A small California town in the San Francisco Bay Area is planning to unhook a whole block from the gas network. This is the town of Albany’s approach to decarbonization, and it is using $200,000 in federal government money to do it.
The thing is, Albany is not the only town that wants to get rid of its gas network and switch to electricity. New York recently became the first state to ban gas stoves—and heaters—in new residential buildings, with the ban set to begin coming into effect in 2026. Others, cities and states, have also been mulling over a squeeze for gas used for cooking and heating.
In fact, there were enough of these gas stove ban candidates to prompt action from Congress, which in June passed a bill to block federal bans on gas stoves. This, however, does not mean local bans cannot be effected. This raises an important question for utilities: should they invest the billions of dollars that need to be invested in repairs and upgrades of the gas grid?
Earlier this month, the Interstate Natural Gas Association of America called for more gas pipelines in order to secure the supply of gas for power generation. The call came in response to a report by the Federal Energy Regulatory Commission and the North American Electric Reliability Corporation. The report found that gas supply had been compromised during Storm Elliott in 2021 and advised legislators to enforce gas reliability standards in order to avoid a repeat of the crisis. Related: Sanctioned Tankers Could Undermine India’s Push to Buy Cheap Russian Oil
The problem is that some cities—and states—do not like gas pipelines very much. In fact, they don’t like them at all. In 2019, New York then-Governor Andrew Cuomo rejected a proposal for a new gas pipeline that would have boosted the supply of fuel for electricity generation. The local utility, Con Edison, in response, warned it would have to suspend adding new gas customers due to insufficient supply. New Yorkers have some of the highest electricity bills in the country.
Yet the antagonism to natural gas pipelines is not going anywhere, it seems, and it might lead to compromised supply security if utilities decide investing in upgrades and repairs is not worth it—or if they get banned from doing it by anti-pipeline regulators.
This is what the Wall Street Journal suggested in a recent article that noted aging natural gas pipelines needed several billion in investment. But some states run by Democrat governors are making them think twice. The article also suggests these states could basically order the utilities not to invest in gas pipe upgrades on expectations they will not be needed in the long term, turning into stranded assets.
Stranded assets are a favorite argument of climate change advocates when they call for an end to oil and gas production and consumption. The argument is predicated on expectations that growth in wind and solar power generation capacity will lead to a surge in output from these sources. This, coupled with a surge in EV purchases that has yet to materialize, will shrink demand for petroleum fuels and natural gas for power generation, rendering relevant assets stranded.
So far, however, there is little indication this is where things are going. Despite the massive global buildout of wind and solar, and automakers’ massive investment bet on EVs, oil and gas demand have continued to rise, raising doubts about the stranded asset argument.
This makes U.S. utilities’ position all the more challenging. The gas grid needs a makeover. It is old, and it needs upgrading. But if, in some states or cities, the investment is either banned or considered unwise, this may compromise the security of the grid. As a result, the reliability of energy supply will also be compromised: exactly what FERC and NERC warned about in their report.
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By Irina Slav for Oilprice.com
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