Diggin’ for, and Transporting and Using, Natural Gas – Underground Infrastructure, Part 2
The Essentials Newsletter, Twenty-ninth Edition
I hope all of you with kids are getting back into the swing of things as summer draws to a close and we end the first week of September. Time keeps flying. Many of my friends have been dropping off their kids at college over the last several weeks, some for their freshman year. We’re not quite there with ours, but our oldest is a junior in high school, so it’s looming. What a bittersweet time – excitement and pride all mixed up with sadness. My heart goes out to any of you going through it.
What does this have to do with the topic at hand? Nothing directly, of course, but I could stretch an analogy and note that almost everything worthwhile in life comes with both an upside and a downside, including anything involving critical infrastructure sectors or subsectors, like natural gas. As I discussed in Part 1 of “Diggin,” it’s important for all of us to understand and appreciate the vast amount of critical infrastructure operations occurring underground. For this follow-on, having dug into these underground infrastructures in Part 1, we’re going to dig deeper into natural gas (sorry, I can’t help myself with the puns!). In this case, the deeper dive will delve into the policy questions and where we should go. But first, I will state my unequivocal opinion that natural gas will be in use for many decades to come (and maybe longer) unless some heretofore unseen breakthrough is discovered that can proxy its uses, not only in home heating and power production, but as an essential chemical input.
Reminders
In the seventh edition of this newsletter, I covered quite a bit of ground (no pun intended this time, I swear) on the history of natural gas and I think it’s helpful to revisit those points now.
Natural gas is found in the ground, just like the liquid and solid forms of fossil fuels, and it is also a byproduct of drilling for liquid petroleum. The first commercial natural gas operation was formed in the mid-1800s in Fredonia, New York, but natural gas was not widely used until the 20th century. Natural gas is volatile – it must be kept at a certain pressure to move it. It also cannot be easily stored. Until recently, it was stored in certain natural rock and sand formations. Now, it can be liquified and stored in tanks. Given its heating and cooking properties, North America and Europe invested heavily in natural gas pipelines in the 20th century to make it more widely available. Safety measures such as adding a smell to the odorless gas as well as standardized pressurization, also enabled widespread usage, which continues today. Geopolitical and environmental/climate change pressures, however, are now at play and causing some to evaluate other options.
Natural gas began to be widely used as a power generation source beginning in the 20th century, but until recently was considered to be an “intermediate” form of power. Because it cannot be stored everywhere and as a commodity has been subject to significant price fluctuations over the years, electric utilities until recently used it in a targeted way to supplement more available and less expensive forms of power, like hydropower, coal, and nuclear. However, the advent of hydraulic fracturing, the discovery of vast shale gas deposits and other factors have brought down the price of natural gas in the last two decades, driving more investment in it as a power generation source. Natural gas’s greenhouse gas (GHG) emissions profile (at least from a power generation perspective) is about half that of coal. So, for both cost and environmental reasons, electric utilities have made a massive switch from coal to gas, with gas now being used 40% of the time and coal 20% where it used to be the reverse -- a flip in just the last 10 years.
The two industries are not really set up for this switch – natural gas’s priority has been home heating and the gas industry acts accordingly in an emergency, prioritizing home heating delivery over electric delivery. While liquified natural gas (LNG) has helped with storage where it is not naturally available, LNG is not widely deployed domestically (it is used more for exports). This generally means that the electric sector has to rely on pipeline availability to get its gas in a timely manner, which can be problematic in an emergency such as that seen during Winter Storm Uri in 2021.
The two sectors, natural gas and electric, also grew up differently – they literally work different hours and think differently about reliability and availability. Having said that, natural gas power generators can ramp up and ramp down to absorb the intermittency of solar and wind generation more easily than other generation types. Like other fuel sources in the electric sector, natural gas is a mixed bag in terms of cost, environmental impact, and reliability. Ongoing discussions are occurring among the two industries and with policy makers on these challenges.
