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Natural Gas Is Under Attack

Natural Gas

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.

The post, Natural Gas Is Under Attack, was first published on OilPrice.com.

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.

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“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.

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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.

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