Daily GPI / Markets / NGI The Weekly Gas Market Report / NGI All News Access

California Energy Commission Sees More NatGas Demand But Lower Power Gen Needs

Over the next 10 years, California expects to see higher natural gas demand, but with less gas being used for electricity generation, according to the California Energy Commission's (CEC) 2015 Integrated Energy Policy Report (IEPR).

The report, which was submitted to state legislature earlier this month, makes sweeping recommendations for both the gas and power sectors.

The IEPR focuses on greater research of methane emissions from the gas delivery system; getting a "better understanding of the societal benefits" of natural gas use in vehicle transportation, the state's largest source of greenhouse gas (GHG) emissions at 37%; and overcoming the barriers to increased biogas use.

The CEC's latest 10-year report takes its direction from Gov. Jerry Brown's call last year (see Daily GPI, April 30, 2015) to take “significant amounts of carbon out of the economy without harming its vibrancy." It is all focused on Brown's mandate for "stopping potentially catastrophic changes to our climate system."

By 2024, the end of the IEPR forecast period, end-use natural gas demand is expected to be about 9.3% higher than 2013 levels. CEC staff attribute the growth to a combination of residential, commercial and transportation sector demand increases, while gas for power generation declines over the same 10-year period.

"This is driven by increases in the share of electricity generated from renewable resources that reduce the need for power from fossil-fueled sources," according to the report.

Henry Hub prices are forecast in the report’s high price case to reach $6.87/Mcf in 2030, compared to a low price outcome of $4.08/Mcf in that same year. The projection is for annual price increases ranging between 2.6% and 6.2%.

The IEPR concludes that California is "well on its way" to reducing GHG emissions to 1990 levels by 2020 as required by the state's 2006 Global Warming Solutions Act. The report calls out recent studies that have shown that methane leakage can reduce the climate benefits of natural gas use.

The report notes that changes in both the natural gas and electric grids in the state will require "a higher degree of coordination" between the gas and electric industries in the years ahead.

The CEC sees natural gas as playing "an important, but smaller, role in the state's energy mix in coming decades. Roughly 40% of the state's natural gas consumption goes for power generation, compared to a national proportion of 31%.

"As California electric utilities convert electricity generation portfolios away from carbon-intensive resources, the way natural gas is used will change," according to the IEPR report. "These changes will not only affect the quantity of natural gas used to generate electricity, but how and when natural gas-fired resources need to operate."

Among the report's recommendations are:

  • Increased funding for gas research supporting safety concerns, mitigating leakage from aging infrastructure and GHG reductions;
  • Utilities in conjunction with the CEC should develop strategies and plans for decarbonizing the natural gas system;
  • More research on natural gas' role as a transportation fuel and monitoring of economic impacts affecting the adoption rate of natural gas vehicles;
  • Support efforts to develop frameworks, markets and analyses that more accurately value the cost/benefits of CHP; and
  • Continue to monitor changes in the natural gas and electricity generation interface.

"As the use of gas for power generation increases nationwide and the need for quick-ramping gas-fired generation to integrate intermittent renewable resources has grown, natural gas and electricity industries have become increasingly interdependent," the report said.

Given the continuing focus on the Southern California Gas Co. storage well leak at its Aliso Canyon underground facility (see Daily GPI, Feb. 8; Feb. 4), the report devotes considerable space to the challenges of estimating methane emissions from gas system operations, noting that researchers use bottom-up, top-down and hybrid methods. The report concludes that "methane emission estimates for California are uncertain."

While recent research has suggested that the state's overall methane emissions are less than 1% of the total throughput, the CEC report notes that this may be underestimated. It lists various problems with the measurement approaches.

"Despite the uncertainty, there is adequate evidence that California needs to move forward aggressively to reduce methane emissions both inside and outside the state," the IEPR concludes. It outlines 11 ongoing programs by the CEC, California Air Resources Board and the California Public Utilities Commission that are addressing methane leakage concerns, including some collaborative work with the Environmental Defense Fund and various federal agencies.

Recent Articles by Richard Nemec

Comments powered by Disqus