A few short years ago, our nation was scrambling to import natural gas from abroad, and an energy-secure America was little more than a pipe dream. Oh, the difference a decade makes.
Advances in energy production technologies such as hydraulic fracturing and horizontal drilling have revolutionized the outlook for natural gas in the United States, unlocking the countless opportunities to tap this flexible, cleaner energy source.
The result? Reserves and projected supplies of natural gas are at historic highs. Prices are forecast to remain affordable and steady for at least the next three decades. And emerging markets across the user spectrum—from power generation to manufacturing to transportation—are embracing this foundational fuel like never before.
Far and away, the most growth potential for natural gas is through its use for power generation. While coal remains the dominant fuel in the West, Midwest, and Northeast regions, natural gas is beginning to close that gap. Natural gas captured more than a 20% market share in the Northeast in 2012, and in the Southeast, the two fuels had effectively even market shares, between 30% and 40%.
In Texas, Florida, and California, the three biggest power generation states, natural gas is the primary fuel of choice.
Fueling a Balanced Mix
With all this impressive growth, it’s easy to get lost in the narrative that utilities are going “all in” on natural gas. While it is expected to make up some 65% of new capacity additions over the next several decades, it’s important to keep some perspective. By 2040, the Energy Information Administration (EIA) says only 28% of our power will come from natural gas. Time will tell if EIA has it right. The larger point is that the United States is moving toward the use of more natural gas, but the shift is part of a diversified and balanced power mix.
Two major factors are driving utilities in this direction, and the first is the almighty dollar. If you look at the levelized cost of electricity, which takes into account all the costs of power over its entire life, natural gas produces the most affordable kilowatt hour. Lower than coal, nuclear, or renewables.
And thanks to new technologies that allow us to ramp up production of this vast American resource quickly, and geographical diversity of production, we are able to mitigate price spikes, where we couldn’t always do that before.
The other factor is the environment. A cleaner energy future is a priority for everyone, and aside from new and tightening regulations on power plant emissions and the relative ease of getting a new natural gas combined cycle power plant approved and built, the use of more natural gas is largely responsible for U.S. carbon emissions falling to their lowest level in 20 years. And according to a report by the environmental investment network Ceres, SOx and NOx emissions among the top 100 U.S. power producers have declined by nearly 70% over that same time period.
Partners for Power
Our two industries are working through some remaining natural gas/electricity interdependency issues, including how best to deliver this impressive resource to market in an efficient way, and the results of this collaboration look very promising, as evidenced by a recent study by BENTEK Energy focusing on infrastructure availability in the Northeast.
According to BENTEK, shale plays like the Marcellus and the Utica in the Northeast region are making the transportation equation much easier to solve, as the distance from wellhead to consumer shortens and pipelines are able to offer new, more flexible services to consumers. Ensuring reliability to large natural gas consumers will continue to be a top priority for the industry.
Many industries use significant volumes of natural gas in the manufacturing process, including steel, fertilizer, chemical, and plastics. For some, natural gas can account for up to 40% of overall production costs. From the Gulf Coast to the Rust Belt, billions are now being invested right here in the United States by international companies looking to take advantage of an affordable and abundant industrial feedstock.
There is also significant opportunity for demand growth in the transportation sector. Of the 15 million natural gas vehicles in use worldwide, only about 120,000 of these are currently driving on U.S. roads. But the tide is turning, and major private fleet operators like UPS and Waste Management, along with public fleets such as Los Angeles County, are converting their vehicles and finding enormous fuel cost savings, with natural gas priced on average one-third less than conventional gasoline. Combine this with growing interest in natural gas as a fuel for large marine, rail, and other off-road transportation as well as oil and gas services, and there is the potential to add up to 90 billion cubic feet per day in demand.
The shale gas revolution has transformed the U.S. into a global clean energy leader, rather than simply a large energy consumer. And thanks to this enormous new resource, demand is on an impressive trajectory, and the natural gas industry stands ready to meet the needs of these new markets—now, and for the foreseeable future. ■
—Paul Smith is senior director of infrastructure for America’s Natural Gas Alliance.