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Nick Cunningham

Nick Cunningham

Nick Cunningham is a freelance writer on oil and gas, renewable energy, climate change, energy policy and geopolitics. He is based in Pittsburgh, PA.

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Natural Gas Is Under Attack

Natural gas has been billed as the key “bridge fuel” that will help the energy transition, replacing coal while buying time for renewable energy to scale up. However, even as gas is triumphing over coal in the U.S., it is increasingly under attack by policymakers.

Gas claims a carbon emissions profile that is half that of coal, and in terms of local pollution – sulfur, mercury and particulates – natural gas is a tremendous upgrade relative to coal. However, even as CO2 emissions are much lower, there are questions over the climate benefits if lower CO2 is offset by higher methane emissions from gas, which typically come from the drilling and extraction of natural gas, and its shipment via pipeline and local distribution lines.

With the coal industry a dead man walking, environmental groups have turned their sights on natural gas as an enemy of the climate. Recently, the efforts have logged some impressive achievements, forcing gas on the back foot in several states.

California’s state Public Utilities Commission recently pressed Pacific Gas & Electric to build new renewable energy and energy storage to replace three gas-fired power plants. The state’s largest utility also said it has no plans to build new gas-fired generation and other gas projects have been put on ice as the state tightens the screws on the gas industry.

This stems from the state’s effort at sourcing a greater portion of its electricity from renewable energy. California has mandated that 50 percent of its electricity to come from renewable energy by 2030. California is leading the clean energy shift in many ways, but it still has a ways to go in order to get there – it only generates about a third of its electricity from clean energy right now. “You’re not going to get anywhere if you are just adding more and more gas,” Robert B. Weisenmiller, chairman of the California Energy Commission, told the Wall Street Journal. “At some point soon we’ll be permitting the last gas plant in California.”

The policy backlash against natural gas in green-tinged California may not be surprising, but the hostile reception to gas is popping up in other, less obvious locations. In an incredibly notable development, last week Arizona regulators dismissed the long-term plans from utilities in the state to build gas and ordered them to consider renewable energy. The regulators also issued a surprise 9-month moratorium on new gas plants larger than 150 megawatts. Related: Oil Markets Should Fear A Demand Shortage

“In an effort to protect ratepayers from potential unnecessary capital improvements in the near future and stranded asset costs in the long-term, this amendment places a temporary moratorium on new natural gas infrastructure pending Commission review and approval on a case by case basis," the gas plant moratorium amendment says.

The language is notable. Arizona regulators are trying to protect the public from the “stranded asset costs” associated with natural gas, which means they fear that gas will be forced out of the market at some point due to cheap renewable energy or climate policy restricting fossil fuel use, or a combination of both. It is also the language used by environmental and socially responsible investment groups who warn about the risk to shareholders from fossil fuel investments.

The decision is all the more remarkable because it isn’t like Arizona is hotbed of environmentalism – the regulators are all Republicans and the state does not have laws mandating the use of renewable energy. The logic from Arizona’s regulators is one of hard-nosed economics and long-term financial risk.

To be sure, it isn’t as if gas is on its way out anytime soon. The U.S. is set to break new records for gas production this year, and in 2017, the U.S. became a net exporter of gas for the first time since 1957. And in places like Pennsylvania and Ohio, home to the Marcellus and Utica shales, the region is drowning in gas and looking to build a flurry of pipelines to move the gas elsewhere. Related: The Oil Major That Won’t Leave Iran

The coal-to-gas switch began several years ago after the explosion of shale gas production, which has made gas the largest source of U.S. electricity generation. Gas will probably remain on top for a while.

But with coal in structural decline, renewable energy advocates, environmental groups, and – crucially – a growing number of regulators and policymakers are now pressuring utilities to switch from gas to renewables. As a result, the natural gas “bridge” might be shorter than everyone thinks.

By Nick Cunningham of Oilprice.com

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  • Lee James on March 19 2018 said:
    I think gas is good. However, truly clean energy is better. I will be more impressed with natural gas if I see a report outlining significant progress made in reducing fouled well completion water. I want to see much less gas leakage, from well head to end-user. And I hope good solutions for flaring "nuisance" gas will continue to be found.
  • Steve on March 20 2018 said:
    For those who believe that a nice, smooth transition from fossil fuels to 'renewable' energy is anywhere near possible, you might want to read this article by Kurt Cobb of Resource Insights: http://resourceinsights.blogspot.co.at/2018/03/the-troubling-realities-of-our-energy.html
  • Citizen Oil on March 20 2018 said:
    You shouldn't take California as an example of a trend. They were never considered when ramping up production and building LNG plants. Nat gas will go as Asia goes. So far Asia will represent a massive increase in NG consumption and will make California irrelevant . California has a Democrat pie in the sky mentality and it has bankrupted them. Great ideas sometimes don't work out well in the real world , especially if you can't figure out how to pay for them.
  • snoopyloopy on March 20 2018 said:
    @Citizen Oil:

    That's why it was noted that Arizona is ALSO looking to curtail investment in natural gas. Also, unlike states like Kansas and Oklahoma, California is far from bankrupt.
  • John Scior on March 20 2018 said:
    For those concerned about CO2 emissions, I would like to see more on-site generation of electricity at shale wells so that the electricity can be fed to the grid instead of being flared off. There are some small scale generators that would make this feasible and could be more readily relocated to a new well once the well has been played out. Also moving electrical power lines would be easier and cheaper than attempting to compress the gas and transporting it which in essence is the reason its more economical to simply flare it off than to capture and sell it on the market.
  • John Brown on March 20 2018 said:
    I never pay any attention to what the Marxist/Atheist Democrats in the People's Republic of CA do. They are both corrupt and incompetent. Their high speed train project has now risen in cost to $100 Billion. Its the biggest corrupt payoff to campaign contributors and unions in history, and my bet is it hits $250 billion before the Democrat in CA stop milking it. Then of course the upkeep cost will be 10X higher than they estimate. Gotta keep the payoffs flowing. The CA state Gov will have to subsidize that Turkey by ten billion a year or more. The real cost of a ticket will be $10,000 ow. So no surprise at all that CA wants to choke off cheap clean natural gas in favor of some future for renewables. That's fine. The average cost of electricity in CA is already 2.5 times the national average. So who cares if it goes to 5 or 6X the national average.
    The freaky Democrat environmentalist by turning on natural gas will only result in extending the use/life of coal and oil. Renewables still appear to be 30 or 40 years from having the kinks worked out and getting them to a reasonable unsubsidized cost. We can hope for a break through but nobody sees one now. The freaks right now should encourage natural gas as the cleanest possible bridge fuel, and also promote safe nuclear. but they won't because they are freaks and they'd rather rail against things and use it for political advantage than actually come up with workable solutions everyone will support that might actually help all of us.
  • Citizen Oil on March 20 2018 said:
    @ Snoopyloopy , Arizona doesn't make a lick of difference either. Now if the midwest and eastern states started to shun NG then we'd have problem . If you think California is fiscally sound you are delusional. They are in deep, deep trouble. People are flocking from there in droves to Texas and other states that are not under the Democrat's manglement. Not management , manglement.

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