Watching Government: Gas and the Clean Power Plan

Aug. 10, 2015
The Obama administration may hope that the final rule for coal-fired power plants that it announced Aug. 3 will lead to more renewable and alternative technologies being deployed.

The Obama administration may hope that the final rule for coal-fired power plants that it announced Aug. 3 will lead to more renewable and alternative technologies being deployed. But its initial impact simply may be more demand for natural gas to generate electricity, several Washington observers told OGJ.

"In the short term, yes," responded Branko Terzic, a former US Federal Energy Regulatory Commission member who now is a managing director at Berkeley Research Group. "The quicker coal-fired plants are retired, the sooner a dispatchable power replacement will be needed. Alternatives and renewables are intermittent. Natural gas is the dispatchable fallback."

Frank Macchiarola, executive vice-president at America's Natural Gas Alliance, said, "We are doing an analysis. Certainly, the proposed rule that came out last year showed there's a real potential for greater gas demand. Compliance will make a difference, particularly as states develop implementation plans.

"In April, gas had the greatest share of US electricity generation for the first time," he added. "I think that is just the start of the trend."

A US Energy Information Administration analyst said the independent energy data and forecasting service would study the Clean Power Plan rule closely before suggesting possible impacts. EIA's latest Natural Gas Monthly noted that US demand decreased year-to-year in May for a third consecutive month in three of the four main sectors. The fourth, gas for power generation, "increased significantly from last May."

Frederick Lawrence, vice-president of economics and international affairs at the Independent Petroleum Association of America, cautioned, "We have to be careful in the short term not to read too much into the April and May numbers as we have a good deal of conversion behind us."

Other factors

"In the longer term, there will be tailwinds from overall sectoral push," Lawrence said. "But there are other factors in play as well: industrial demand, LNG exports, gas market penetration in the Northeast, West Coast hydropower, and transportation."

Tim Boersma, acting director of the Brookings Institution's Energy Security and Climate Initiative, said the Clean Power Plan "probably supports a trend less incentivized by policies and more by market forces." He said, "I think it reinforces a process that's been under way for some time. Whether that accelerates is less certain."

Macchiarola said, "There are unquestionably challenges in storage and transportation. But if you lay out all the benefits and challenges, it's obvious why gas is taking a larger market share in power generation."

He said, "It is the most cost-effective compliance fuel for this rule. But it's cost-effective without the rule. You're seeing a shift to it not just from a regulatory standpoint, but also in response to market forces."