American Oil and Gas Reporter - October 2016 - 29

WASHINGTONWATCH
API Study Provides
Support For Using More Gas
To Generate Electricity
Some say fossil fuels must remain in the ground to reduce
carbon emissions as part of a vigorous effort to combat climate
change. Others believe restrictions on fossil fuel production and
consumption are unnecessary. Nevertheless, they are a burden
imposed through regulations that the oil and gas industry must
either implement or fight in the courts.
Further divergence of opinion occurs on the impact of a
dramatic reduction in consumption of fossil fuels by the electric
generation sector. Is it no problem, or does it portend a frightening
decrease in reliability?
Natural gas can provide a path to reducing carbon emissions
and maintaining electric reliability. The American Petroleum
Institute provides some empirical support for this long-held
industry belief in The Natural Gas Solution: API's Modeling of
a Carbon Constrained Future.
Key findings of API's study include:
* Natural gas will drive emission reductions, even without
the Environmental Protection Agency's Clean Power Plan (CPP).
In fact, carbon dioxide emissions in 2030 as modeled in API's
reference case are 30 percent lower than 2005 CO2 emissions.
* Total production costs are lowest when market forces
drive the resource mix to achieve compliance rather than relying
on government mandates for energy efficiency or renewables.
* Within each of the EPA-defined compliance pathways,
the lowest-cost solution also is the solution with the most
natural gas generation.
API observes that market forces, public policy, and environmental policy are driving the ongoing shift in the U.S. power
generation mix. Chief among the policy drivers is the CPP,
which EPA announced in August 2015 to cut carbon emissions
from existing power plants. Following a number of legal
challenges, the U.S. Supreme Court stayed implementation
pending judicial review.
API projects that, even without the CPP or another emissions
reduction mandate, natural gas will continue to drive emission
reductions in the power sector. Underlying API's analysis is the
prolific growth in natural gas resources.
As API notes, "Using more realistic resource assumptions,
natural gas provides more than 350 million short tons of CO2
emission reductions, compared with EPA's business-as-usual
case. Likewise, the Energy Information Administration shows
similar CO2 reductions this year over last when using more
realistic gas resource assumptions. This demonstrates the significant
impact natural gas generation can play in reducing emissions."
API focuses on the important role that market forces, rather
than regulatory edict, can play in reducing CO2 emissions and
the reliance on natural gas. "Given continued increases in
reserve estimates, the technological improvements that have occurred since 2010, and the robust production response to real
market signals already demonstrated, it is clear that reality
more closely aligns with a high resource case," its study says.
"This reality is not reflected in most assessments of the CPP,
and must be represented appropriately as states evaluate the po-

"Natural gas can provide a path to reducing carbon emissions and main-

taining electric reliability.

tential for utilizing natural gas in the United States."
According to API, "When the market is allowed to drive the
generation mix, rather than mandating renewables or energy efficiency, natural gas is the lowest cost solution for meeting the
emission reduction requirements."
In fact, API says, "With more realistic assumptions for
natural gas production, market-based signals will drive natural
gas generation, resulting in greater emission reductions than required by the CPP mass-based limit on existing sources."
The importance of these differing conclusions is not limited
only to invoking new regulations, whether the CPP or EPA proposals limiting methane emissions. If one accepts EPA's climate
views, regulations will curb natural gas production needlessly,
weighing heavily on production from marginal wells. Going
further, fossil fuel opponents use EPA's actions to oppose pipeline
infrastructure development and plans by electric utilities to enter
into long-term contracts for supply and pipeline capacity.
This tension has been playing out in Massachusetts, where it
appeared electric utilities would be authorized to enter longterm contracts for interstate natural gas pipeline capacity. At the
urging of the governor's office, the Department of Public
Utilities (DPU) stated that it had authority to approve long-term
contracts by electric companies, which then could resell natural
gas to the market (e.g., generators) through a third party.
However, to adherents of the "keep it in the ground" mantra,
this was a "pipeline tax." The Conservation Law Foundation
sued the DPU. The Massachusetts Supreme Judicial Court ruled
against the DPU in mid-August, finding the proposed pipeline
capacity surcharge to be unlawful because it forced residential
electricity customers to bear the risk of financing gas pipelines.
What some in Massachusetts term a victory, many of us
view as a setback, since the increased reliance by electric
utilities on natural gas requires infrastructure.
Extremist opposition to fossil fuels will not resolve the challenges to America's energy policy. Instead, as API espouses,
the solution lies in natural gas.
r

SUSAN GINSBERG is vice

president of crude oil and natural gas regulatory affairs for
the Independent Petroleum Association of America. She covers legislation and regulation,
focusing on the CFTC and
FERC. Her experience in natural gas regulatory affairs
spans 25 years.
OCTOBER 2016 29

American Oil and Gas Reporter - October 2016

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