U.S. Gas Drillers Face A Major Problem

The natural gas industry is rapidly losing ground in the U.S. Northeast, beaten back by renewable energy, environmentalists, and stricter climate policy. Massachusetts Governor Charlie Baker, a Republican, signed an executive order at the start of 2020 that aimed for net zero emissions by 2050. The net zero by 2050 goal, although often non-binding, has quickly become a baseline platform for climate-inclined politicians.

But Massachusetts Attorney General Maura Healey (D) recently called on the state’s Department of Public Utilities (DPU) to begin an investigation into a phase out of natural gas. In order to achieve net zero emissions, natural gas demand will likely need to be zeroed out by mid-century.

In order to do that, not only will electric power generation need to switchover to renewable energy, but gas-based residential and commercial cooking and heating will need to switch to electric. This leads to huge questions about the business model of regulated gas distribution companies, and about how to avoid the burden landing on low-income ratepayers. Low-income households will need support in transitioning their homes to clean energy.

The attorney general recommended a two-phased investigation. The first phase would require gas companies to submit detailed economic analyses and business plans that forecast future gas demand in a carbon-constrained economy. The second phase would focus on how to transition and phase out gas while protecting ratepayers.

The investigation is a sign that political winds continue to move against natural gas. “The Attorney General has called the question on which the future of New England’s economy, our global climate, and the rule of law in the Commonwealth will turn: when and how are we going to wean our energy system off of fracked gas and other dirty fossil fuels as mandated by current law?” Brad Campbell, President of the Conservation Law Foundation (CLF), said in a statement.

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National Grid, a major utility in Massachusetts, supports CO2 reduction goals and said “we’ve done extensive work on gas supply and demand forecasting, and we’ll leverage these learnings in the Commonwealth,” according to Utility Dive.

Massachusetts joins California and New York as the third state to begin the process of phasing out natural gas. In fact, in California, some 30 cities have already banned natural gas in new buildings.

The gas industry is on the defensive on other fronts as well. AG Healey also recently filed an amendment complaint in a Suffolk Superior Court case against ExxonMobil, for the company’s deception on climate change and the company’s climate-related financial risks to investors.

While the outcomes of the Attorney General’s efforts are unclear, the gas industry suffered a more tangible blow in early June when a U.S. federal appeals court vacated an air permit for Enbridge’s controversial gas compressor station in Weymouth, Massachusetts.

The compressor station is under construction, but has been the target of a withering campaign by local community and environmental groups. The compressor station is not just a local matter. It would expand capacity on the Algonquin Gas Transmission system, adding more throughput for the entire northeast, essentially increasing the volume of Marcellus shale gas that can move into New England and even to eastern Canada. Against that backdrop, the compressor station is a proxy battle over the future of natural gas in the Northeast.

“We remain committed to placing the Weymouth Compressor Station in service as soon as possible, in compliance with applicable regulations, to deliver much-needed natural gas to project customers, including local gas utilities in Maine and Atlantic Canada,” Enbridge said in a statement.

Meanwhile, in May, New York rejected the Williams Pipeline that would have carried Marcellus shale gas through New Jersey and across the Atlantic Ocean to Long Island.

Marcellus gas production has been declining since late last year, weighed down by too much production, falling prices, and deteriorating economics. The upstream problems are compounded by the series of defeats the industry has faced downstream in the northeast.

The political winds are beginning to turn against gas. For years, the industry has sold gas as a boon for climate change, able to slash emissions by replacing coal. But more recent research has questioned that premise. Releases of methane – at the well head, as well as when gas is moved through pipelines and distribution networks – negate much of the climate benefit.

There is a heated debate about the precise volumes of methane that are emitted, but at the end of the day, the emissions are still significant. Meanwhile, solar and wind are often cheaper than new natural gas, and renewables backed up by battery storage will be cheaper than gas in the next few years. With renewables now readily accessible and cost-effective, the political power of gas as a “bridge fuel” has evaporated and the industry finds itself on the defensive.