With a 38% stake in the U.S. natural gas transportation industry, Kinder Morgan Inc. potentially stands to lose out in the western U.S. over the coming years as the pipeline owner and operator sees renewables devouring the equivalent of some 2.8 Bcf/d of gas demand by 2025.

"Renewable generation will continue to erode gas," Will Brown, vice president of business management at Kinder Morgan, told an audience in his opening remarks at the Rockies & West LDC Forum in Denver.

Already in 2017, renewable power generation from solar and wind is displacing the equivalent of about 870 MMcf/d of gas demand in the California ISO region, according to Brown. But as renewables continue to eat away at demand for baseload generation, the need for peak deliverability of natural gas supply is growing, says Brown. He sees the inevitability of that growth as a business opportunity.

CAISO 'duck curve' is deepening

Referring to the CAISO duck chart, which depicts a U-shaped demand curve for baseload power over the course of a typical 24-hour day in California, Brown highlighted the growing need for peak deliverability of natural gas between the hours of 3 p.m. and 6 p.m.

During that three-hour period, demand for baseload electricity in CAISO ramped up by as much as 13,000 MW in 2016. As renewable generation continues to grow, the size of that end-of-day demand ramp is expected to continue growing as well.

Increasing demand for peak-hour gas supply in the western U.S. has already started transforming the midstream business, Brown said. "Some of our customers already hold firm capacity for peak-hour gas supply," he said on the sidelines of the forum. As those peak deliverability needs increase, he expects that the availability of interruptible capacity will likely decline to accommodate that end-of-day increase in gas-fired generation.

Renewables to flatten western US gas demand

As renewable power from solar and wind continues to grow in California and beyond, Platts Analytics sees gas demand in the western U.S. holding relatively flat through the end of this decade.

In 2017, regional demand is expected to average just over 8.5 Bcf/d, which is down about 2% from last year, thanks to robust hydrogeneration along the West Coast this year. In 2018, regional demand is forecast to recover somewhat, rising to an average 9 Bcf/d. By 2020 though, renewables are expected to cut total demand to an average 8.8 Bcf/d, Platts Analytics' forecast shows.

J. Robinson, a reporter for S&P Global Platts, wrote this article. S&P Global Platts and S&P Global Market Intelligence are owned by S&P Global Inc.