The natural gas sector is well aware of the challenges facing the fossil fuel industry, but analysts say gas has attributes that will keep it a big part of the U.S. and global energy mix.
Natural gas has moved to the front burner of power generation discussions. The fuel’s future has been a topic of debate for months, with the U.S. industry concerned about potential drilling limits from the Biden administration, and a move toward increased electrification in the U.S. and globally that could reduce demand for gas outside of the electricity sector.
The fallout from a severe winter storm that wreaked havoc on Texas’ gas supply in February, and left millions of Texans without power and heat, also raised questions about reliance on natural gas. That’s an issue raised by the Trump administration when it argued for propping up coal and nuclear power, saying the natural gas supply could be disrupted by external events.
Low prices for natural gas over the past decade helped establish the fuel as the leading source of power generation in the U.S. Natural gas also has been characterized as a bridge fuel as the electricity sector transitions toward renewable energy, able to rapidly provide backup power to help balance the intermittency of renewables.
However, the rise of renewables such as solar and wind, along with ever-stricter regulations on power plant emissions, has prompted questions about the future of natural gas-fired generation. New gas-fired plants are being built, but facilities also are being retired. Andrew Bradford, principal of Colorado-based BTU Analytics, said his group expects “19 GW of gas [mostly older vintage gas-steam plant] retirements through 2026 based on our analysis.”
Despite the challenges, analysts who spoke with POWER agree natural gas will remain a major part of U.S. and global power generation for years. They say natural gas continues as an important fuel for baseload power, though large combined cycle plants may give way to more smaller-scale, quick-start combustion turbines, to deal with localized intermittency. Another trend? Gas-fired projects, both new and existing, are increasingly paired with battery storage.
“The future for gas-fired power generation is incredibly bright, notwithstanding the decarbonization megatrend,” said Gabe Procaccini, a partner with Akin Gump who focuses on energy. “Natural gas is abundant, inexpensive in the U.S. [and relatively inexpensive globally as a result of a growing global liquefied natural gas distribution network], clean, and most importantly a flexible source of power. These attributes have fostered greater adoption of gas-fired power generation facilities by many states and independent system operators, and that trend is not expected to decrease anytime soon among this group.”
Procaccini told POWER that the move toward decarbonization could help the gas industry, at least for a while. “In fact, as gas becomes even cleaner through carbon capture and storage, and other emerging technologies, pairing gas with voluntary carbon credits and the greater production of biogas, to name a few factors, demand for gas-fired power generation is expected to grow in these markets and additional gas-fired plants are expected to be built well into the next decade,” he said.
Power Generation
Gas turbine manufacturers continue to innovate, making their products more efficient and flexible, and able to burn natural gas along with other fuels. Two GE 9HA.02 gas turbines—the largest model of GE’s second-generation H-class heavy-duty gas turbine fleet and one of the largest gas turbine models on the global market—in late February began commercial operation at Southern Power Generation’s 1,440-MW Track 4A Power Plant in Malaysia. Mitsubishi Power in March said it is developing a 40-MW class gas turbine that can directly combust 100% ammonia. Siemens Energy in February said it reached an agreement to provide its latest F-class gas-steam combined cycle units to a combined heat and power (CHP) project in China; the 2×460-MW gas-steam CHP units include two SGT5-4000F gas turbines.
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| 1. This is a rendering of NTE Energy’s planned 650-MW Killingly Energy Center in Connecticut. Construction of the project is set to begin this year. Florida-based NTE Energy has 2.7 GW of natural gas-fired electric generation in various stages of development, including the Killingly plant, which will feature a Mitsubishi Power M501JAC combustion turbine, capable of burning ultra-low sulfur diesel as backup fuel. Courtesy: NTE Energy |
U.S. gas-fired projects are continuing (Figure 1), with many factors entering into their planning, according to those who spoke with POWER. “Right now, there is little need for new gas generation in the U.S. at a macro level,” said Jeremy Fago, Utilities and Mining Deals Leader with PwC U.S. Energy. “This is, however, a very region-specific issue—build activity will depend on capacity needs, customer make-up, fuel resource, generation make-up, weather patterns, and many other factors. Furthermore, penetration of renewables will continue to drive needed quick-start [turbine] generation to support intermittency absent significant at-scale breakthroughs in electric storage technologies.”
