Natural gas has not yet reached its peak in the US, but the summit is in view

Electric utilities in the United States are no longer using gas as a stepping stone from coal to an all renewables future, but making the crossing in a single leap. Market observers are struggling to find a consensus on the role for gas, but as a back-up of last resort it likely has some years of limited usefulness yet

Natural gas has in the past been touted as a bridge to a low carbon future; it is cheap and plentiful, yet cleaner than coal or oil in terms of CO2 emissions, although not emitted methane. While it is a carbonised fossil fuel, natural gas emits about half as much CO2 as coal when burned, according to the US Environmental Protection Agency, but this excludes methane leakages from across the value chain, which greatly increases the climate impact of gas.

However, opinions diverge regarding its future in the United States. Gas fuelled power plants are the nation’s most common way of generating electricity. Some forecasts, such as those by BloombergNEF (BNEF), a market analyst, see gas plants securing an even larger share of the market by 2050. Other observers, like the Rocky Mountain Institute (RMI), an energy specialist NGO, see natural gas as a “bridge backwards” and a risky investment at odds with international climate goals.

The emergence of cheap renewables — and with them a better understanding of power system management and the use of short-term storage for meeting peaks in demand — offers an alternative route to phasing out coal which leaves gas on the sidelines. Why take the natural gas bridge from coal to clean renewables when there is no need to?

Some utilities are already shunning new gas plants, while city and state authorities are starting to reconsider the use of gas in buildings because of the associated climate emissions. Pipelines for both gas and oil are also being hotly contested. Rattled gas advocates are fighting back.

A MATTER OF TIME

While the long term future of gas is being questioned, its role in the short term in the US remains secure. According to the Energy Information Administration (EIA), part of the US Energy Department, more power generation came from natural gas in the first half of 2020 than in the first half of 2019. Between January and early July 2020, approximately five billion cubic feet per day of new natural gas pipeline capacity entered service.

Gas prices in the United States are far lower than in Europe and are some of the lowest in the world. In the first half of 2020, the average US gas price was just $1.81 per million British thermal units (MMBtu). Because of the widespread adoption of fracking, in which rocks are shattered underground to release trapped gas or oil, the United States has become the world’s single largest natural gas producer.

European gas prices have been above $4/MMBtu for a number of years and only reached levels similar to the United States during the price crash triggered by the covid-19 induced contraction of the world economy.

“Gas is waning. But we have not seen the peak yet”

GAS LOSES TRACTION

Dennis Wamsted of the Institute for Energy Economics and Financial Analysis (IEEFA), a research group, is among those who argue that gas is waning as an energy source, even in the United States. He points to 27 utilities that have adopted significant climate change action programmes since 2018, making natural gas a riskier bet. The number of utilities with such plans is steadily growing.

The surge in American gas production started around 2009 after the technology that enabled the fracking boom was first deployed, along with the adoption of horizontal drilling. But in a sign of the changing times, Wamstead notes that in a single week this summer three utilities announced plans to close coal plants and build new renewables — without adding new gas fired generation as a bridge. During the same week, the New Mexico Public Regulation Commission recommended the state’s largest utility, Public Service Company of New Mexico, adopt a similar gas-free transition.

Gas and oil pipelines are already facing an uphill battle in states less friendly to fossil fuels. According to the New York Times, between 2009 and 2018, the average time it took for a gas pipeline requiring federal approval to cross from one state to another to start construction rose from some 386 days to 587 days.

Since then, New York State in spring 2020 denied a permit for a pipeline to supply natural gas to Long Island and New York City, citing the state’s climate law. Not long after, Dominion Energy of Virginia, along with Duke Energy, both utilities, cancelled an $8 billion Atlantic Coast natural gas pipeline, planned to run from West Virginia to North Carolina. The utilities blamed regulatory uncertainty because of delays and massive cost overruns. After the cancellation, Dominion announced that it took a $2.8 billion charge in the second quarter of 2020 because of the project’s termination, a blow that will not have pleased short-term investors looking for relatively rapid returns on their money.

ANTI-GAS PRESSURE

IEEFA’s Wamsted cites as context for the cancellation Virginia’s Clean Economy Act, signed into law in spring 2020 and requiring zero-carbon generation of all energy in the state by 2050. He predicts that regulators will now not approve any new gas fired plants. In 2019, a coalition of technology companies such as Apple and Microsoft wrote to Dominion arguing that it need not build new gas fired plants and should concentrate instead on renewables and using stored electricity to cover peaks in demand.

