The Potential of Regional Natural Gas Power Plant Build-out to Relieve Appalachian Gas Gluts, Present and Future

The Potential of Regional Natural Gas Power Plant Build-Out to Relieve Appalachian Gas Gluts, Present and Future

This post stems mainly from a recent webinar I attended on the subject, referenced below. The panel discussion included a PJM Power Market executive, Michael E. Bryson, VP of operations, a utilities legal consultant, Richard A. Drom, and a natural gas and energy market analyst, Matthew Hoza of BTU Analytics. The discussion was introduced and moderated by Marcellus correspondent Jamison Cocklin.

The conclusion from the webinar was that while new power plants will certainly help by soaking up some demand, LNG exports abroad and to Mexico will take up most of it. BTU analyst Matt Hoza predicted 5 years of modest gas excess with possible spikes during cold winters. Prices are not expected to match Henry Hub any time soon but should remain on average as they are, reasonably close. Since the U.S. has some of the lowest cost natural gas it is inevitable that LNG exports will continue and expand offering some guarantee of reducing gluts as more facilities come online.

The webinar offered insights from the gas producer perspective, the infrastructure perspective, the utility perspective, and the regulatory/legal perspective. Power plants will be most helpful in the North-Eastern PA area where infrastructure constraints, delays, and permit denials have been higher. The Western Appalachian area has seen some new takeaway capacity and will see more in the near-term and mid-term. Gas power plants built close to shale production areas offer superior economics to any other fuel source, good fuel security and good fuel assurance. Gas on gas competition is also possible as the economics of replacing outdated inefficient gas plants with new efficient combined-cycle plants can also be compelling. Fuel assurance, fuel security, fuel diversity, grid reliability, grid flexibility, and grid resiliency are all issues addressed by power generators. 

A recent PJM study of grid reliability indicates that grid reliability can be assured in the PJM market area (13 states and 21% of U.S. GDP) with 86% gas and likely more. Since current levels in the market area are at 33% gas generation these leaves plenty of room to economically replace aging coal and gas plants with new efficient ones. The area of growth of gas generation is Appalachia and the Atlantic Seaboard. PJM expects 5-10,000 MW of new gas generation to come on in the next 3 years. Fuel assurance/security may eventually become an issue for gas as reserves wind down but gas is expected to be available at good prices for much or all of the life of these plants. At some point there would likely be higher gas prices as core areas become drilled up but that would also likely activate non-core areas as well as other regional plays, both horizontal and vertical.

As takeaway capacity increases from the Western Appalachian Basin with Rover and other pipelines, growth of about 6 BCF/day is predicted from current production there which is about 13.5 BCF/day. In contrast, the Eastern Appalachian Basin area of Northeastern Pennsylvania currently produces about 9 BCF/day with growth expected to be about 2 BCF/day. This area is more constrained by lack of takeaway capacity. New gas power plants in that region help producers. Cabot selling direct helps them. Dominion’s Cove Point LNG export terminal (export capacity ~750 MMCF/day) will also help stimulate demand there through Transco Zone 5.

Nationally about 14.5 BCF/day of new demand is forecasted. 2.5 BCF/day of that is expected to be from power burn so about 17.2%. LNG exports from Sabine Pass are expected to approach an avg. of about 2 BCF/day later this year. I think 8-10 BCF/day is a reasonable prediction for LNG exports from the U.S. by the next 5 years or so. I don’t think it will get much higher than that as domestic reserves need to be assured. Pipeline exports to Mexico are also expected to add a few BCF/day as new pipes are laid. There is still a chance that Appalachian gas prices will become depressed again – though probably nothing near the lows of the last few years – due to warm winters, cool summers, pipeline delays, and LNG build-out delays.

Drilling productivity from rig efficiencies, better targeting and placement, longer laterals, closer frac stages, more proppant per stage, etc. is expected to gain slightly or modestly. Keeping gas prices reasonably low and keeping them from spiking in winter may actually help gas producers by preventing ‘fuel switching’ from gas burn to coal burn where applicable. Appalachia is also home to coal and coal plants.

