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Washington β€” Gas industry officials and observers on November 14 tried to assuage concerns that the sector could take a hit from promises made by President-elect Donald Trump to revive the coal industry, and instead focused on the need for continued pipeline buildout as gas will play a prominent role in both baseload generation and as a backup to renewable energy.

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Speaking at the National Association of Regulatory Utility Commissioners' annual committee meetings in California, Barry Smitherman said the trend line is for natural gas to continue to prosper and renewables to achieve some increased degree of market share given transmission infrastructure development going on and the federal tax credits.

Whether those trend lines can be sustained under the Trump administration remains a question as analysis of forthcoming energy policy is limited to statements made on the campaign trail by an individual who has never held public office, said Smitherman, who has served as chairman of both the Public Utility Commission of Texas and the Railroad Commission of Texas and is now a partner at the law firm Vinson & Elkins.

Coal plants are likely to have longer lives than previously anticipated and may recapture some market share in the generation mix in the fully regulated markets, such as those in the Southeast, Smitherman said.



Gas to keep advantage in competitive markets


But Trump's plan to ease regulations and allow more coal mining as well as oil and gas drilling will increase supplies of both fuels, putting downward pressure on gas prices and increasing the likelihood that gas will continue to be dispatched earlier than coal in the wholesale competitive markets, Smitherman said. "So we can continue to see, in spite of attempts to eliminate regulations affecting coal, that in the competitive markets, gas will continue to play a heavy, heavy role."

Ira Shavel, a principal with the economic and regulatory consultancy The Brattle Group, said during a panel discussion November 14 that while coal plants are likely to linger under the Trump administration, it is still unlikely that any new coal plants will be built. Renewable generation, however, has become a large part of the resource base and will see growth given the economics at play, namely tax credits and sharp declines in the cost of deploying solar power.

He noted that "the Clean Power Plan wasn't a particularly strong program in terms of requirements for pushing renewables into the system," so it's likely demise under Trump is not a game changer for the wind and solar industries.


Renewables still expected to see gains in market share


Paul DeCotis, a senior director in business consultancy West Monroe Partners' energy and utilities practice, agreed, adding that "many of the states already have fairly aggressive policies in place and are taking direct action in providing subsidies and funding for new technologies to enter the system."

According to Shavel, industry should expect more solar, wind and gas to come online, and with that "more and more operational challenges for gas pipelines and gas industry [will occur] as we see these very steep ramps in the morning ...and evenings."

He added that there is also "a mismatch between the day-ahead projections and what will actually show up in real time," and "these kinds of changes in the electric system are going to drive scheduling issues and change that have to occur on the natural gas side."

But the integration of more renewables into the power system also presents opportunities for the gas industry.


Gas best suited to back up renewables


"When you look at renewable energy, you're still looking at natural gas-fired generation as the primary backup," Larry Godlasky, director of government affairs at UGI Energy Services, said. "Even if we see a renaissance in coal, coal and nuclear are not equipped to support renewable energy and the variable generation of that technology as compared with natural gas."

Thus, adequate pipeline capacity will still be necessary in a future that relies on more renewable, intermittent generation, panelists told state utility commissioners November 14.

Godlasky noted that his company has a couple pipeline projects proposed. Among them is the PennEast Pipeline project.

The 36-inch-diameter, 118-mile greenfield project would move lower-cost gas from the Marcellus play in eastern Pennsylvania to markets in New Jersey, New York, Pennsylvania and surrounding states (CP15-558). Meant to provide 1.1 million Dt/d of new firm transportation service, it would provide key takeaway capacity for constrained production in northeast Pennsylvania.

Pipeline constraints in this area caused gas prices in southeastern Pennsylvania and New Jersey to spike to over $120/MMBtu while production areas of northeastern Pennsylvania saw prices between $3-$5/MMBtu, Godlasky said. This, in turn, sent electricity prices "that would normally trade between $40 and $60/MWh" to trade at over $1,000/MWh.

"It's important that we have the pipeline capacity not only to serve the natural gas baseload generation but also have the generation capabilities available when renewable energy does take off," Godlasky said.

But the PennEast project has faced stiff opposition from landowners and environmentalists, and has seen thousands of comments and motions to intervene filed at FERC by opponents . Recently those have included calls for FERC to withdraw its draft environmental impact statement, contending FERC relied on incomplete information to draw conclusions that impacts would be mitigated.

Resistance from landowners has in some cases affected the ability of the project sponsors to conduct environmental surveys, according to the DEIS.

Acknowledging pipeline siting hardships in certain parts of the country, DeCotis offered that for "areas where it's very unlikely politically that new gas pipeline infrastructure is going to get built, system operators have to look at alternatives to gas peaking generation to fill in those gaps when intermittent renewable resources are not available."

One such alternative, he said, is storage, which becomes more cost effective as incremental pipeline capacity increases in cost.

Still, Ralph LaRossa, president and chief operating officer of Public Service Electric & Gas, commented that "if we've learned anything over the last week or so, it is that we need to be prepared no matter what happens."


Pipeline buildout needed, AGA to step up advocacy


In that sense, the electric grid and the natural gas system need more redundancy and more resiliency, and "we should be building out the pipelines so that we're prepared no matter what policy is put forth from the federal government or from any individual state."

To aid in that front, LaRossa, who is currently chairman of the American Gas Association, said AGA is going to become "more and more vocal about the value natural gas brings to society as a whole."

While gas would maintain a place in the generation mix even with more renewables, LaRossa said the industry does not want to "get caught up in the wash of efforts to really push renewables and to take away the advantage that we know that we bring to the table from a supply standpoint."

LaRossa said that his personal view was that a Trump administration would push more federal policies down to the states. As the states garner more control over the generation mix, "there will be a big push by certain organizations to impact those states where they feel they can have an impact, whether it be environmental organizations or renewable organizations," he said.

But given the low cost, abundance and other benefits gas offers, including being an environmentally sound fuel source that can be delivered safely, LaRossa said, "we can't have natural gas just take a back seat, ...whether we're complementary to renewables or we're more of a baseload."

He added that allowing individual states to pick off gas for generation and home heating will trigger reliability concerns. "The more that organizations like [NARUC] can stay on the same page and make sure we don't' get picked off by different policies, the better it will be for all of us."

--Jasmin Melvin, jasmin.melvin@spglobal.com