There is very little not to like about shale gas from the perspective of Southern California Edison Co. (SCE), one of the largest electric utilities in the nation and the consumer of 2% of the nation's annual natural gas demand and 17% of California's demand. For SCE shale is a "game-changer" and a buffer against wholesale gas price spikes.
"We've seen a lot of shale gas come to market pretty quickly, and our consultants are telling us it is for real and it is here to stay," SCE's Kevin Cini, vice president for energy supply/management, told NGI Tuesday at the Edison International utility's headquarters in Rosemead, CA. "The shale has tremendous cost advantages, so we think this [current boom] will continue.
"In the short term you could have prices run up or down, and that is why we hedge against that volatility. In the long term there appears to be a lot of shale gas that is going to come to market and keep the prices down. The longer-term outlook is certainly for lower prices, particularly when compared to the outlook two years ago."
Cini made these comments amid periodic reminders that natural gas is a commodity both in North America and globally. "Whether the gas is a shale play, or a traditional play, or even liquefied natural gas (LNG), it doesn't matter. It is pipeline quality and the same to us. It is like electricity in that regard, really a commodity," he emphasized.
In the past, SCE has invested in traditional gas reserves as a hedge against future price spikes, but with shale gas that the utility views as driving down domestic gas prices, Cini said the power utility currently has no plans for buying shale gas reserves, although some other power-sector purchasers, such as the Southern California Public Power Authority representing a coalition of public-sector electrics that has said it is seeking to buy some shale reserves.
"Never say 'never,' though," Cini added. "Buying reserves is always a possibility, and we have done so over the past 20 years of buying gas, but it is really not a place we put our capital, and we're really not experts in that field, and there plenty of people that are. Besides, there is also a very good market for natural gas, whether it is shale or conventional. We're able to buy supplies today in either sector at very low prices."
Right now SCE is satisfied that it can achieve price stability and price hedging objectives without buying a lot of reserves, and the shale gas boom is the main reason for this sanguine period for the large gas buyer. This also fits at a time when its large allocations of capital are going to major transmission and distribution infrastructure projects tied to the push for renewables, said Cini, who added that "for the foreseeable future I can't see us getting into buying shale reserves."
Like many players in the U.S. gas market, Cini is intrigued with the future of LNG, noting that the distinctly North American phenomenon of shale gas has clearly depressed prices for gas in the Lower 48 states and made LNG less attractive to this market, increasing in some instances its attraction to Europe and other markets such as Asia.
"There may be times when it turns out it is attractive for LNG to come to the United States as opposed to somewhere else," Cini said."And there is also the possibility of some LNG exports from the United States. The dynamics of LNG have changed significantly, though, since the arrival of shale gas, and how it plays out in the future is a bit uncertain right now."
Two unknowns going forward that could influence the overall impact shale gas has in the power sector longer term are whether there will be national climate change and/or renewable energy laws passed by an increasingly fractured Congress. "It is also unclear what the federal Environmental Protection Agency (EPA) might do," Cini said. "And if EPA does something, there is always the possibility of legal challenges there."
A climate change law would accelerate an already discernible shift from coal to natural gas, he pointed out. "That would increase gas demand nationally, and that would impact price."
For renewables, the analysis and possible scenarios are complex, with different outcomes depending on how much reliance exists in certain areas already on gas-fired generation. Climate change leads to more natural gas for generation and that leads to more renewables, too, but sometimes the additional renewables will displace some of that gas-for-generation use. "It's a complex dynamic," said Cini, who noted that heavier reliance on renewables may affect the proportion of peaking to baseload gas-fired generation.
"Probably the best technology today is a gas-fired peaking plant, and even the new combined-cycle plants because they can start up more quickly and have better ramp rates," Cini said. "There is also the potential for more storage technology to emerge."
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