By summer 2020 Dominion said it was selling its natural gas transmission and storage assets — across several states — to Warren Buffett’s Berkshire Hathaway for $4 billion. The move may be a good bet for the savvy billionaire investor, in the short-term at least, because the pipelines come with regulated contracts to deliver gas to power plants. Dominion was under great pressure from the state and stakeholders to exit the gas business, notes Jade Patterson, a natural gas analyst at BNEF. Divestiture was the easy way out by simply transferring the assets to a new owner. Many other utilities are starting to feel similar pressure, he points out.

Patrick Grenter, associate director of the Beyond Dirty Fuels Campaign at the Sierra Club, the world’s largest environmental NGO, further highlights the challenges that gas infrastructure is facing. Also in summer 2020, the North Carolina Department of Environmental Quality denied a key water quality permit for the Mountain Valley Pipeline’s Southgate Extension Project. The proposal called for developing a natural gas pipeline from southern Virginia to central North Carolina to connect to the larger Mountain Valley Pipeline.

“The same thing that gas is doing to coal, renewables will do to gas”

WHY GAS AT ALL?

David Wooley, of the Centre for Environmental Public Policy and a professor at the Goldman School of Public Policy at the University of California, Berkeley, maintains that the US does not need new gas-fired plants at all. According to the ‘2035 Report’ that he co-authored, not only are no new gas plants needed in the United States, but it is economically and technically feasible to cut generation from existing gas plants by 70% and achieve 90% carbon-free electricity by 2035.

Most important of the policy changes needed to accomplish this, he says, is a national clean energy standard, targeting 90% carbon-free electricity by 2035 and 100% by 2045. Business as usual, without policy changes, would lead the US to about 55% clean electricity by 2035, says the report.

Wooley is optimistic and points to changes already under way. Ongoing studies in 2020 by regulators in the states of California, Massachusetts and New York are looking at how to reduce natural gas use in buildings. “It is wise for these states to begin an inquiry — it is fair to investors and consumers,” he says, adding that gas prices will become more volatile. Within the last year, some small cities such as Berkeley in California and Brookline, a Boston suburb, have banned all gas hook-ups in new buildings.

FUNDAMENTALS SPEAK FOR GAS

The Southern California Gas Company (SoCalGas), a gas provider, in particular, is vehemently fighting back, quietly subsidising groups promoting the ability to choose gas as a power source, including for cooking. Wooley notes that the battle over gas is existential for such a gas-only utility: “It will resist and continue to resist,” he says. SoCalGas sued California’s government in summer 2020, arguing that state regulators were breaking state law by failing to promote natural gas.

Nakul Nair, a natural gas analyst at BNEF, is positive about the fuel’s future in the United States even if its star in Europe is waning. The research firm’s most recent outlook — completed before the covid-19 economic volatility — places natural gas, measured in terawatt hours (TWh) of electricity generation, at 39% of the mix in the US in 2020, compared with 18%, or less than half as much, in the European electricity mix.

By 2050, the change is dramatic. Gas will generate 50% of electricity in the US but just 1% in Europe, forecasts BNEF. Its analyst’s projections, however, do not include the impact of laws such as renewables portfolio standards (RPSs) at state level, though they do incorporate legal measures with direct financial consequences, such as cap-and-trade regulations and tax breaks for investors. Nair says BNEF excludes RPS laws as the organisation aims to present dynamic industry fundamentals.

He notes there is an incredible amount of coal and nuclear generation coming offline, much more than the forecast renewable capacity build-out can supplant. “As a result, gas is a necessity,” he says. Regarding utilities shunning new natural gas plants, he says that new baseload gas infrastructure often does not need to be built to take coal’s place. The existing capacity just needs to operate at a higher capacity factor to support renewables in replacing the lost output, he says. BNEF foresees natural gas as comprising about a third of the new build of generating plants by 2050.

LAST GASP FOR GAS

The “rush to gas” over the past decade or so will stop soon, says Mark Dyson in the electricity practice at RMI, despite utilities and independent power plant developers announcing plans to invest more than $110 billion in new gas fired power plants through 2025, according to a 2018 report by the think-tank.

Extrapolating this trend to 2030 suggests that over $500 billion of investment will be required to replace all retiring power plants with new natural gas fired capacity. The result would be to lock in another $480 billion in fuel costs and five billion tonnes of CO2 emissions through 2030 — and up to 16 billion tonnes through 2050, says RMI.

