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Natural Gas Utility Processes Ripe for Hydrogen Applications, Study Shows

March 20, 2006
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Pushing greater use of hydrogen as an energy alternative may be a "market opportunity" for the natural gas industry, according to an in-progress study unveiled Tuesday as part of the National Hydrogen Association's annual conference in Long Beach, CA.

This was the premise of an ongoing study by a former researcher at the Gas Technology Institute, Gerry Runte, now with the engineering/risk management consulting firm, ARES Corp.

"We believe there is a role for hydrogen in the natural gas industrial cycle," said Runte, presenting a status report on his firm's joint "modified real options analysis" that has been done in conjunction with Rand and the Gas Technology Institute. Both for hedging and energy services a business case can be made for hydrogen in the gas utility industry, Runte said.

"There is an opportunity for the gas distribution companies to jump-start fuel cell applications," he said, noting that a number of utilities are already involved in that type of activity, including the three major ones that have participated in the ongoing ARES study (Sempra Energy's Southern California Gas Co., NiSource and KeySpan Energy).

While ruling out most traditional hydrogen options, the study has found so far that most of the opportunities for natural gas distributors lie in the distributed generation area. Runte said that ultimately his research project attempted to establish a more generic model that captured the characteristics of the three participating gas utilities, which are among the five largest in the nation.

While the study has not come to any final conclusions, Runte said four basic investment strategies are being examined for gas distributors getting into hydrogen applications: (a) business-as-usual, (b) wait-and-see with small up-front investment in research, (c) investments in research/development projects, and (d) creating expanded energy services companies. As part of the modeling, he said that uncertainties in the broad areas of government policies, energy markets and technology advancements add to the complexity of what roles the gas industry might play.

"For example, the role of renewable energy portfolio standards [nationally] and how they evolve in the future" could have a major impact, Runte said, as will the influence on energy investments from individual state regulatory commission decisions.

"As we begin to narrow our focus looking at a handful of options for natural gas distribution companies, our message to others is if you look at our methodology in terms of real options on how it impacts the government and policymaking, there are a number of immediate obvious points, such as duel-use transmission/distribution infrastructure is an area worthy of discussion, the whole area of carbon sequestration and hydrogen from coal gasification technology is an ideal candidate for 'real options' assessment, and finally, the whole area of defining the interrelationship of renewables and hydrogen needs considerable assessment.

"All of the options are very capital intensive and would have a very large impact on both the markets and the policy."

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