Other things noted in the webinar include: the assessment that overall renewables have replaced gas demand by about 4 BCF/day and are not expected to be a barrier to gas build-out. The momentum toward efficiency and decarbonization of the grid is expected to continue. The PJM exec also noted that carbon capture and sequestration (CCS) for coal plants has thus far been an economic failure. Although there have been a few technical successes with CCS it is not expected to make much of a dent in the near future. 

References:

Webinar: Super Power: Will New Gas-Fired Power Plants Solve the Appalachian Shale Gas Glut?
May 4, 2017

Natural Gas Exports Can Solve U.S. Energy Glut – by Shelley Goldberg, in BloombergView, May 5, 2017

Grid Reliability, Resiliency, and Baseload Power: U.S. Realities and Risks

Grid Reliability, Resiliency, and Baseload Power: U.S. Realities and Risks

Grid reliability refers to the ability of the regional power grid system to react to changes in power demand without compromising good service and availability, “to deliver electricity in the quantity and with the quality demanded by users.” A related but different concept, grid resiliency, refers to the ability of the grid to bounce back quickly from unexpected disruptions, (often cyber incidents whether planned attacks or accidental software bugs) and adapt. Grid resiliency improves overall grid reliability. Typically, it is baseload power that provides the most reliability. Baseload power is power which can be accessed reliably and quickly when needed without disruptions. Intermittent power sources like wind and solar can only provide baseload power at certain times of the day and even then not reliably so. Utility-scale battery storage and distributed energy resources (DER) can also increase grid reliability when used strategically. 

EPA Chief Scott Pruitt, fresh from a conference of coal executives, has recently said that coal plants are necessary in the U.S. to ensure grid reliability, pointing to the necessity to have solid fuel on-site in the event of unforeseen demand. However, in some regions studies have indicated otherwise. In the PJM power market which encompasses 13 states and 21% of U.S. GDP, a recent study indicated that grid reliability could be ensured with 86% gas power and probably more. The current level there is only 33% gas power. Increased natural gas generation can increase the reliability of wind and solar on the grid by providing quick-start back-up generation when needed. The study did indicate however that grid resiliency could be affected. The PJM market encompasses or is adjacent to the Marcellus and Utica shale fields and there are multiple sources of gas to meet demand as well as a flexible electric transmission system that can move power where needed quickly if warranted. This contradicts Pruitt’s assertion, at least for that area. Pruitt raised concerns about over-reliance on natural gas and suggested that an attack on gas infrastructure could cripple the grid. The Trump administration recently ordered a review of U.S. baseload power by the Dept. of Energy focusing on potential grid reliability effects of renewables. Most analysts consider that penetration of intermittent renewables on the grid are nowhere near the degree that would affect reliability although California could face such issues at some point. State subsidization of some nuclear plants and a few coal plants is also going forward with preservation of grid reliability being the main concern. Although some are concerned that renewable subsidies are responsible for retirement of coal and nuclear, most utility execs say it is really cheap natural gas and stagnated electricity demand. Since nuclear is clean energy there is more incentive to keep them on-line even at a loss. FERC recently held a conference focusing on power reliability and wholesale power market fundamentals in light of renewables mandates and state subsidization of nuclear. At issue is potential conflict between state power policies and wholesale power markets. Some favor a mixed market approach, possibly with subsidized and unsubsidized generation auctioned differently. Variable state policies make it more difficult to integrate with regional power markets. There are a few regional approaches such as the Regional Greenhouse Gas Initiative which is essentially a nine-state cap-and-trade system. Indeed at the FERC conference some stressed the need to be able to price carbon emissions as it would lead to market stability. While subsidization of nuclear will likely affect market functioning it also provides carbon-free energy as well as fuel diversity.

