8. NATURAL GAS
Assessment
Natural gas markets
Demand for natural gas increased by around 30% between 2007 and 2017. The shale gas revolution has resulted in abundant supplies and extraordinarily competitive prices, which has accelerated coal-to-gas switching in electricity generation, the main source of demand growth. Residential and commercial gas demand have remained at the same levels for the last 20 years, despite a 20% growth in consumer numbers.
In 2017, natural gas was the second-largest energy source in the United States, accounting for 30% of TPES. The substitution of coal by natural gas in electricity generation was a major factor in the 14% reduction of greenhouse gas emissions since 2005.
The legal and institutional framework of natural gas business operations and economic activities is stable. The natural gas industry is open to competition and choice. The price of natural gas is dependent on supply and demand interactions. Domestic wholesale natural gas prices are determined at the HH through market pricing. Marketers facilitate the movement of natural gas from the producer to the end user.
The existing gas infrastructure is largely geared towards imports (with regasification terminals for LNG) and pipelines from Canada. In 2017, the United States had 12 LNG import terminals, compared with just 3 operating LNG export terminals (liquefaction terminals). In 2018, FERC approved 11 new export terminals (7 of which are under construction).
On the regulatory front, US LNG export projects are required to go through several authorisation processes before reaching FID, including the submission of a non-FTA application to DOE and construction authorisation to FERC. In August 2018, federal regulators laid out a timeline for permitting decisions on 13 pending LNG export projects, issuing a memorandum of understanding to streamline and speed up environmental reviews for complex projects.
The United States became a gas net exporter in 2017 and this status is likely to continue for a considerable time. For pipeline exports, Mexico and Canada remained the major destinations, whereas the primary destinations for US LNG shifted from the Americas to Asia in 2017. US LNG exports have changed the global LNG market with more flexible and short-term contracts, thus increasing competitiveness and transparency. It is also worth mentioning the recent trend of de-linking US LNG export prices from oil indexation, which influences LNG seller-buyer transactions in the global market. US natural gas can substitute for other fossil fuels with higher carbon emissions in many countries, which has a positive impact on global carbon emissions.
The growth of natural gas production in some shale basins is constrained by the lack of available pipeline takeaway capacity to move it to new markets. As new pipeline projects come online, they will create an outlet for increased production. In the Northeast and New England regions, there is often not enough pipeline takeaway capacity to cover peak demand in the winter months, increasing prices and decoupling the region from the rest of the US market. In January 2018, the monthly regional spread relative to HH exceeded USD 10/MBtu. By the end of 2018 more than 23 bcf/d of takeaway capacity was online out of the Northeast (three times more than the takeaway capacity at the end of 2014).
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8. NATURAL GAS
However, no major pipeline capacity expansions are planned to come online in New England and in the Northeast regions in the near future.
The diversification of supply regions brought about by abundant shale gas production, along with a vast buildout of new pipeline infrastructure, has also changed gas storage needs. Instead of a heavy reliance on annual injection/extraction cycles, some pipelines now provide a considerable degree of intraday flexibility to gas supply.
The shale revolution has made gas a competitive source of energy. Favourable economic returns for unconventional oil and gas are largely based on high production volumes, rapid development projects and strategies for fast depletion.
A timely development of high integrity and flexible pipelines for gas transportation could improve overall resource management.
Natural gas security
More than any factor, the increase in US natural gas production has increased supply security in the country. The expanded production and attendant construction of new gas transportation infrastructure affords the United States substantial gas supply resiliency.
The shale revolution has also significantly changed the role of natural gas in the country’s energy mix. In 2017, electricity generation totalled 4 234 terawatt-hours, and gas accounted for 31% of the total generation. Co-ordination between the electricity and natural gas systems takes on special importance. FERC’s initiatives such as Order No 809 (Coordination of the Scheduling Processes of Interstate Natural Gas Pipelines and Public Utilities) and Order No 787 (Communication of Operational Information between Natural Gas Pipelines and Electric Transmission Operators) are examples of good practices.
Under the NGPA, the US president is authorised to declare and respond to a natural gas supply emergency. The emergency provisions include emergency purchase and emergency allocation authorities to protect high-priority users of natural gas. The federal energy emergency response functions are designed to address both oil and natural gas emergencies; ESF-12 provides federal support to states to respond to declared disasters and emergencies.
The US government does not have any policies in place to promote interruptible contracts as a gas emergency management tool and to supply vulnerable customers. It also does not have any demand restraint policies in place at the federal level for use during a gas supply disruption. However, the federal government has provided grants to state energy offices to develop energy emergency response plans, including gas allocation, demand restraint policies and associated regulations. The DOE maintains a mechanism whereby it can work effectively with individual states during emergencies.
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