News Services
Resources
CU/CEM Archives CU/CEM Archives:

Order now and save 50%!

CD-ROM archives of Clearing Up and California Energy Markets are available for purchase and delivery.

Clearing Up / Bearing Down

[August 3, 2018 / No. 1862]

Good Times for Natural Gas, But Challenges Loom

SUMMARY: These would seem good times for natural gas, with its abundance, low price, prominent role in power generation, consumer appreciation, and position as a "bridge" fossil fuel. But the gas industry does face challenges, three of which emerged at a natural gas conference near Portland in early June—difficulties in building infrastructure, methane emissions and an emerging "electrify everything" movement. This is the first in a two-part column exploring these issues.

This would seem an auspicious era for natural gas.

It is abundant, low-priced, a favored new resource for power generation, well-appreciated by many consumers (residential as well as commercial/industrial), and viewed by some as a reasonable "bridge" fossil fuel. The U.S. natural gas industry is looking to LNG exports as a promising source of future growth.

Yet amid this encouraging landscape, natural gas faces some challenges, three of which arose at the Northwest Gas Association/Alliance of Western Energy Consumers Annual Energy Conference June 6-7 at Skamania Lodge, in the Columbia River Gorge east of Portland. (Disclosure: NewsData was a promotional partner for the event.)

These challenges are not necessarily immediate threats to natural gas, nor existential. But they have captured the industry's attention, based on what I saw and heard at the conference.

One is difficulty in building new infrastructure. Another is methane emissions from natural gas systems. And a third is the emerging "electrify everything" movement.

Natural Gas Positives

"It's a good time to be a consumer," said Josh McCall, a BP fundamental analytics director, beginning his conference presentation on gas market fundamentals. "Gas is cheap."

For the next five years, he said, the range of Henry Hub price outlooks lies in the "high 2s to upper 3s [dollars per MMBtu]."

On the supply side, McCall noted a projection, by the firm Wood Mackenzie, of a 40-percent increase in global gas supply from 2017-2022, with the U.S., Australia and Qatar as key growth regions. He referenced "a pretty good consensus" that U.S. gas production will grow in 2018 and 2019, although the magnitude is uncertain.

U.S. producers have become much more efficient at extracting natural gas, particularly through "super-long lateral" drilling providing "more bang for the buck," McCall said. Domestic gas production is at record levels with 200 active rigs, "a fraction of the 2008 peak of 1,600 [rigs]."

He said the domestic gas industry is "turning to more of an export-driven market," and listed Mexico and LNG as leading markets. In the next three to four years, he said, Mexican imports of U.S. natural gas are projected to grow roughly 50 percent, although that is "very dependent" on infrastructure development.

He believes a Canadian West Coast LNG export terminal is "more likely" before a U.S. West Coast facility, partly because British Columbia producers "have more of a vested interest in it happening," adding, "If and when it does happen, it would have a big impact" on Western gas prices.

Meanwhile, natural gas continues as a prominent electric resource. Nick Zanrosso of Calpine Energy Solutions showed a bar chart of WECC power-plant builds from 2011 through 2025 (forecast from 2018 onward) in which solar, wind and gas dominate, in relatively equal proportions. Ironically, gas plants are well-represented in the adjoining (and smaller) retirements chart, along with coal and nuclear. And while gas provided 53.5 percent of total installed capacity for the California ISO as of mid-2017, Golden State gas capacity has trended slightly downward since 2013, according to another slide from U.S. Energy Information Administration data.

In our region, the Pacific Northwest Utilities Conference Committee's 2018 Northwest Regional Forecast shows gas comparable with undefined "capacity" as the leading planned resources from 2018 through 2028, in cumulative nameplate capacity (gas is 943 MW, although all from 2025 onward).

Nationally, EIA in May projected natural gas will outpace all other resources coming on line in 2018, at 21 GW of capacity out of nearly 32 GW total expected.

EIA's Annual Energy Outlook 2018 reference case "projects natural gas to remain the leading source of electricity generation in the United States through 2050," and that it will account for 35 percent of electricity generation, an increase from 31 percent in 2017.

