Pragmatism not Fearmongering Needed on Gas Deliverability
Baseload power (i.e. coal and nuclear) interests that are being edged out by more competitive natural gas power generators are increasingly relying on the powerful emotion of fear to draw policymaker support for their struggling assets.
Fear that the country’s increasing reliance on (currently) cheap and abundant natural gas for power generation will make the country more vulnerable to power outages. Why? Because unlike coal and nuclear, natural gas fuel is delivered on an on-demand basis via pipelines, leaving gas power plants vulnerable to fuel supply disruptions, perhaps resulting from terrorist attacks on pipelines, etc.
West Virginia Governor Jim Justice wants a $15/ton federal subsidy for utilities that use Appalachian coal, for national security reasons. Just in case terrorists take out gas pipelines, sending the eastern seaboard into a prolonged blackout. First Energy’s CEO Chuck Jones believes the nation is heading for a disaster (subscription) due to overreliance on natural gas, risking economic disruption and national security concerns. And, then there is Exelon’s reported new focus on promoting the idea of long-term pipeline disruptions (subscription) to policymakers, as rational for nuclear subsidies.
A few points on all of this rhetoric.
Data. Over the past decade, significant pipeline incidents have followed a relatively flat trend. There have been a recent spate of attacks on pipelines (oil and gas), mostly domestic sabotage in opposition to contested new pipeline construction. According to the Congressional Research Service, prior to these attacks, there had not been a successful physical attack on oil or gas pipelines in 15 years. However, there have certainly been accidents like the Aliso Canyon gas storage leak and various pipeline leaks or unintended explosions that have disrupted gas supplies. A slightly outdated 2011 pipeline threat assessment from the Department of Homeland Security found with high confidence that a terroristic threat to the U.S. pipeline system is low. Though the U.S. DOE recently called for increased scrutiny over pipeline (and electric grid) vulnerabilities to cyberattacks.
Planning Not Hyperbole. As I’ve written in the past, as electric power systems become more gas dependent, changes need to occur, including planning for low probability, high impact events, and operational changes to accommodate a changing resource mix (i.e. more gas and renewables). This means taking the opportunity to assess, plan, adapt, and modernize, not promote panic and backpedaling. For example, NERC, PJM Interconnection, and others have taken early steps to plan for a more gas centric future. There are no guarantees – for nuclear, coal or natural gas generators and fuel supply chains – that accidental or terroristic disruptions won’t occur. The best protection is planning and defense.
Gas System Modernization Needed. On the other hand, the gas industry needs to take more responsibility too. Since the shale revolution, electric power sector demand for gas has been the primary driver of gas demand growth. But, but it is less clear that the gas industry has modernized to meet the needs of its new, largest customer segment. For example, more flexible contracting supply options (i.e. pipeline business model modernization), increased transparency on pricing and liquidity, greater integration with the electricity markets (FERC Order 809 was a great start), strategically located natural gas storage (CNG/LNG) near power plants, and other actions could be beneficial.
Embracing Safety and Security (Including Cyber) Regulations. According to the Department of Homeland Security, the Transportation Security Administration has significant room for improvement in its approach to securing pipelines and other surface modes of transportation. CRS believes a strong pipeline security program, incorporating mandatory standards and reporting, would be an improvement. And, there have been no shortage of GAO reports identifying better pipeline safety practices ranging from better data collection on pipeline material corrosion and improvements to operator incident response, just to name a few. DOE also called on Congress to consider mandatory cyber regulations on critical infrastructure like pipelines.
Primary Gas Risk is Price. Those worried about natural gas dependency would have much stronger arguments if they focused on long-term gas prices, price increases, and volatility. Yes, the U.S. has plentiful gas supply, which we are increasingly exporting, and increasingly developing capital intensive infrastructure to transport to new markets. This creates uncertainties about demand pulls, production lags, and net effects on prices. Customers, businesses, and voters don’t like price volatility. Price volatility, not deliverability is the larger threat.
Stones, Fast-Pitches, and Glass Houses.
As a closing thought, the coal, nuclear and natural gas industries might want to be a little more careful about where they throw stones.
- No other electric power source has the same potential to instill fear like hyperbole about nuclear power accidents (e.g. Fukushima, Chernobyl, Three Mile Island).
- And, the leading cause of electric power outages is electricity distribution system storm-related outages (not generation-related outages). Extreme weather, some linked to climate change, is increasing distribution power outages. Most believe coal emissions have a lot to do with climate change and extreme weather, so on outages, it might be hard to claim coal is the solution.
- If the gas industry wants to maintain it can reliably and resiliently deliver gas, then it should avoid claims of sabotage when accused of pollution. Because, if you can’t defend against someone cutting a fuel line, what else can’t you defend against?
Policymakers beware, the energy sector is in the midst of an epic food fight. Seek balanced information before choosing from the menu.