Fago said improvements in batteries will have a direct impact on gas-fired power generation. “It will directly impact the need for backstop/peaking capacity to support renewable intermittency until new technologies are feasible to store electricity at scale,” he said. “Costs will matter, as will reliability and investor, customer, and regulatory sentiment. It is not a ‘hold all else equal’ evaluation, however, as the industry will be looking at all solutions to support customer needs. The evolution of carbon capture technologies could also significantly impact it.”
Matt Kapinos, an Akin Gump partner focused on energy development, told POWER, “Advanced technology will be sure to make gas-fired plants more attractive to build; however, the movement against fossil fuels will in some states create strong headwinds against building a new gas-fired plant regardless of cost and grid efficiency. Even then, the EIA [U.S. Energy Information Administration] predicts that 60% of all MW added between now and 2050 will be in the form of new natural gas generation. This goes to the reality of the situation: a robust mix of renewable generation requires a reliable mix of baseload and on-demand generation to support it. With the retirements of coal plants and the lack of enthusiasm for new nuclear generation, gas-fired generation has to play a role.”
Bradford noted a move from larger to smaller units, saying his group sees “a potential transition from large combined cycle plants to more smaller-scale, quick-start combustion turbines to deal with localized intermittency. One trend we are seeing is an increase in paired battery projects with both existing and new gas-fired projects. We expect to see this trend in paired battery-thermal assets continue at operational and new quick-start gas assets under development.”
Flexibility also is a key consideration. “New gas-fired plants must be capable of transitioning to hydrogen or carbon capture as those technologies mature,” said Tom Rumsey, vice president of external and regulatory affairs at Competitive Power Ventures (CPV), which has brought a number of new gas-fired plants (Figure 2) online in recent years. “Fortunately, the leading manufacturers have already designed turbines with these capabilities. Gas turbine technology is not the issue of moving to hydrogen or carbon capture. Developing a sound regulatory environment, building the infrastructure, and addressing the costs are the primary concerns… environmental impacts, the cost and availability of investment capital as well as any legislated carbon reduction goals will also drive investment decisions.”
Kane Cuddy, president of BOND Civil & Utility, which provides power plant and other construction services, told POWER, “Advancing technology, especially the reduction of their carbon footprint, will certainly impact the future viability of gas-fired plants. Keeping these plants more efficient will assist in keeping them in market consideration. Economics and cost viability will always play some role in determining new-builds, but I also believe we are already seeing shifts in buying behavior be more and more shaped by the net-neutral policy initiatives.”
Bradford said that globally, “our expectation is [that] as emerging economies address decarbonization, while renewables will be part of the solution, so will a significant volume of gas-fired power assets. Higher-efficiency gas plants will certainly be a part of the mix for companies to achieve carbon reduction goals, particularly in areas where wind and solar lack either the resource potential or land area for wide-scale development.”
Impact of Electrification
The decarbonization of the world’s energy supply includes a focus on electrification. Much of the discussion has looked at increasing the adoption of electric vehicles, but the gas industry is particularly concerned with measures to eliminate the use of natural gas in homes and commercial buildings.
California has been at the forefront of the electrification movement in an effort to meet the state’s aggressive climate goals. “We have seen increased regulation at the municipality level pushing for electrification, with some recent examples in Berkeley and San Jose, California,” said Bradford. A study from the Rocky Mountain Institute (RMI) concluded that California’s most efficient and cost-effective way to reduce carbon emissions in new buildings would be for the state to require all-electric new construction in the 2022 code cycle. The RMI estimated that a statewide ruling for the 2022 code cycle, versus waiting until the next code cycle in 2025, could save California 3 million metric tons of carbon emissions by 2030.
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| 2. Competitive Power Ventures’ Woodbridge Energy Center in Woodbridge Township, New Jersey, is a 725-MW, $843 million 2×1 combined cycle plant that began operating in January 2016. It features two GE fast-start 7F 5-Series gas turbines, along with a D-11A steam turbine. Courtesy: Competitive Power Ventures |
Bradford said BTU Analytics’ forecast of U.S. residential/commercial (res/com) natural gas demand to 2050 is relatively flat from current levels, at 21.6 billion cubic feet per day (Bcf/d) in 2020. He said that res/com gas demand “has been relatively flat since 2010, bouncing around 20 and 23 Bcf/d depending on year-over-year HDD [heating degree day] changes.”