Baseload power varies by region. PJM is planning for gas to be the dominant baseload power in the near future. The state of Illinois gets more than half of its electricity from nuclear plants which provide carbon-free baseload power. Germany was using nuclear for baseload but now employs renewables, distributed sources, lignite coal, and biomass for some baseload power. The Upper Midwest is adding more access to gas through Rover and other pipelines coming from Appalachia. California, which currently consumes 1/8 or 12.5% of U.S. gas production, is set to become more dependent on renewables and storage and gas use for electricity is dropping. Some of the big recent drop in gas use in 2017 is from increased hydro output due to the rivers being recharged with rain. Due to the Alisa Canyon gas storage field being offline for injection California is facing potential problems with grid reliability in the event of unexpected demand increase. They currently have aggressive renewables and storage mandates. Half of solar is distributed solar and so has some potential for grid balancing during peak daylight hours there. In contrast the PJM market has very low penetration of DERs so more as planned can only help grid resiliency. More coal plant retirements in the Midwest could theoretically effect grid reliability but that is less likely with more transmission pipelines headed that way. Midwest grid operator MISO is modeling demand response for a once-in-a-decade demand event. The Southeast is also in the process of assuring gas supply for new gas plants with several large pipelines including Mountain Valley, Atlantic Coast, and Atlantic Sunrise. There is also some renewables buildout there. The new secure gas supplies will aid fuel assurance and grid reliability. The Northeast may be short on gas as some pipelines have been delayed indefinitely. Thus coal and oil plant retirements and planned nuclear plant retirements may also have to be delayed. Typical winter spikes and Canadian gas imports are likely to continue until more gas supplies are secured. Williams’ Transco – Northeast Supply Enhancement project has been proposed to add about 400 MMCF/day of new supply capacity for New Jersey and New York City and with much of that being bottleneck relief in Pennsylvania and New Jersey so that New York’s current anti-pipeline bent won’t likely be triggered while air quality in New York City continues to improve by replacing fuel oil with natural gas. That project is hoped to be in service by winter 2019-2020.  

A less common and quite temporary issue in confronting grid reliability includes planning for a full solar eclipse on grids that are heavily solar powered. California’s ISO is currently doing just that in anticipation of the August 2017 eclipse. They expect to buy more regulation services prior to the eclipse. Europe, with high solar penetration on the grid was able to maintain grid reliability during the March 2015 total eclipse there.

Update: Iowa GOP Senator Chuck Grassley whose state electric power is 35% wind just criticized the 60-day DOE review of grid reliability as 'predetermined' in conclusion to show a need for both unprofitable nuclear plants and unprofitable, polluting, and carbon-emitting coal plants. He and others seem to be suggesting that this could be a predetermined justification for Trump's campaign promises to revive the ailing coal industry.

References:

Webinar: Super Power: Will New Gas-Fired Power Plants Solve the Appalachian Shale Gas Glut?
May 4, 2017

EPA Chief Pruitt: Coal Plants Necessary to Ensure Grid Reliability – by Robert Walton, in Utility Dive, May 5, 2017

Nuclear Plants Account for More than Half of Electricity Generation in Illinois – by Energy Information Administration, in Today in Energy, May 5, 2017

PJM Says More Natural Gas Power Generation Would Not Hurt Reliability – by John Hurdle, in (Pennsylvania) State Impact (Energy.Environment.Economy), March 30, 2017

California ISO Preps Solar-Heavy Grid for Total Eclipse This Summer – by Peter Maloney, in Utility Dive, May 8, 2017

Emergency DR in the Midwest, California’s Grid Plans, and Earnings from Silver Spring and EnerNOC – by Jeff St. John, in Green Tech Media, May 12, 2017

California Electricity Mix in 2017 Has Involved More Renewables, Less Natural Gas – in Energy Information Administration, Today In Energy, May 17, 2017

New Video Provides Northeast Supply Enhancement Project Overview – in PipeUp, The Williams Blog, May 15, 2017

Updated: Perry Orders DOE Review of Clean Energy Impact on Baseload Generation – by Gavin Bade, in Utility Dive, April 17, 2017

Anxiety Common, Consensus Elusive Over Power Market Reforms at First Day of FERC Conference – by Gavin Bade, in Utility Dive, May 2, 2017

What is the Difference Between Reliability and Resilience? – by Aaron Clark-Ginsburg, Stanford University (ics-cert.us-cert.gov)

GOP Sen. Grassley Questions DOE Baseload Review in Letter to Perry - by Robert Walton, in Utility Dive, May 18, 2017

Renewable Energy Hypsterism: A Convenient List

Renewable Energy Hypesterism: A Convenient List

It is true that renewable energy advancements in wind, solar, and storage will continue to increase efficiency and decrease costs. However, many of those improvements are small, incremental. It is uncertain when or even if these renewables will really be able to compete with fossil fuels on a cost per unit of energy basis. The massive amount of comments and declarations that these technologies are competitively now is simply wishful thinking, or more likely, hype. Promoting the hype is a way to lend legitimacy to the arguments of hardcore renewables advocates. 

