of economic and environmental considerations would come to that conclusion.
Those who advocate less natural gas usage generally skew their finding by giving little weight to the economic effects of changing the generation mix. Their obsession centers on the urgency of controlling climate change, no matter the cost. Climate change concerns should certainly be a factor in developing energy policy, but not the sole or even overriding factor.
The natural gas industry should counter the anti-gas arguments in part by showing the significant economic benefits of low-cost, abundant natural gas. It should emphasize the marginal, or even negative, environmental gains that would come from a suppressive policy on natural gas.
There is a caveat: natural gas is not a deep de-carbonization option when compared with energy efficiency, nuclear power, renewable energy, and carbon capture and sequestration. If the world continues its current path toward decarbonization, natural gas would cease to be a major source of fuel for electricity generation around 2050, if not before.
The new Administration, however, will place greater importance on the use of fossil fuels and less on meeting greenhouse-gas emissions targets.
I don’t see electrification, where customers switch from natural gas and other fossil fuels to electricity for direct use such as transportation, water and space heating – as a major threat for the natural gas industry in the near future. Electrification is a hard sell as long as natural gas is cheap and electricity generation still requires fossil fuels. Electrification will likely receive only a lukewarm response from policymakers.
But, the natural gas sector should be able to explain why a world with zero-carbon electricity generation should not encourage households and businesses to switch from natural gas and other fossil fuels.
In the interim, the natural gas industry should adequately fund research and development to discover ways to make natural gas more carbon-friendly. The electric industry will push hard for electrification if only to bolster its stagnant sales. Similarly, at the beginning of this decade the natural gas industry lobbied hard – unsuccessfully, by the way – for customers to switch from electricity to natural gas for space, water heating and other end uses.
While the abundance of competitively priced natural gas points to a bright future for the industry, it must take a proactive stance in funding research and development. It should take other actions that will make natural gas more environmentally and socially acceptable. Major technological breakthroughs are a requirement for making the transition to low-carbon energy a reality as well as economically viable.
The natural gas sector cannot waste time; it needs to aggressively support research and development that will lead to innovations assuring its long-term success. Technology can work either for or against the future of natural gas.
The natural gas industry wants technology to work in its favor. One example: technology that will reduce methane leakage throughout the natural-gas system and prevent the negative environmental effects of fracking on local communities.
One role for natural gas in electricity generation is to act as a safety net, or hedge, against a lax policy on climate change and disappointing performance of renewable energy and other forms of clean energy. Natural gas can buy time before zero-carbon technologies become more economical.
If we eliminate natural gas from the mix, coal could likely damage public health and contribute to climate change for a longer period. Or, high-cost renewable energy could lead to higher electricity bills and a less secure and reliable electric power system. Neither outcome would be good for the country.
In conclusion, any public-policy dialogue on the future role of natural gas should steer away from rhetorical heat and toward analytical light, especially when climate change becomes part of the discussion.