Regulatory risk for the US natural gas and power markets is staggering and could jeopardize future consumer, environmental and geopolitical benefits spurred by the US shale revolution, panelists at the World Gas Conference in Washington said Tuesday.
Looking to the future and honing in on the role they expect natural gas to play in power generation, gas and power company executives on the panel saw great potential for gas in the coming years and decades if certain challenges can be overcome.
The power and gas markets are "at a crossroads right now between the market working and what I'm going to call regulatory and political interventions," said Orlando Alvarez, BP Energy head of North America gas and power. "The regulatory risk right now for the gas and power market is high" and increasing uncertainty for those markets.
Among the "interventions" that could have significant impacts on the continued use of gas as a power plant fuel were plans being floated by the Department of Energy to "bailout" struggling coal and nuclear power plants; market design changes proposed by grid operators to enhance resilience; the US Federal Energy Regulatory Commission's review of its 20-year old policy for reviewing pipeline projects; and the integration of new technologies into the grid, including a recent FERC directive for grid operators to better accommodate the participation of electric storage resources in the wholesale power markets, Alvarez said.
MARKETS WORK, BP EXECUTIVE SAYS
"We want competitive markets and fuel-neutral policies," Alvarez said. Getting to that is "going to take key stakeholders across the industry [coming] together and [looking] at all of the aspects" of market design and the varied attributes of different fuel sources.
He contended that every fuel -- be it nuclear, coal, gas or renewable -- has attributes that serve a purpose to the grid, and the markets will price those attributes accordingly. "We don't want something that's just going to benefit one of the fuels," he told conference attendees. "It needs to be a competitive market. The market does work."
Talking to reporters on the sidelines of the conference, Alvarez added that he did not want to make any assumptions about what may come out of certain ongoing policy debates. Until some of the uncertainty plays out and there is a better understanding of where federal policy is headed, he said it was too early to speculate on market impacts or whether industry and investment gets driven outside of the US.
The gas sector, however, could find itself at risk of missing out on global opportunities to expand its market share into power generation if the industry is not able to adequately address certain challenges, Shankari Srinivasan, vice president and managing director of global gas and EMEA power for IHS Markit, said.
IHS Market is projecting global power consumption to double from today's level by 2050. "This presents a great opportunity for gas," Srinivasan said, as "renewables on their own are unlikely to be able to support this level of growth." But the share of incremental power need gas is able to take remains a question.
Challenges facing the gas sector include "rapid renewable generation squeezing out thermal generation, cost reductions in battery technology, as well as being more expensive than coal for generation in many parts of the world," Srinivasan said.
Still, she said IHS Markit was hard-pressed to find a future scenario where gas-fired generation declined. Rather, it generally saw gas-fired generation growing "slightly faster than electricity globally," with gas supplying some incremental growth in power demand and displacing other fuels, particularly coal and oil products, Srinivasan said.
EMERGING MARKETS KEY DEMAND SOURCE FOR GAS
But this picture varied widely regionally and price was a major factor, she cautioned, asserting that the gas sector would need to be proactive in making a case for emerging markets to invest in the fuel source.
Panelists agreed that the growth of gas for power generation did not have to come at the expense of renewable generation, or vice versa.
"We all might agree that in the future the globe will need to manage all the power generation to match the energy needs based on low emissions technologies, but that moment has not come yet," Jose Simon, senior vice president of global gas at Spain's Iberdrola, said. "Meanwhile, renewables are requiring some alternative power technologies that can cope with deficiencies that they have."
The intermittency of renewable energy has been pointed to by the Trump administration and others who fear the growing penetration of that resource will harm the reliability and resilience of the US power grid.
But Simon said that "deficiency" is solved by pairing renewables with gas-fired generation. He pointed to gas' flexibility, quick response time and environmental benefits as opposed to coal to support his assertion.
De La Rey Venter, Shell's executive vice president of integrated gas ventures, agreed that gas was the "optimal" solution to aid the growth of renewables' share in the generation mix. But he contended that the short-term balancing of supply and demand needs when the wind or sun are not available was not the main challenge for a grid with lots of variable and distributed power generation.
"The biggest issue for such a grid is the mega swings -- the huge difference between the peak power requirement in the coldest season of the year versus the average; the difference between a wet year and a dry year in a system that has a lot of hydro at its core; the incremental heating requirement on the coldest day of the year which far exceeds any other peak in power demand," he said. "We believe that gas will remain, by far, the most cost-effective way to handle these large cyclical swings for power and for heat."
Further, he asserted that "a sizable gas backbone enables deeper penetration of renewables in the power system without messing up overall system reliability and resilience, and that the optimal combination of renewables and gas and various forms of storage will, for a long time to come, yield the lowest-cost way to achieve a resilient and low emissions grid."
Speaking specifically to emerging markets, Venter said those countries "face a triple challenge of having to deliver a doubling or perhaps quadrupling of power supply," develop a system that is resilient and "does not suffer from frequent blackouts," and take steps to be green in order to avoid "upfront the troubles that China and India have to address in their cities today."
He suggested the "optimal power system" to meet those three needs "will have lots of renewable energy distributed all over the grid, and it will have just the right amount of gas-fired power close to the main centers of demand, balancing the grid and providing grid resilience."
He noted low capital needs and scalability as "the beauty of gas-fired power."
