(Editor’s Note: This story is one in a series providing expert forecasts for the global natural gas and oil markets in 2022. Look for NGI’s extensive coverage of what happened in 2021 and what can be expected in 2022 and beyond in terms of prices, the LNG export markets, ESG, Mexico’s production and project prospects, North American midstream infrastructure plans and exploration and production strategies.)

The U.S. natural gas industry is facing regulatory pressure on multiple fronts this year as global demand continues to rise.

Despite its essential role in the energy transition, particularly in displacing oil and coal in the power sector, policymakers at the state and federal level are applying increasing scrutiny to gas in order to achieve deep decarbonization across the economy.

Two areas in particular – methane emissions and electrification of buildings – have caught the attention of politicians and industry lobbyists. Meanwhile, permitting and construction of new-build natural gas infrastructure is proving increasingly difficult amid an onslaught of legal challenges.

[It’s Called the Wild West for a Reason: Tune into NGI’s Hub & Flow podcast as they dive into what’s driving record-high natural gas prices in California. Listen now.]

“That combination of forces is going to have an impact,” the American Petroleum Institute’s (API) Frank Macchiarola, senior vice president of policy, economics and regulatory affairs, told NGI. “Natural gas has to be part of the solution to addressing the climate challenge.

“It is the single primary factor in our success in reducing emissions over the past several years, and will continue to be so” in the future.

Common Ground For Methane

Methane is one issue where the industry and the Biden administration have found at least some common ground. API and allied industry groups support direct federal regulation of the potent greenhouse gas (GHG).

The Environmental Protection Agency (EPA) in November proposed a set of regulations to curb methane emissions from new and existing sources in the oil and gas industry, which accounts for about 30% of domestic methane pollution. 

The proposal would reduce methane emissions by about 41 million tons through 2035, equal to all of the carbon dioxide (CO2) emitted from U.S. passenger cars and commercial aircraft combined, according to EPA. The federal agency extended the public comment period for the proposal until the end of January. It aims to issue a final rule by year’s end.

On the legislative side, the fate of the Democrats’ Build Back Better reconciliation bill remains unknown after West Virginia Democrat, Sen. Joe Manchin, declined to support the spending package in December. Earlier in January, though, Manchin told reporters, “The climate thing is one that we probably could come to an agreement much easier than anything else.”

President Biden on Wednesday (Jan. 20) also told a news conference that while the bill would likely be broken into pieces, “I think it’s clear that we would be able to get support for the…$500-plus billion for energy and the environmental issues that are there” in the proposed legislation.

The $1.7 trillion version of the bill passed by the House includes a fee on methane emissions from all segments of the oil and gas industry. The fee would start at $900/metric ton starting in 2023, increasing to $1,200 in 2024 and $1,500 for 2025 and each year thereafter.

Regulatory Versus Tax

Macchiarola said, “we think we can be more successful in reducing methane emissions through a regulatory approach and through industry initiatives…than through a punitive tax on industry,” which he said could ultimately increase costs.

A natural gas industry lobbyist who asked to remain anonymous said the methane fee is “regressive,” as the extra costs would ultimately be passed onto consumers. The lobbyist stressed the importance of “educating” members of the Senate on the methane fee and other anti-fossil fuel measures in the bill. “I don’t think for a second,” the lobbyist said, that the bill is doomed as a result of Manchin’s initial misgivings. 

Texas Independent Producers and Royalty Owners Association (TIPRO) president Ed Longanecker also told NGI that the methane fee would disproportionately impact smaller companies. He said that, “a small operator out of Fort Worth had calculated that the methane tax would cost his small 30-person company about $1.9 million annually. 

“So that can be pretty impactful.”

The Pipeline and Hazardous Materials Safety Administration also is preparing to issue proposed standards to require pipeline operators to use commercially available advanced leak detection technology to find and fix leaks.

“The technologies needed to find and fix rogue emissions of methane are here, they are cost-effective, and they are already seeing adoption in the field by companies serious about cutting their emissions,” said senior attorney Erin Murphy of the Environmental Defense Fund. “Deploying available solutions to tackle pipeline methane leaks is critical for minimizing waste, meeting our climate goals, and protecting the public.”

States have been tightening methane regulations as well.

Colorado in December adopted methane regulations centered around an emissions intensity program for production sites, the first of its kind in the country. The program requires operators to limit GHG emissions per unit of production.

API’s Lynn Granger, who leads the Colorado office, said the framework “allows operators the flexibility to reduce emissions proactively and innovatively, rather than via top-down mandates which could have hindered or slowed reductions by imposing a one-size-fits-all approach.”

