Congress should look to natural gas as a backup if the technologies to reduce greenhouse gas (GHG) emissions are not fully developed and commercialized in the decades ahead, a report commissioned by the National Gas Council (NGC) said last Wednesday.

"While the technologies and market mechanisms (such as carbon offsets) anticipated for achieving GHG emission reductions may be fully deployed and cost effective by 2020-2030, there is a very real possibility that they may not," concluded the report, which was conducted by Science Applications International Corp. of San Diego.

The report's results were based on a model using the National Energy Modeling System (NEMS), which also is employed by the Energy Information Administration (EIA) in projecting energy supply and demand. "The model results show the strong possibility that there will be greater reliance on natural gas to achieve the emission reduction targets established for 2020 and 2030" in Senate legislation, the 70-page study said.

"Given the importance of achieving the emissions reduction targets that Congress ultimately may legislate, the natural gas industry would like to explore with Congress policies that can facilitate optimizing the contribution that natural gas can make, at minimum, as a bridge fuel for electric generation, until the other technologies and market mechanisms for GHG emission reductions can be commercialized and fully deployed."

The NGC's "model runs placed constraints on the number of nuclear facilities and power plants utilizing renewable fuels that realistically can be built to achieve the emission reductions mandated under [a] bill introduced by Sens. Joseph Lieberman (I-CT) and John McCain (R-AZ)." The measure (S. 280) would place absolute caps on GHG emissions.

The McCain-Lieberman measure would require cuts in carbon dioxide (CO2) emissions to around 3,000 million tons equivalent from the current level of 7,000 million tons equivalent. To achieve that reduction target, the EIA projected that S. 280 would increase the level of nuclear generating capacity to 245 GW from 100 GW by 2030. But the NGC, which is comprised of the four top natural gas trade associations, said it believes the growth will be more moderate -- 25 GW of generating capacity by 2030.

The study compared seven scenarios, with a focus on one where nuclear and renewable generation capacity would be constrained, and utilities would be able to purchase carbon credits equal to 15% of their reduction requirements. This scenario "results in high levels of gas use in the power sector," while "industrial gas consumption falls somewhat due to higher gas prices," the report said.

Overall natural gas consumption would average 3.6 Tcf/year higher than in the EIA's annual energy outlook from 2020 through 2029, spiking to 5.9 Tcf/year higher in 2030, under the constrained-nuclear/renewable scenario, it noted.

"All [the scenarios] demonstrate the need for additional gas supplies as part of a GHG emissions reduction strategy. This is true, both if gas is a transition fuel and if gas is a critical part of a long-term compliance strategy," the NGC said. It noted that liquefied natural gas (LNG) and unconventional gas resources would likely provide a "backstop" to allow for balancing of supply and demand.

But "given the uncertainty associated with foreign gas supplies and the environmental limits that affect unconventional gas production, neither can be wholly relied upon, suggesting that new conventional sources of natural gas located in currently restricted basins should be developed."

The constrained-nuclear/renewable option would put pressure on domestic wellhead prices, although this may be alleviated somewhat by LNG imports and new domestic gas supplies, according to the report. "Higher wellhead gas prices will affect all natural gas consuming sectors, but will have an even greater impact on prices to the electric sector and industrial sectors due to the added cost of CO2 allowances that must be acquired in order to consume the fuel."

The constrained-nuclear/renewable scenario indicates that both wellhead and residential gas prices would increase relative to the EIA's annual energy outlook by an average of roughly $1.03/Mcf from 2020 through 2029, spiking to an increase of about $3.60/Mcf in 2030, the report said. "To the extent that the actual supply response, particularly from LNG and unconventional domestic gas sources, is less robust than assumed...there would be more upward pressure on natural gas prices compared to these model results."

On the power side, the report said electricity prices would incorporate the price of CO2 restrictions and generally rise "dramatically" after 2020. The residential sector "will see higher electricity prices as the costs incurred by electric generators are passed through in the price of electricity," the NGC report said.

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