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Sweeping Infrastructure Bill Goes Big on Energy Transition, Leaves Natural Gas Wanting
The $1 trillion infrastructure bill passed by the U.S. Senate Tuesday with bipartisan support includes a big boost in spending on renewable energy, the power grid and programs to broadly promote lower greenhouse gas emissions to slow climate change.
The massive bill contains more than $550 billion in new spending. About $110 billion of that is for physical infrastructure such as roads and bridges, the largest share. But the legislation also invests $73 billion to modernize the nation’s aging electricity grid with new transmission lines that could transport renewable energy from sources such as solar and wind to rural communities in an effort to hasten the adoption of cleaner energy sources, a pillar of President Biden’s agenda.
The bill would also invest more than $20 billion in environmental remediation, financing programs to advance the transportation and storage of hydrogen and captured carbon dioxide, among other efforts.
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Natural gas advocates applauded the legislation’s broad intentions – both the money tagged for traditional infrastructure and to encourage evolution in energy – with one outsized caveat: Gas must have a stated role in the nation’s energy foundation for years to come.
The bill “creates new, game-changing programs for deploying low-carbon energy solutions and the pipeline and storage infrastructure that will deliver those solutions,” said Interstate Natural Gas Association of America CEO Amy Andryszak.
However, she added, while Biden acknowledged the importance of natural gas during his campaign in 2020, the Senate-passed legislation does not account for the enduring role of gas that most in the energy sector expect would be necessary for decades to come.
“Any serious plan to both address global climate change and develop a modern, reliable and affordable energy system must include natural gas as a foundational fuel,” Andryszak said.
Devil In The Details
After a record hurricane season in 2020 and the paralyzing power outages earlier this year amid Winter Storm Uri, the legislation would invest in a new Grid Deployment Authority within the Department of Energy. It would finance development of high-voltage transmission lines that could withstand weather extremes.
The bill would spend another $7.5 billion to develop electric vehicle charging stations across the country and a similar amount on upgrading school buses and other public transportation to use electric power instead of fuels derived from oil.
But some analysts said that, for all the ambitions, lawmakers need to explain how the initiatives would work in concert with natural gas in coming years, given the strong demand both domestically and abroad for the fuel to cool and heat homes as well as to generate electricity for the power sector.
An expanded electrification grid under the Senate-passed infrastructure bill could benefit natural gas companies, according to Marex North America LLC’s Steve Blair. “It can take a long time to really understand what is in these bills, but I can’t imagine there won’t be some positive impact on natural gas in the near term,” Blair, a senior account executive, told NGI.
“But there’s no question” Biden and Democrats in the Senate “are leaning much more towards renewables in the future. That leaves a lot of questions about what this means for natural gas long term,” Blair said. “And gas is a long-term piece of this whole thing.”
Raymond James & Associates Inc. analysts said in a report this week that gas consumption is not likely to peak for several years. The analysts estimated that natural gas accounted for 23% of overall global power generation in 2010 and 2020, and they expect it to hold at that level through at least 2025. They projected gas’ share would dip slightly to 22% by 2030.
In the near term, the U.S. Energy Administration (EIA) said in its August Short-Term Energy Outlook that it expects domestic dry natural gas production to average 92.9 Bcf/d the during second half of this year — up from 91.4 Bcf/d in the first half — then increase to 94.9 Bcf/d in 2022 to meet strong consumption in the United States. Foreign demand for U.S. exports of liquefied natural gas (LNG) is also expected to remain robust.
“Domestic demand is very strong this summer,” Blair said. “LNG demand from Europe and Asia will almost certainly be an undercurrent into and through the winter” because of limited supplies on both continents.
The infrastructure bill passed in the Senate 69-30, with 19 Republican senators joining Democrats after months of negotiations. The Infrastructure Investment and Jobs Act would add more than $250 billion to the federal deficit over the next decade, according to the Congressional Budget Office.
The legislation next moves to the House, where both the timing of a vote and the eventual outcome are uncertain.
In televised statements, Biden has signaled he would sign the bill as it is. But House Speaker Nancy Pelosi has said she won’t call for a vote without a larger Democratic spending bill as a companion.
That $3.5 trillion budget package narrowly passed in the Senate early Wednesday on a 50-49 party line vote. The broader legislation would do even more to combat climate change and meet Biden’s promises to put the United States on a path to a carbon-free power sector by 2035 and a carbon-neutral economy by 2050. It calls for a series of tax incentives and other programs to push the United States to receive 80% of its electricity from renewable energy sources.
The plan would also tackle a range of other Democrat priorities, from Medicare expansion to immigration reform. It would be paid for in part by tax hikes on corporations and wealthy Americans. Republicans oppose the tax increases.
With a narrow majority, Democrats took up the bill via what’s known as budget resolution – a process that establishes a framework for an actual bill. Drafting the package follows. That process could take several weeks, so if the infrastructure bill is attached to the broader spending package by House Democrats, it’s ultimate fate most likely would not be known until the fall.
The $3.5 trillion spending plan has no public support from Republicans. Democrats hold a wider majority in the House than in the Senate, but it is still slim and Pelosi would need to keep her party firmly together in order to pass the legislation.
At the same time, Congress this fall is to be tasked with approving annual spending bills and raising the debt ceiling – or face the specter of federal debt defaults. This work would further complicate matters, said Brian Gardner, Stifel Financial Corp.’s chief Washington policy analyst.
While debt default is unlikely, it would hurt both parties, he said. “Republicans will not vote to increase the debt ceiling unless they get some spending reforms in return. Democrats have resisted this option so far,” setting up “a political game of chicken.”
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