Week Ending January 25, 2019

Industry Leaders Tout Production Gains, Market Functions at USEA Event

This Article Appears as Published in Foster Report No 3233
Industry Leaders Tout Production Gains, Market Functions at USEA Event

The gains in oil and natural gas production and reliance on market forces in the energy sector provided plenty of optimism at the U.S. Energy Association’s State of the Energy Industry Forum January 24. But with leaders from so many different energy resource trade groups speaking, there were concerns about some regulatory and policy changes and steps to ensure that their particular resource is not put at a disadvantage.

With a federal government shutdown and a divided Congress as the backdrop for the 15th annual forum, there were also comments on the partisan bickering in Washington and desire for lawmakers and the Trump administration to resolve their differences and enable government agencies to get back to work. Important consumer protection measures and cybersecurity protections are put on hold during the shutdown and “that’s stupid,” said Dave McCurdy, president and CEO of the American Gas Association.

Government officials in Washington need to deal with real issues and show other nations how a strong democracy and capitalism can work with a free press and provide economic growth and environmental stewardship, said McCurdy, a former member of the U.S. House of Representatives who is retiring from AGA at the end of February. “It’s time to put the national interest first,” he said before receiving a standing ovation after his remarks.

Improving the siting process for natural gas pipelines, ensuring all resources are given equal consideration in the power generation and market cost calculation process, enhancing pipeline safety, and reforming the Renewable Fuel Standard (RFS) were some of the priorities mentioned by other speakers.

Natural gas industry representatives said they need to do a better job reaching the public and showing the benefits of the fuel, because opposition groups are well funded and well organized. “We have a good news story to tell,” but “we’re not doing enough to get to the hearts and minds of the American public,” said Dena Wiggins, president and CEO of the Natural Gas Supply Association.

The growth of fossil fuel production and solar and wind power generation additions, with some pending power market changes being considered at FERC were addressed by leaders from the American Petroleum Institute, National Mining Association, Solar Energy Industries Association, Interstate Natural Gas Association of America, Edison Electric Institute, Nuclear Energy Institute and other groups.

They all agreed it’s an exciting time to be in the energy industry, with the changes taking place and technologies improving the lives of consumers. The energy sector has to remain agile and embrace innovation to meet consumer needs, said Vicky Bailey, chairman of USEA.

Three LNG export projects are under construction and are likely to be in service during 2019, doubling the current number of operating projects and moving the gas export figure to about 10 Bcf/d by the end of 2019, said Charlie Riedl, executive director of the Center for LNG.

Four additional projects have regulatory approvals and are aiming to complete offtake contracts with LNG buyers, with some additional project developers waiting for permits from FERC or the Department of Energy. Riedl predicted that 2019 “will be the year of final investment decisions” as project owners line up gas buyers and achieve financing milestones to move more domestic gas to global markets.

At FERC, several LNG export project owners are navigating the regulatory approval process for the next wave of facilities, and the Commission has issued scheduling notices for them, Riedl noted. One of those projects, Venture Global’s Calcasieu Pass facility (CP15-550) and related TransCameron Pipeline (CP15-551), was scheduled to receive a final order by January 22, but it has been hung up with a split vote among the four FERC commissioners.

Riedl and other speakers said they would like to see a new commissioner at FERC to fill the vacancy left by the death of former chairman Kevin McIntyre. “There is a real potential that we could see orders slide and that would delay projects,” Riedl said. Such a scenario could impact the ability to reach final investment decisions. “We haven’t seen that manifest itself yet,” but it could happen this year, he said.

The Center for LNG is hoping for a resolution of trade disputes with China, since the Asian market presents the biggest opportunity for U.S. LNG exports, Riedl added.

Reliance on competitive market forces in the energy sector was praised by most speakers, including McCurdy of AGA, Mike Sommers of API, Abigail Ross Hopper of SEIA, and others.

Many of the member companies share the same goals of increasing energy supplies from American resources and creating jobs in an environmentally safe manner, and the oil and gas industry has been meeting those goals in record-breaking fashion, said Sommers.

The record high production of oil and gas in the U.S. and record levels of crude oil exports are being set while keeping fuel prices low for American consumers, said Sommers. That trend is reducing the influence of OPEC and enhancing energy security for developing nations, he said.

Infrastructure legislation and enhancements to the permitting process for gas pipelines will be a priority for API, while other speakers mentioned improved hydropower licensing, reauthorizing pipeline safety legislation, continued diligence on cybersecurity and managing the transition to cleaner resources without harming power grid reliability. Hearings on climate change are expected on Capitol Hill, with discussion of the Green New Deal and oversight on some of the Trump administration regulatory changes, several speakers said.

The Green New Deal is “a movement” that lacks details at the moment, said Tom Kuhn of EEI. It is being defined and as details become known “we’ll be in the middle of the debate,” Kuhn said.

People have different views on climate change, and EEI members have made major changes through the use of new technologies and turning to renewable resources to help reduce greenhouse gas emissions, said Kuhn. The utility sector will have to talk about the environmental progress made and turn to policies that address carbon issues “without breaking the bank,” because those are the policies that will help EEI members be successful, he said.

Sommers said he is optimistic, even with the House and Senate controlled by Democrats and Republicans, respectively, that 2019 can be a successful year with bipartisan reforms sought by the energy sector. Once the government shutdown ends, approving the reworked trade agreement between the U.S., Mexico, and Canada should be the first order of business for Congress, he said. Changing the RFS and ending the tariffs on steel imports also will be critical for API members, he added.

