Natural gas utilities face increasing business risk as the world makes an effort to release less carbon into the atmosphere, including potential hits to gas demand and difficulties putting new transportation infrastructure in place, an energy economist said.
Even with the pending U.S. withdrawal from the Paris Agreement on climate change, energy experts at ICF International and other analysts expect much of the country to move toward a lower-carbon model over the next 30 years. Mike Sloan, a principal and senior economist with ICF's energy and resources group, observed that 19 states have greenhouse gas emissions targets and 30 states have renewable portfolio standards for power generation.
Local distribution companies will look much different in this low-carbon world, Sloan said on a panel at the LDC Gas Forum Northeast in Boston. "The environmental policies that we're talking about in many states — including the Northeast, including the West Coast — [and] Ontario and Canada will have really significant impacts on natural gas LDCs," he said. "And the natural gas LDCs have to be involved in the conversation. [They] need to be aggressively working to ensure that the full impacts on the entire energy system are being accounted for during the policy debates on environmental emissions."
Sloan's list of challenges appears daunting. Building new gas transportation and delivery infrastructure, especially in the Northeast, is getting harder and more expensive for gas utilities and pipelines. In New England, he said, more infrastructure will be necessary to support growth in gas demand.
ICF projects demand growth in the region to exceed planned infrastructure development, and the consulting firm assumes that there would be additional pipeline capacity proposed to keep up. The weather risk to gas deliveries in New England will increase over time as gas demand increases, Sloan said, and this should help drive pipeline construction.
In addition to the infrastructure complications, conservation, demand-side management and appliance efficiency will all drive down gas usage and drive up costs, Sloan said. Electricity will handle some gas demand with the electrification of gas baseload demand and with customer conversions. At the same time gas is working on coal, renewable power generation and power storage will make progress in displacing gas-fired generation.
The news was not all grim for LDCs, Sloan said. There are opportunities for growth. Many residential and commercial customers are converting from fuel oil to gas. Gas-fired power generation will continue to push aside coal-fired generation and prove itself an ally in renewable power generation. Sloan said renewable natural gas could displace transportation fuels.