Projected natural gas growth in electric power generation is supported by increased competitiveness with renewables after the expiration of renewable tax credits in the mid-2020s and the relatively low natural gas prices that are forecasted throughout the projection, the EIA said.

In the foreseeable future, look for a continuing three-horse race involving wind, solar and gas for new utility-scale power supplies.

And on a consumer level, although EIA's latest outlook expects "relatively flat" gas consumption trends for residential and commercial sectors—owing largely to efficiencies in gas-using equipment and population shifts to the Sunbelt—gas enjoys considerable support.

NW Natural President/CEO David Anderson told conference attendees that natural gas bills have dropped about 25 percent since 2011, owing to the declining commodity price. In a luncheon talk, he also referenced a survey in NW Natural's service territory that showed 56 percent of prospective homebuyers think gas service is important and another 31 percent labeled it "somewhat" important. "Once a person has had access to natural gas . . . they want it the rest of their life" for cooking, hot water, gas fireplaces and other uses, he said.

A low-priced, versatile and consumer-appreciated product with an expanding customer base (1.8 percent growth for NW Natural in 2017) in a strong economy—"If I stopped right there, it'd be pretty easy to run a company," Anderson said

But as he and other conference speakers and attendees acknowledged, natural gas, for all its solid position and advantages, is facing hazards.

Infrastructure Challenges

Multiple speakers at the NWGA/AWEC event mentioned difficulties in building new gas infrastructure.

BP's McCall cited Pennsylvania and Ohio as places of particular challenge. "Pipes are coming, they're necessary to get production growth needed to meet demand growth, but there have been some hiccups along the way." He also noted pipeline expansions have facilitated gas exports to Mexico, with more coming, but additional capacity is needed "to take the next step."

Request a sample to get in the know.

The environmental lobby is coming out stronger against pipelines, McCall said. That jibes with what I heard from one attendee, when I casually asked him what's happening in the gas industry: the "keep-it-in-the-ground" movement was his first response.

NW Natural's Anderson offered a similar refrain, in discussing what keeps him up at night. "The folks that are trying to shut the business down with very little facts or knowledge," he told the conference. He also referenced a 10-year process, from conception to opening, for the $132-million, 2.5-Bcf North Mist expansion project, expected to be in service with this added gas storage in this year's fourth quarter.

While infrastructure-development hurdles are a valid and perennial concern for the energy industry, there are other perspectives to consider.

A 2015 U.S. DOE analysis found that "diverse sources of natural gas supply and demand will reduce the need for additional interstate natural gas pipeline infrastructure," as would greater use of existing interstate pipelines with available space.

It also said nearly 127 Bcf per day of pipeline capacity was added in the U.S. between 1998 and 2013; the projection in this 2015 analysis was for 38-42 Bcfd total added between 2015 and 2030, a lower figure at least partly due to recent pipeline additions made "to realign the U.S. natural gas transmission system with changing supply and demand conditions driven by increases in shale gas production." DOE noted siting constraints for new interstate pipelines, but added that the 1998-2013 developments also faced such constraints.

Meanwhile, FERC's 2017 State of the Markets report, released in April of this year, said nearly 12 Bcf and 773 miles of commission-jurisdictional pipeline capacity entered service in 2017, much of it linking Marcellus and Utica shale fields with Northeast and Midwest markets. [Mark Ohrenschall]

Next week: A look at methane emissions and the "electrify everything" movement.


Bearing Down is excerpted from Energy NewsData's Clearing Up publication. If you aren't a current subscriber, see for yourself how NewsData reporters put events in an accurate and meaningful context -- request a sample of Clearing Up.



Please contact webmaster@newsdata.com with questions or comments about this site. Contact the editor if you have questions or comments about Clearing Up content.

Energy Jobs Portal
Energy Jobs Portal
Check out the fastest growing database of energy jobs in the market today.
What's New

Spent Nuclear Fuel in California--A NewsData special report
NIPPC Annual Meeting: Creating Value in Challenging Times
Substation Northwest Podcast, Episode 1
Taste editorial excellence.