He continued: “Going forward, there are offsetting forces between new-build res/com demand versus the combination of tighter building codes, higher efficiency appliances, and the continued demographic shift south and west. BTU’s forecast has falling res/com demand from a peak in 2026 at 22.3 Bcf/d down to 22.0 Bcf/d by 2050. From a regional perspective, I would expect the most traction on municipal regulation of new-build gas burn to occur on the West Coast and mid-Atlantic to New England corridor, based on current municipal-level climate action.”
The Texas Situation
The widespread power outages in Texas caused by a severe winter storm highlighted the shortcomings of a reliance on natural gas, though energy experts said proper winterization of equipment would have helped avoid, or at least lessen, the negative impacts. State data showed that production of natural gas, and gas-fired power generation, each fell by about a third in Texas during the period of extreme cold. Energy analysts agreed that the state’s gas infrastructure and power generation failed because it is not designed to work in such conditions, unlike the equipment in other areas where cold temperatures are more common.
“In the U.S., the new Biden administration… likely will give strong support to further moves away from reliance on gas-fired power generation. It is too early to tell whether that support will be matched by state-level regulatory support and mandates,” said Steve Davis, a partner with Akin Gump and co-leader of the firm’s energy team. “Nonetheless, many of the largest oil and gas companies, as well as the largest car manufacturers, appear to be voting strongly with their capital dollars that the trends toward renewables and electrification are here to stay and even accelerating. It may be more regionally focused, with states with significant oil and gas-related facilities delaying mandates for a significant period of time. Still, the mid-February Texas weather events and their fallout are too early, and perhaps too potentially many and material, to predict.”
“Wholesale energy markets were designed and have been very effective at selecting the lowest-cost generation to meet reliability needs for over two decades,” said Rumsey. “As gas prices fluctuate, so will generation dispatch.” He said that while environmental concerns will bring more renewable energy generation, “highly efficient, flexible baseload generation will be needed to balance the intermittency of renewables. We have seen the challenges of an over-reliance on non-dispatchable generation. The lowest-emitting, efficient, and reliable technology available to ensure reliability while facilitating renewable growth is combined cycle natural gas generation.”
Drilling Limits
Among the policy considerations for natural gas is what impact new limits on U.S. drilling from the Biden administration will have on the sector. One of the administration’s first actions was to temporarily suspend oil and gas permitting on federal lands and waters.
“Fracking [hydraulic fracturing] is a hot-button issue for this administration,” Thomas Lorenzen, a partner with international law firm Crowell & Moring, told POWER. “Natural gas is increasingly taking the place of coal. There may be opportunities for the administration to work with the gas production industry to reduce methane leaks and reduce methane emitted into the atmosphere. We can expect to see more regulation on methane emissions on public lands, requiring the sector to fix leaks.”
“The impacts of the recent moves by the Biden administration to limit drilling on federal lands is nuanced,” Bradford said, but he generally doesn’t anticipate a significant impact in the near-term. “The president’s decision to freeze new drilling leases and permits on federal lands is likely to impact New Mexico the most,” as federal land accounts for almost two-thirds of that state’s natural gas production. Bradford noted, though, that “over the last two years producers have slowly built up a significant backlog in drilling permits that could sustain drilling for over three years.”
Andrew Griffith, a senior consultant for international consultancy ICF, told POWER, “Restricting drilling on federal lands will have a significant impact in some regions, but the national impact would be far less today compared to 10 years ago. In 2010, about 23% of the country’s natural gas production came from federal lands. That proportion has declined every year since, and it was about 11% in 2019. Since 2019, some oil and natural gas producers, anticipating potential restrictions to drilling on federal lands, began shifting their focus to areas of the country where they could drill on privately held land.”
Griffith continued: “Given this transition of production away from federal lands, the gradual nature that any new restrictions on leasing of federal lands likely would be implemented, and the fact that the lowest-cost oil and natural gas resources in the U.S. are not on federal lands, the impact will not be an immediate loss of 11% of natural gas production. The Marcellus and Utica production basins, for example, sit almost entirely on privately held lands and likely would make up a significant amount of the difference in gas production.”
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