In terms of natural gas’s myriad and crucial industrial uses, I found this to be a helpful overview of the wide-ranging uses of natural gas beyond power generation from NaturalGas.org:
Industrial applications for natural gas are many. Industrial applications include those same uses found in residential and commercial settings – heating, cooling, and cooking…Natural gas is also used for waste treatment and incineration, metals preheating (particularly for iron and steel), drying and dehumidification, glass melting, food processing, and fueling industrial boilers. Natural gas may also be used as a feedstock for the manufacturing of a number of chemicals and products. Gases such as butane, ethane, and propane may be extracted from natural gas to be used as a feedstock for such products as fertilizers and pharmaceutical products.
Natural gas as a feedstock is commonly found as a building block for methanol, which in turn has many industrial applications. Natural gas is converted to what is known as synthesis gas, which is a mixture of hydrogen and carbon oxides formed through a process known as steam reforming. In this process, natural gas is exposed to a catalyst that causes oxidization of the natural gas when brought into contact with steam. This synthesis gas, once formed, may be used to produce methanol (or Methyl Alcohol), which in turn is used to produce such substances as formaldehyde, acetic acid, and MTBE (methyl tertiary butyl ether) that is used as an additive for cleaner burning gasoline. Methanol may also be used as a fuel source in fuel cells. For more information on the production of and uses for methanol, click here.
Policy Implications
When I first came to D.C. after college in, um, 1993, I was hired to answer phones for then-Senator John McCain (R-AZ). The title for that job was “staff assistant,” but I spent the vast majority of time on the phone, including during the Somalia operation gone wrong (as depicted in “Black Hawk Down”) when the eight phone lines were ringing off the hook for several days. But I digress. The point is that, during that time, I organized other staff assistants and interns for a “brown bag lunch” every Friday where we picked a new policy topic and debated it. What I learned to appreciate then and still know now is that every single policy the federal government undertakes has winners and losers – there is not one thing that is a win for everyone in this vast nation of 330 million people. Even the most innocuous-seeming decision. I promise you.
Natural gas has seven main characteristics that each involve major policy challenges, particularly in the last 50 years or so, as environmental laws have hindered expeditious permitting and siting and as they have required increasingly stringent emissions controls on criteria pollutants (not to be confused with greenhouse gases). Note that I am mostly drawing from my own experience and knowledge here – hence, few citations.
1) Extraction. Underground access to extract the fuel itself is required, as we’ve discussed in detail in previous editions. Permitting and siting of the extraction facilities can be challenging.
2) Storage. Up until relatively recently, natural gas could only be stored in naturally made caverns. Such caverns are not available everywhere. The recent, major development of LNG enables more flexibility in both storage and transportation of the fuel, but siting such LNG facilities can be difficult, setting up a situation where certain locations have more reliable natural gas than others.
3) Safety. Natural gas is volatile and, if pressure levels are not properly maintained during its transportation or a gas main is inadvertently damaged, an explosion could occur, with potentially fatal consequences. These occurrences are, thankfully, rare. In addition to industry efforts, interstate pipelines are heavily regulated via the Department of Transportation’s Pipeline and Hazardous Materials Safety Administration (PHMSA). The intrastate distribution pipelines are regulated at the state level, but they must, at minimum, meet federal standards.
4) Transportation. As we’ve discussed, operation and maintenance of a massive web of wholesale and retail natural gas pipelines (“transportation”) is required. Much less the construction of new pipelines – thankfully, a lot of that was done in previous decades, but demand has increased such that new interstate pipelines are needed. Again, permitting and siting are challenges, which in turn impacts the next characteristic.
5) Price. As I’ve noted, as a commodity with no real competitor/replacement, the supply/demand curve for natural gas is very sensitive and price spikes have often occurred over the years (and let me tell you how much the phone rings in a farm state Senator’s office – I subsequently worked for a Senator from Nebraska -- when the price of fertilizer goes up). On an ongoing basis, the ability to access shale gas has greatly increased domestic supplies, thereby softening the price. With LNG in the mix now, however, the domestic price is increasingly tied to international prices, which may impact how consumers of natural gas – especially commercial and industrial customers, including electric utilities – evaluate and execute their hedging strategies. Also, the more pipeline capacity, the better, especially in times of high demand, like unexpected cold snaps such as occurred in Winter Storm Uri.