The US rush to gas is evidenced in BNEF’s data: the 25% of electricity generation that gas comprised in 2012 had ballooned to 39% by 2020. In both years, gas produced more electricity than any other generating source. Europe, with rising imports of Liquefied Natural Gas, saw an increase from 17% to 18% during the same time period.

Despite the continued fortunes of gas, Dyson says that in the United States a tipping point came in 2019 when clean energy development portfolios adopted by utilities became cheaper than building and operating a new gas plant. By 2034, such portfolios will become as cheap as operating an existing gas plant, RMI’s research shows. With that prospect, investing in new gas is a “bridge backwards”, he says.

Dyson predicts the growth in the power sector’s gas use is set to stop “within the near future” and he criticises BNEF’s outlook as out of date. “Gas is waning. [But] we have not seen the peak yet,” he says, because so much coal is coming offline. The peak will occur within the next ten years, he predicts.

An RMI study, ‘The Economics of Clean Energy Portfolios’, found that by 2035, more than 90% of proposed combined cycle gas plants, if built, would be uneconomic to run compared to the cost of building a new clean energy portfolio. “Investors in these projects will likely face a significant risk of stranded investments, with tens of billions of dollars in book value remaining on assets without a clear source of future revenues given competition from clean energy,” according to Dyson. “The same thing that gas is doing to coal, renewables will do to gas.”

PLAYING POLITICS

In the approach to the 2020 presidential election, the US use of natural gas has the status of a political battleground. The administration of President Trump, an ardent backer of fossil fuels, in August rolled back President Obama-era limits on the oil and gas industry’s emissions of methane, a powerful climate pollutant. Along with the use of oil, gas combustion is a main source of human-made methane emissions in the US, releasing (including leaks) an estimated 15 million tonnes in 2018, or the heat-trapping equivalent of 335 coal fired power plants, according to the Natural Resources Defence Council, an environmental NGO.

For his part, Joe Biden, the Democratic presidential nominee for the White House, launched a climate plan calling for a clean power sector by 2035. Since the announcement of that plan in mid-summer 2020 the battle lines only hardened. The main US oil and gas lobby group, the American Petroleum Institute, ramped up its spending on Facebook adverts to an average of $24,000 a day, much of it promoting gas, news agency Reuters estimated. The institute targets younger voters and tight congressional races.

Meantime, the voice of investors cannot be denied. Increasing numbers are uncomfortable with investing in activities that directly contribute to hastening the destruction of the world’s climate. Investors abandoning gas impart a powerful political message and compound a gathering belief that the industry is a high risk bet.

Regardless of the differing views on the future of gas in the United States, it will need to follow the lead of Europe in moving beyond gas or suffer unimaginable consequences. The UN Intergovernmental Panel on Climate Change estimates that holding the precipitous rise in global temperature to no more than 1.5°C above pre-industrial levels would require not only coal and oil use to be cut drastically, but the percentage of energy from gas in 2030 to decline by 25% from 2010 levels and by almost three quarters, or 74%, by 2050. That cut cannot be achieved without America living up to its global responsibilities.

TEXT Ros Davidson

--

--

--

FORESIGHT Climate & Energy is the essential read from Denmark on the global transition to a decarbonised energy economy

Love podcasts or audiobooks? Learn on the go with our new app.

Recommended from Medium

Take a journey through time with the SMP centennial website

Please welcome Recyclops, a nationwide solution for accessible recycling

Europe: Non-competitive Power Prices Derail Growth

Are We Inadvertently Causing Climate Backlash?

Guess how many people opposed sewers and clean water in 1848?

Old photograph of Keswick town centre showing the town hall, taken some time in the early 1900s.

Man vs. Woman —  You know why God created Woman after Man because he wanted to do a better job.

wonder woman 2021

Coca Cola’s Pollution Issue

Don’t Use Infrastructure Funding to Make Traffic Worse

Get the Medium app

A button that says 'Download on the App Store', and if clicked it will lead you to the iOS App store
A button that says 'Get it on, Google Play', and if clicked it will lead you to the Google Play store
FORESIGHT Climate & Energy

FORESIGHT Climate & Energy

FORESIGHT Climate & Energy is the essential read from Denmark on the global transition to a decarbonised energy economy

More from Medium

Damned Lies, Statistics, and Big Numbers and Words that Few Understand

The Most Informative YouTube Channel You’ve Probably Never Watched

Kathmandu Valley, a place naturally blessed with water is now drying up!

Clean Energy vs Fossil Fuels: A Revolutionary Discovery from MIT May Help Renewable Energy!