1 – Solar employs way more people than coal or oil and gas per energy produced. Yes this is true. It is true because it takes more people to produce a similar amount of energy. This is because solar is far less profitable! Thus what is depicted as a boost to the economy is actually a drain on the economy. That is like saying people with shovels plowing land can employ more people than plowing with tractors. In general the solar jobs do not pay as well as coal, oil, or gas jobs. Solar jobs simply do not produce as much energy nor do they create as much wealth as fossil fuel jobs.

2 – Burning wood and biomass is renewable and sustainable. Technically burning wood is renewable but obviously it takes quite a long time to grow a large tree relative to the time it takes to burn the logs. The recent ‘milestone’ of the UK going without coal (for a 24-hour period) for the first time since the Industrial Age began is technically correct but misleading since much of the coal burned has been replaced by densified wood biomass (ie. wood pellets) shipped form the U.S. and Canada, some of which comes from logged trees, both fast-growing pines and hardwoods. Wood biomass produces as much or more CO2 and more pollutants than coal per unit of energy produced. Burning wood and solid waste biomass can also be subsidized – yes something worse than coal per unit of energy produced can be directly subsidized as renewable.

3 – Wind and solar are cost competitive with fossil fuels. Some even say they are cost competitive without subsidies. What they typically don’t say is they are only cost competitive during peak generation times, that they typically require back-up power from quick-start gas ‘peaker’ plants that are forced to run inefficiently and sometimes those inefficient gas plants are counted (quite unfairly) in comparisons of renewables and gas, particularly in capacity factor comparisons. Such hype is of course, blatantly misleading or dishonest. They may even be competitive without subsidies in some places, mainly those that have a carbon tax, which is technically a disincentive, or a reverse-subsidy for fossil fuels.

4 – While % renewables may suggest and imply wind and solar, they also includes hydro and biomass, including wood and solid waste biomass (which have similar ghg and pollution profiles to coal). Hydro and especially biomass are often the largest renewable sources (as in the U.S.)

5 – New solar, wind, and storage technologies are being touted all the time. Although there have been efficiency improvements in all three and there is significant ongoing research, much of these ‘discoveries’ are over-hyped. 

6 – Headlines are often the worst sources of misleading ideas. See reference below about gigafactories. The gigafactories don’t power anything. The lithium that is drilled for and mined is the power source. Is there even enough lithium available in predicted reserves to power the world?

7 – Sweden and other Scandinavian countries claimed to have superb recycling and are importing trash from other countries. They burn it in incinerators, something that has been proven toxic to air with much backlash in American communities. They may well have higher recycling rates and better commitment to sustainable practices but there is much debate about recycling, landfilling, and incineration. 

8 – There are sometimes ridiculous notions perpetuated that better power sources are available now and simply being oppressed by the powers-that-be, ie. fossil fuel interests. If better energy sources were available and economic they would find their way to use. It is as simple as that.

These are a few examples. There are likely many more. Differing accounting of capacity factors when comparing generating capacity of intermittent sources like wind and solar is a big one.

Differing accounting of ‘levelized cost of energy’ (LCOE) is another source of hype. Comparisons of renewable energy subsidies versus fossil fuel subsidies and comparisons of taxation of energy production and consumption are other sources of hype. Such hype needs to be kept in mind and exposed when appropriate so that misrepresentations do not become more widespread than they currently are. I think such hype is a disservice not only to the fossil fuel industries but also to the renewable energy industries.

What the wind and solar advocates should point out is that solar and wind typically do not require buying fuel so that there are little to no continuing costs after installation, that they are relatively carbon and pollution-free compared to fossil fuel sources, and that there is little energy wasted in distributed energy sources like rooftop solar compared to sources that require transmission through power lines.

References:

Elon Musk: 100 Tesla Gigafactories Could Power the Entire World – by Chelsea Gohd, in Futurism, April 16, 2017