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Sector analysis
Biden’s green energy plan: 15 year road to the end of natural gas in the US electricity sector dilemma The race among nations in the 21st century is no more about who can reach the unreachable lands, not about who could develop the biggest cities or who could be the first to explore the stars. The race among nations in the 21st century should be about reducing carbon emissions from our transportation, eliminating greenhouse gases from our industries and foremost, tackling climate change that is affecting our mother earth. The 46th US presidential election told us just that. In July 2020, Joseph Robinette Biden Jr announced a US$2tn clean energy plan in an effort to tackle climate change as part of his presidential manifesto. The four year plan was seen as one of the most expensive and revolutionary clean-energy plans ever. The Green New Deal aims to escalate the use of clean energy in the transportation, electricity and building sectors and reduce fossil fuel use across the US. One of the objectives of the plan is to eliminate carbon emissions from the electricity sector by 2035. The deal, however, does not bring a smile to all. The industry understands eliminating carbon emissions from the electricity sector would also mean removing fossil fuel resources from the electricity generation mix equation. The new deal is a reversal from former President Donald Trump, who sought to maximize US oil, gas and coal output by removing regulations and easing environmental reviews. To compare to his democratic president predecessor, President Barack Obama’s Clean Power Plan had only called for the electricity sector to cut its carbon pollution 32% by 2030. Currently, fossil fuels make up 63.64% of the electricity generation mix. Natural gas is the dominant fossil fuel resource with 41.96% share in the electricity generation mix, followed by coal (21%), petroleum (0.43%) and other gases (0.26%) (source: EIA). As coal is currently going through its phased-out process from the electricity sector, natural gas would be the most significant fossil fuel source remaining in the equation until 2035. This brings us to the dilemma: a 15 year road to the end of natural gas in the US electricity sector. For the past few years, natural gas has been seen as an important bridge to cleaner fuels and coal transition. Gas fired power plants were used to accommodate the growing penetration of intermittent renewable energy such as wind and solar. Through the new plan, President Biden is expected to impose new limits on greenhouse gas emissions from power plants and reinstate methane regulation to Obamaera levels preventing gas leaks from infrastructure – which was repealed during the Trump administration.
Adhwa
Afnan
These clean-energy policies have the potential to drive up the cost of gas fired electricity. Thus making it harder for gas to compete with wind, solar and other renewables. As more technologies are being developed and deployed, renewable energy has become cheaper and more efficient. By 2030, solar is expected to become the cheapest source of power in the US electricity market. However, natural gas, due to its resilience, is anticipated to remain as a dominant fuel source for the US electricity mix until 2025. In this new Biden era, the future of natural gas fired power plants could depend on the capability of the industry to place itself in the greener electricity sector. New technologies such as hydrogen and carbon capture could be applied as a way of achieving a carbon-free electricity sector. Biden’s clean energy proposal leaves the door open for gas plants to continue operating with the addition of carbon capture systems to the plants. Gas plants could also use hydrogen as its secondary fuel to lower their carbon emissions. The Biden administration’s plans to seek to end carbon emissions from power plants would also mean the end for natural gas-related assets such as pipelines. The latest statement from the former Secretary of State John Kerry which warned that natural gas pipelines could become ‘stranded assets’ within 30 years has shaken pipeline owners. To remain relevant in the business, pipeline owners are eyeing another, possibly futureproof fuel: hydrogen as the new feedstock. Substituting one feedstock for another poses a technical challenge for pipeline owners given that the current compressors designed for natural gas are not suitable to move hydrogen and some types of steel pipes in-place could crack when exposed to hydrogen over time. While industries might have questioned the implementation of the clean energy plan in the Biden administration agenda, the White House has proven its gravitas through actions. President Biden has revoked the permits for the controversial Keystone XL pipeline on his first day in office. The president has also imposed an indefinite moratorium on new oil and gas leasing on federal lands. While the president is actively taking action on climate change, the industry should also be prepared to remain relevant in the new greener oil and gas industry. Adhwa Afnan Research Analyst, Americas Region adhwa.afnan@the-eic.com
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