Increased exports of LNG will enable the U.S. to meet growing demand for natural gas around the world without affecting affordability of gas domestically, Sommers said. McCurdy also addressed that issue, asserting that LNG exports from the U.S. could climb above 10 Bcf/d in the coming years with no significant impact on domestic prices.

LNG exports to Europe also have the potential to lessen Russia’s control of gas supplies in Europe, McCurdy said. “I believe that Russia is a significant threat,” he said, adding that many international leaders have approached McCurdy and thanked the U.S. gas industry leaders for opening global markets for the fuel when previously they did not have a choice of suppliers.

The U.S. is “awash is natural gas” thanks to the shale revolution that has pushed production to about 88 Bcf/d, compared with 2005 production that was about 50 Bcf/d, said Wiggins. The gas production profile in the U.S. is more distributed geographically, enabling the industry to withstand weather events in different parts of the country without serious price impacts, she noted.

Wiggins pointed out that there are 103 weeks until the next president is sworn into office, without predicting who that would be. “I’m not particularly optimistic about what’s going to happen in Congress in those 103 weeks,” but NGSA members spend a lot of time at federal agencies and that is where some of the important regulatory changes are made, she said.

FERC launched a review of its gas pipeline certificate policy statement in early 2018 and NGSA is watching to see if that will be concluded anytime in the coming year or so. Because producers rely on pipelines to move their product to markets, NGSA would like to see the regulatory review process improved to address state actions under the Clean Water Act that essentially veto a project approved by FERC, Wiggins said.

The gas industry has experienced some pipeline accidents in the past year, but it is the safest mode of fuel transportation and the accidents should not hinder industry efforts to enhance pipeline siting, McCurdy said. The Pipeline Safety Act is up for reauthorization this year in Congress and McCurdy expressed confidence that the accidents will not make that process difficult.

INGAA’S Don Santa had similar remarks, noting that pipeline safety is a bipartisan issue and that reauthorization legislation is often moved with support from Republicans and Democrats, countering the polarization seen on other issues.

“This is going to be a big year for pipeline safety,” he said, expressing hope that the Pipeline and Hazardous Materials Safety Administration can finalize some rules that are long overdue.

INGAA is committed to having zero accidents, because one is too many, but the incidents that have occurred present learning opportunities for the industry and government safety officials. Investigations from the National Transportation Safety Board and others provide lessons to inform the industry and help pipelines and distributors identify precursors before accidents happen, said Santa. The recent accidents need to be viewed in the broader context of the overall safety record for pipelines, he said.

Santa praised Wiggins for being a good spokesperson for the gas industry as a whole, referring to past squabbles between producers, pipelines and distributors that had the different industry segments “fighting like cats and dogs.” The industry is able to achieve success when the segments are all on the same page and making the case about the benefits of natural gas, he said.

Some of the differences of opinion cropped up when speakers referred to the generation changes and power market rules. Challenges for nuclear and coal-fired power plants stem from the low cost of natural gas, but also the price-setting measures in organized markets that do not consider all elements associated with different resources, said Hal Quin of NMA. A minimum offer price rule for PJM Interconnection will be closely watched at FERC, along with how the Commission addresses some of the state policy preferences that can affect wholesale power prices, he said.

FERC’s rejection of the grid resilience proposed rule from the Department of Energy gained a lot of attention, but what is often lost in the ongoing resilience debate is the cost of doing nothing, with the loss of coal-fired plants leading to higher transmission and uplift costs in organized markets, Quinn said. NMA completed a study showing that the retirement of three large coal-fired plants in PJM could increase costs for consumers by about $2 billion, he said.

Coal-fired generation is being added globally, in developing nations and China and India, where developers are building new power plants and replacing older plants, said Quinn. Small, modular coal-fired plants are being used in foreign markets and NMA would like to have market opportunities for them in the U.S., he said.

NEI members are dealing with some of the same trends of being squeezed out of power markets based on costs, and hope being placed on small, modular reactors that could be operational in 2026, said Maria Korsnick, president and CEO of NEI. “It’s an exciting time” for nuclear plant owners that are facing some challenges, with plants being closed due to market economics and states adopting policies to support the zero-emission resources, she said.

“Nuclear needs to continue to be part of our energy mix,” because a future with fewer nuclear plants will be a future with higher GHG emissions, said Korsnick. With seven plants closed in the past six years and 12 additional closures on the horizon, the U.S. is due to lose 133 million MWh of nuclear power, which is more than all of the electricity used in New England each year, she said.

Touching on earlier comments about competitive markets working, Korsnick said they work best when the right generation attributes are considered, touting the resilience and emission-free attributes of nuclear units.

As climate change and power market structures are debated by policymakers “we find ourselves at a crossroads,” with a path for diverse resources that includes all types of generation and a path with no nuclear generation and higher emissions, she said. NEI will be pushing for the first path, because “the answer to the climate crisis won’t be as simple as replacing carbon with renewables.”

Natural gas-fired generation aids the growth of solar and wind power resources by mitigating their intermittent nature, speakers noted. Reduced costs for renewable resources and economic benefits such as job growth for solar power installations was highlighted by Abigail Ross Hopper of SEIA. The growth of renewable resources is inevitable, but the pace of that growth is not, she said, referring to tax measures and other policies that can affect the pace of growth.

By Tom Tiernan TTiernan@fosterreport.com

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