The Source - Winter 2008 - (Page 23)

Natural gas has become the critical swing fuel for generating electricity. We now burn twice as much gas to generate electricity as we did 10 years ago, and electricity generation now accounts for about one-third of the 21 trillion cubic feet (TCF) of natural gas consumed in the United States annually. In fact, over the 1998 to 2007 period—in which electricity demand grew at approximately 1.5 percent/year—virtually all of the growth in electricity demand has been met with natural gas. Today, 20 percent of electricity generation comes from natural gas, representing an increase of nearly 70 percent in the kWh generated using natural gas. Reacting to high and volatile natural gas prices, many electric utilities have developed plans to meet their future load growth with coal-fired capacity. But now there’s a new wrinkle: carbon regulation is almost certain by 2012. Based on capand-trade policies being considered, the electricity sector will need to reduce CO2 emissions by 39 percent over the next 30 years; that is, from 2,800 million tons/ year in 2006 to 1,700 million tons in 2036. With natural gas emitting roughly half the emissions of coal, the idea of switching new resource additions away from gas may become impossible. The question is: what fuel mix will electric utilities use to achieve the reductions mandated by carbon regulation? In March, The Environmental Protection Agency (EPA) released an analysis of the carbon cap-and-trade bill proposed by Senators Joe Lieberman and John Warner. While the LiebermanWarner bill (L-W) died in the Senate in June, some variation of its basic framework remains the most likely form of carbon regulation such that EPA’s analysis remains a useful construct for illustrating our point that gas utilities need to enter the debate. Core scenario Without L-W, in a business-as-usual scenario, the EPA projects that most new resource additions will be coal-fired. If load growth is not controlled and other tools do not become available, the switch to natural gas to meet carbon emission targets could be horrendous. Coal usage will rise from 49 percent of electricity generation today to 62 percent by 2025. Gas-fired generation, in contrast, would be expected to drop from about 20 percent today to 14 percent. However, once carbon regulation is implemented, EPA envisions the fuel mix shifting dramatically. EPA’s “core scenario,” which assumes L-W regulation, projects conventional coal-fired generation to decline from 49 percent today to only 37 percent by 2025. Furthermore, well over one-third of this coal capacity will employ carbon capture and sequestration (CCS) technologies. Nuclear and renewables also increase in this scenario: nuclear climbs from 19 percent to 24 percent, while non-hydro renewables climb from 3 percent to 13 percent by 2025. Natural gas increases in the mid-term, growing by about 25 percent over current levels to 8.8 TCF in 2020, but then declines to 7.6 TCF in 2025 as nuclear power additions displace natural gas. Importantly, the EPA “core scenario” reflects electricity load growth of 0.8 percent—roughly half of what it has been over the last decade. In effect, lower load growth and natural gas address carbon in the short-term, while nuclear power and CCS address it in the longer term. EPA’s “core scenario” projects a relatively benign impact on the use of natural gas to generate electricity. But what if the key assumptions employed by EPA regarding CCS, nuclear power, renewables, or lower load growth don’t hold? CCS for example, is still an unproven technology at the scale required, and public acceptance is not all certain. What we show below is that changing these assumptions has an enormous impact on the quantity of natural gas needed to generate electricity. Alternate scenario one Scenario one hypothesizes a faster load growth and more aggressive use of alternatives to natural gas in electricity generation. We assume 1.1 percent/year load growth, which is midway between EPA’s 0.8 percent “core scenario” and the 1.5 percent/year experienced over the last 10 years. We also forced growth in renewables from the EPA-projected 13 percent of load to the 20 percent level. We initially set CCS at the same level as in EPA’s “core scenario” through 2025, but slowed its growth after that to more realistic levels that match the rate of load growth. We also held nuclear generation to the 25 percent designated in EPA’s “core scenario.” The result was that this scenario could not meet the 1,700 millionton carbon goal in 2036. To meet the goal, we increased nuclear’s contribution (at the expense of natural gas) until it serves 30 percent of load by 2036. The end result is that natural gas usage drops from 20 percent of the mix today to only 8 percent in this scenario. This implies a decrease in the amount of natural gas used to generate electricity from 6.9 TCF to 4 TCF. Alternate scenario two Scenario two was designed to test the impacts of a dramatic reduction in electricity growth. In this scenario, load growth drops to 0.3 percent/year, presumably through aggressive measures nationwide to promote and invest in energy efficiency. The other key inputs THE SOURCE | WINTER 2008 , VOL. 1, ISSUE 2 23 

Table of Contents Feed for the Digital Edition of The Source - Winter 2008

The Source - Winter 2008 Contents First Person The Bridge to Renewable Energy Future Natural Gas: The Comfortable, Responsible Energy Solution Gas Hydrates: Poised for the Next Phase The Role of Natural Gas in a Carbon-Constrained World Natural Gas Prepays Taking the Leap to Natural Gas Vehicles The Pipeline Legislative Outlook Advertiser's Index Advertiser.com At Last

The Source - Winter 2008

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