New Report Shows Possible Scenarios for Natural Gas Industry in America [GGP]
In 2018, Black & Veatch Management Consulting, LLC engaged with The Interstate Natural Gas Association of America Foundation, Inc. (INGAA) to research and develop a flagship report that would examine trends in energy use in America over the next 20 years. Our comprehensive study presents both a strategic and analytical analysis that helps educate key stakeholder, energy consumers, infrastructure investors, and policymakers to better understand how natural gas and natural gas infrastructure will be needed and utilized as we enter a lower carbon economy.
A transformation of the natural gas industry is upon us. Spectacular breakthroughs in exploration as well as production technology, pave the way for a dramatically different path forward. Shale gas production is just one example where we have seen a growth of nearly 20 percent year-over-year in the last decade. As gas prices continue to remain relatively low, shale gas development allows natural gas to become the primary fuel for power generation.
The Industry Path Forward
Our extensive analysis, supported by detailed modeling and industry subject matter expertise, helped us to frame two contrasting future scenarios for the natural gas industry. Each path models a different level of renewable penetration and examines the impact on natural gas demand. The first scenario presents a path driven by a balanced policy initiative and market economics (The Balanced Future). The second scenario presents a path driven heavily by policy initiatives intended to aggressively accelerate the penetration of renewables used in power generation (Rapid Renewable Transition).
The Balanced Future
The Balanced Future Scenario is the outcome of analysis showing the opportunity for the energy industry to follow an economic and sustained transition to a low carbon economy. A balance of policy initiatives and market economics will be key drivers behind this scenario. If the industry follows this path, it will provide an opportunity to:
- Meet RPS goals on schedule
- Sustain and support the growth of battery storage and meet the impending mandates
- Support the growth of LNG and pipeline exports
- Improve economic-based investment decisions
During this 20 year period following the Balanced Future scenario, we expect to see an annual growth rate of 0.14 percent and 0.29 CAGR in residential and commercial demand for natural gas. With the anticipated increased demand for petrochemicals and ethylene feedstock, we see this scenario supporting an industrial annual demand growth of 0.6 percent CAGR, as well. Over the next 20 years, we also see the construction of four additional U.S. LNG export facilities in the U.S. Gulf Coast region which will support increased LNG exports requiring up to 16.4 Bcf/d of natural gas.
Under the Balanced Future Scenario, natural gas-fired generation will become an important replacement for retiring coal and nuclear baseload capacity. Between 2020-2040, we anticipate that 82 GW of coal capacity will be retired, and 48GW of nuclear capacity will reach the end of their operating licenses. Natural gas will play an essential role in replacing baseload capacity.
Growth in renewables will change the nature of gas consumption and infrastructure needs between 2020-2040, and likely beyond. The Balanced Future Scenario will see a dramatic increase in late-afternoon ramping requirements when electric demand is high, but the availability of solar generation begins to decline.
With RPS goals being met and renewables playing such an impactful role in this scenario over the next 20 years, the ability to advance energy storage capabilities beyond the current state grows in importance. While energy storage technology continues to advance, it will be challenging to maintain affordability against gas peaking capacity options, especially for longer-term storage solutions. Battery storage could also face challenges with capacity degradation.
The Rapid Renewables Transition
To look at a significantly more aggressive path towards a lower carbon economy driven primarily by broad policy initiatives, we designed a scenario where federal and state “green laws” will be enacted across the US to accelerate sustainability adoption and environmental agendas. States with RPS goals will be working towards achieving 50 percent of load being supported with renewable generation under this scenario. Under this scenario, we also expect to see the rapid growth of industrial-scale battery storage facilities throughout the United States to support over 30 GW of storage needs. This scenario also expects to engender some renewal of nuclear generation as they approach expiration with about 13 percent of expiring licenses renewed to support demand. Global focus on renewables and slower development drive a decline in LNG export growth, limiting exports to 10Bcf/d between 2020-2040.
If the Rapid Renewable Transition Scenario becomes the path of the future of the natural gas industry, we expect demand for residential and commercial sectors to decline by 0.3 percent per year. This decline would be attributed to state policymakers providing incentives and support for customers to move to electrification in an effort to reduce Greenhouse Gas (GHG) emissions. We also expect this scenario to produce a decline of 0.2 percent per year for industrial demand as global development slows. In addition, new and shifting trade policies (i.e., tariffs) will likely impact the number of potential petrochemical facilities developed during the 20 years period.
Over the next 20 years, this path forward would keep natural gas demand close to current consumption levels and could be supported with limited new infrastructure investment. However, under this scenario. a key challenge that the industry will have to be prepared to manage is the electric generation resource mix which will become more uncertain on a day-to-day basis. The Rapid Renewable Transition Scenario incorporates over 450 GW of wind and solar generation capacity to reach high RPS goals. The use of battery storage can partially offset some of the uncertainty, but gas-fired generation will be the most flexible hourly balancing service given the availability and deliverability of the gas supply.
Consumer behavior is evolving, and under the Rapid Renewables Transition scenario, we expect to see residential, commercial and industrial renewables’ demand in the United States to remain close to 50 percent of total consumption by 2040. Even with the rapid transition to renewables under this scenario, natural gas infrastructure will remain important to meeting U.S. demand. Even with public policy driving the transition under this scenario, traditional natural gas users will have limited, economically viable alternatives to natural gas between 2020-2040. We expect to see residential, commercial and industrial demand in the United States to represent close to 50 percent of total natural gas consumption by 2040.
The Next 20 Years
Uncertainty is nothing new for the natural gas industry globally or any other energy resource. Over the next 20 years, we expect global market forces and regional policy-making to impact how natural gas fits into the global energy mix. Current natural gas infrastructure is expected to continue to support the next 20 years of residential, commercial and industrial and power generation needs. Additionally, if gas demand rises as is projected in the Balanced Future scenario, this could spur the need for new gas pipeline infrastructure of up to 21 Bcf/d.
Both scenarios considered in this study drive us towards the goal of creating a low-carbon economy. But, the natural gas industry will have to become more flexible in how it dispatches services to support this journey. The ability to achieve a new level of flexibility will be a key opportunity for the natural gas industry. We expect that the U.S. energy portfolio will continue to support natural gas as a safe, economical and flexible resource over the next 20 years.
READ the full INGAA report. For further information please contact Deepa Poduval, Associate Vice President, Global Industry Leader Oil, Gas & Mining, prepared in association with Black & Veatch Management Consulting, LLC.
The statements, opinions and data contained in the content published in Global Gas Perspectives are solely those of the individual authors and contributors and not of the publisher and the editor(s) of Natural Gas World.