6) Emissions. When combusted in a power plant or elsewhere in certain chemical processes, natural gas-fired boilers or furnaces emit primarily nitrogen oxides, methane and carbon dioxide (among other trace emissions of sulfur dioxide and particulate matter, for example). However, in the case of power plants and other boilers regulated by the Environmental Protection Agency (1.4_natural_gas_combustion.pdf (epa.gov)), technological improvements in emissions controls have enabled significant reductions in NOx emissions (NOx is known as a “criteria pollutant” because it can be reduced at the source and remains in the local air as opposed to a GHG that is global in nature). Currently, CO2 greenhouse gas emissions from natural gas combustion are about half of that produced by coal combustion. There is no economic way, yet, to capture, utilize or store such emissions – although multiple presidential administrations, Members of Congress, electric utilities, and oil & gas companies have supported efforts to provide such an option. Also, according to EPA, “Methane emissions occur in all segments of the natural gas industry, from production, through processing and transmission, to distribution. They primarily result from normal operations, routine maintenance, fugitive leaks, and system upsets.” Globally, methane emissions account for 16 percent of all greenhouse gas emissions and 11 percent of human made emissions, according to Chevron Corporation. The oil & gas industry has put measures in place to reduce these emissions, where possible.
7) Security and Reliability. Since natural gas is used by several other critical infrastructure (CI) sectors, what happens with its availability matters to other parts of the economy. I’m coupling these two characteristics together because they are related. If, for example, a key natural gas pipeline is physically compromised or has to come offline because of a cybersecurity breach, it can impact its availability for not only home heating and cooking, but industrial uses such as electricity production and chemical processes.
As is obvious from this list, each of these areas pose unique policy or marketplace challenges, some of which I have already alluded to in the above. In essence, these can be put in the following three “buckets”: environmental (emissions and land impacts); security (physical and cyber); and safety.
In terms of the environmental bucket, GHG emissions from natural gas use, whether via combustion, flaring, leaks or other operations, are the main reason that some want to do away with it completely. Others focus more on the extraction side of the equation, where water use and seismic impacts have been cited as problematic, especially as the newer technology of hydraulic fracturing has been implemented in the last 20 years.
The physical- and cybersecurity-related issues, to me, pose significant challenges because of the increasing use of natural gas as a replacement for coal in power plant operations (given natural gas’s lower GHG emissions profile). Coal can be stored onsite, no matter where in the country a power plant is, but that is not true of natural gas, putting some natural-gas fired power plants at the mercy of the pipeline system, which is already constrained (despite industry’s best efforts to build more capacity) and can become overwhelmed in peak conditions. The huge uptick in demand for electricity due to electrification of vehicles and data center demand has, ironically in some ways, put more pressure on the natural gas industry to perform. These overlaps mean that some are pushing for mandatory reliability/cybersecurity standards for the natural gas industry, while others see this effort as a band-aid compared to the root challenges facing the industry.
I won’t go into the safety policy matters here because they are more mature and resolved than the other two.
Why Bother?
Despite these complicated and daunting challenges, natural gas serves so many beneficial needs for our economy that, in my opinion, we have no choice but to address them. While technological innovations will help to enable other solutions on the power side, the gap between now and then is deep and wide. At the same time, the oil & gas and power sectors have both embraced exploration of low-GHG emission hydrogen-powered electricity enabled by natural gas (such hydrogen efforts are also being explored for other fuel sources), which has the benefit of using much of the existing natural gas transportation infrastructure. However, the widespread and practical application of this innovation is likely years away.
As I have noted, the use of natural gas in chemical processes is also foundational. Without unforeseen innovations in those processes, its use in these industrial settings is crucial.