![Liam Denning](https://www.verdexchange.org/sites/default/files/styles/profile_scale_crop_135_190/public/field/image/Liam%20Denning_3.jpeg?itok=NvAN8pNl)
Despite being a once-favored by President Obama as a "bridge fuel," natural gas is hitting setbacks with the Biden administration pausing approvals for new LNG export terminals. As global emissions reduction goals intensify, methane leaks, a potent greenhouse gas, complicate the perception of natural gas as a cleaner alternative. VX News shares, with permission, this opinion piece written by Liam Denning for Bloomberg which highlights the the dilemma faced by gas utilities, as their profits traditionally relied on expanding demand, which is now plateauing, especially outside the power sector. Denning suggests that the industry needs to undergo a fundamental shift in its business model, moving from being pipeline builders to becoming energy system insurance providers.
Natural gas used to sell itself. Emitting less nasties than coal, including carbon dioxide, plus being cheap and homegrown, it was once hailed by former President Barack Obama as a “bridge fuel.” Having flatlined for a long time, US gas consumption surged by about 40% over the past 15 years. Plus, the US has emerged quite unexpectedly as the biggest exporter of liquefied natural gas.
Yet Big Gas is on the defensive, with the latest setback a White House pause on approvals for new LNG export terminals. While President Joe Biden’s move smacks of election-year politicking, the industry must nonetheless grapple with the forces behind it — and the rising potential for splits in their own ranks.
As the ravages of climate change come into focus, calls to reduce emissions have sharpened to net-zero ambitions, where relative emissions benefits lose currency. Meanwhile, concern about leaks of methane, a far more potent but shorter-lived greenhouse gas, has grown, further clouding the narrative of “cleaner” natural gas. Constraints on infrastructure, from pipelines to stoves, are now in place or talked about in major markets like the northeast. Both the US and the European Union moved to tighten standards on methane emissions late last year.
Last week, the Railroad Commission of Texas, incensed at a new federal methane rule, called on the state’s attorney general to sue the Biden administration, which is sort of like calling on Elon Musk to tweet. The commission, tasked with regulating the oil and gas industry it does so much to promote, has long bristled against criticism of methane leaks. A year ago, it denounced the proposed rule as part of an “attempt to shut down the oil and gas industry in Texas.” If that were what Biden was attempting, he would be failing miserably. Still, the point is that gas producers generally like to sell ever more gas and regulations curtailing that are unwelcome.
Gas utilities long shared the same mantra. Their profits are a function of regulated returns on investment in the networks that supply gas to power plants, homes and businesses. That is easier when you can spread those costs over ever more cubic feet of gas. Outside of the power sector, though, demand for gas stands at about where it was in 2000. And even the gains in power generation are nearing their limit; you can’t replace a coal-fired plant twice and renewables are muscling in (see this). The Energy Information Administration’s short and long-term projections for US energy demand skew toward flat or declining gas consumption.
This brings the upstream and downstream bits of the gas industry to a fork in the road. The former derive the majority of their gas as a byproduct from oil production — weakening their economic link to gas in general — and growth rests increasingly on LNG exports. The latter, meanwhile, face a domestic market on the cusp of going ex-growth.
About a year ago, when utility trade group the American Gas Association was fighting the stovetop war, a brief paper published by consultancy MCR Group suggested the real battle was perhaps elsewhere. Pointing out that stoves were an irrelevance, and that demand overall faced a potential plateau and outright decline, Sam Brothwell, a vice president at MCR, suggested seeking a business model that doesn’t rely on rising volume to spread its costs. Instead, utilities should transition from pipeline builders to insurance providers, with existing networks offering backup to an energy system simultaneously becoming more electrified and reliant on intermittent renewables.
Gas is the primary source of electricity in much of the US. California, at the forefront of efforts to green its grid, relies on gas to meet demand when the sun goes down (see this) and will for some time to come even as batteries proliferate. Getting paid for reliability, rather than volume, requires market reform. Recent, controversial examples from the power sector in Texas and California suggest getting such reforms won’t be an easy lift.
It will be harder still if Big Gas isn’t seen to do all it can to minimize pollution. Part of the reliability pitch is being reliably environmentally conscious. Here, there is already a clear division between the upstream and the downstream. In its latest inventory of greenhouse gases, the Environmental Protection Agency finds methane emissions from natural gas systems decreased 15.7% since 1990, mainly due to tightening up pipelines and storage tanks. Meanwhile, “at the same time, emissions from the natural gas production segment increased.”
Even upstream opposition to tighter methane requirements looks self-defeating. The US industry’s methane intensity — leaks per cubic foot of production — is actually relatively low compared with, say, Russia’s. But being the largest producer of gas in the world, even a low share of leaks means a lot of US methane spewing into the atmosphere in absolute terms. Yet “tackling methane emissions remains one of the cheapest and most effective ways to limit near-term global warming,” according to the International Energy Agency.
The incongruity of fighting for the right to lose their own product is one reason why even the upstream business is not united on this. Larger oil majors have pledged to slash methane emissions by 2030. Meanwhile, in denouncing the EPA’s methane rule, the railroad commission specifically called out the “disproportionate impact” on smaller producers.
For the gas utilities requiring a reinvention, such fights are best left to the producers. While the latter remain firmly wedded to sheer quantity, network owners must make a more compelling argument for quality.