New Mexico, meanwhile, has given oil and gas operators until 2026 to achieve a 98% methane capture rate.

Texas, which shares the prolific Permian Basin with New Mexico, has opted for an industry-led approach to tackling gas flaring and venting. Total flared gas volumes in the Lone Star State fell by about 75% from June 2019 to May 2021, according to the Railroad Commission of Texas.

Are Natural Gas Bans Gaining Momentum?

Momentum has been building, at least in some of the states controlled by Democrats, to phase out residential and commercial gas use entirely.

New York Gov. Kathy Hochul kicked off the new year by indicating legislation would be proposed to ban fossil fuel connections in all new construction by 2027. The governor also wants to create two million electrified or electrification-ready homes by 2027.

In California, meanwhile, at least 40 cities have adopted building codes with state regulatory approval that limit gas hookups in new construction.

At the federal level, the House-passed version of the reconciliation bill also includes the Zero-Emission Homes Act of 2021. The bill, if it were to pass the Senate, would provide rebates to purchase and install zero-emission electric appliances and equipment in homes.

A House fact sheet cites that American households collectively account for about 42% of U.S. energy-related emissions, “from heating and cooling to cooking and transportation. To meet our emissions reduction targets, we need to eliminate carbon pollution from Americans’ 121 million homes.

“Clean, electric appliances for space heating, space cooling, water heating, cooking, and other household functions are available now, and, in most instances, they perform as well, if not better, than their fossil-fuel counterparts.”

However, American Gas Association (AGA) President Karen Harbert said, “The Zero-Emissions Homes Act will limit homeowners’ choices to only install electric appliances with all taxpayers footing the bill regardless of whether that equipment will actually reduce emissions.”

Pipeline Pains

Natural gas infrastructure, particularly pipelines planned for the Appalachian Basin, are proving exceedingly difficult to permit and complete.

The 120-mile, 1 Bcf/d PennEast Pipeline was canceled in September seven years after it was announced, following numerous regulatory and legal setbacks. PennEast would have moved gas from the Marcellus Shale in Pennsylvania.

In 2020, the 124-mile, 650 MMcf/d Constitution Pipeline was canceled. It would have transported gas from Northeast Pennsylvania to an interconnect with interstate lines in New York. 

The 2 Bcf/d Mountain Valley Pipeline out of Appalachia is targeting a summer 2022 startup, although a new lawsuit by environmental groups threatens to delay the project further. The future of the 400 Dth (400 MMcf)/d Spire STL pipeline in Missouri remains uncertain as well after the U.S. Supreme Court declined to intervene on behalf of the project. 

“These are, in many cases, long-term projects that ensure our long-term energy security, and the effects of them really get felt when demand rises and we need energy to continue to live our daily lives – and we haven’t kept up with the needed capital expenditures,” said Macchiarola.

Liquefied natural gas (LNG) projects have faced difficulty as well. Pembina Pipeline Corp. in December abandoned plans to build the Jordan Cove LNG export plant and associated pipeline on the Oregon coast, citing ongoing regulatory setbacks. 

The likeliest Pacific Coast outlet for U.S. LNG exports now appears to be Mexico, where Sempra aims to bring the first phase of its Energía Costa Azul liquefaction project online in 2024.

Still Healthy Fundamentals

Despite the mounting regulatory headaches for natural gas, TC Energy Corp., whose pipelines deliver about 27% of natural gas consumed in the United States, expects U.S. demand by 2030 for gas growing by 22% from 2020, driven by exports and augmented by pipeline flows to Mexico. 

TC’s Stanley Chapman III, president of U.S. and Mexico natural gas pipelines, said in December that, “contrary to what you may hear about our business, both the near and longer-term fundamentals are relatively healthy. In the short-term, as the pandemic winds down, worldwide economic growth has created strong demand for goods, services and energy at a pace that has exceeded that of supply.”

U.S. LNG exports are expected to average 11.5 Bcf/d in 2022, up from 9.8 Bcf/d in 2021, according to the U.S. Energy Information Administration’s (EIA) latest Short-Term Energy Outlook.

The completion of Train 6 at Cheniere Energy Inc.’s Sabine Pass LNG export terminal, the optimization of operations at the Sabine Pass, and Cheniere’s Corpus Christi LNG terminals, “and the completion of a new LNG export facility — Calcasieu Pass LNG — are all expected in 2022; these expansions will increase total U.S. LNG export capacity in 2022 to become the world’s largest,” EIA researchers said.

The outlook for gas consumed domestically is a somewhat different story, as EIA expects U.S. gas consumption to dip to 82.77 Bcf/d in 2022 from 82.96 Bcf/d in 2021.