Maguire: Why natural gas won't disappear from the US power grid

Since years, the narrative of the energy transition has emphasized a future that is dominated by batteries and renewables, with natural gases eventually falling into the background. The evolution of the U.S. energy system, however, suggests a more complex reality.

Solar and wind power is increasing rapidly, and their share in electricity production increases every year. As power demand increases, driven by data centers, electrification, and new manufacturing investments, natural gas is still deeply embedded in the U.S. Grid.

There are many reasons, both economic and practical: abundant domestic resources and infrastructure, unprecedented operational flexibility, and the growing demand for reliable electricity around-the-clock.

They suggest that natural gas will not be able to give up its dominant role in the energy sector any time soon.

Fuel to Burn

The United States has a surplus of natural gas.

The shale boom transformed the United States from a major gas importer to the world's largest natural gas producer. The U.S. has massive reserves of gas in the Permian basin, Appalachia’s Marcellus and Utica Formations, the Haynesville Shale and other producing areas. These reserves provide hundreds of trillions cubic feet (technically recoverable) of gas resources, and almost 584 trillion cubic foot of proven reserves.

The country's resources are so rich that production continues to be near records.

This abundance is important. The United States, unlike many other countries who must import fuel supplies to generate electricity, can do so with an abundant and relatively cheap domestically-produced resource.

This is a huge advantage for utilities and policymakers who are concerned with energy security.

PIPELINE PRIMACY

Infrastructure is another benefit of natural gas.

The U.S. built an extensive system of pipelines, power plants, processing plants, and storage facilities designed around gas production.

Gas-fired generators are already available in the country, and there is a nationwide pipeline system that can transport fuel from regions of production to markets across the nation.

The infrastructure represented trillions in investment.

Although renewable energy can be built relatively quickly, replacing the reliability services provided by existing gas systems would require huge additional expenditure on transmission lines and storage capacity, as well as alternative dispatchable generation technology.

Existing assets are important in energy markets. Few energy systems have assets as vast as the American natural gas network.

RELIABILITY IS KEY!

Gas isn't about underground reserves or pipeline infrastructure. It's flexibility.

Electric grids must maintain a balance between demand and supply. Generation must be matched with consumption every second of the day.

Even though solar and wind energy are becoming more abundant and cheaper, they only generate electricity when the weather cooperates. The solar production decreases each evening. Wind production can vary dramatically over hours, days, and even weeks.

Gas-fired plants can fill this gap.

Modern gas turbines are able to ramp up output quickly when required. Gas plants are often the shock absorbers for the grid during periods of extreme heat or cold weather.

It is difficult to duplicate this operational flexibility at scale.

Batteries are?expanding quickly and are proving to be valuable in managing fluctuations of short duration. Batteries are expensive and cannot be used for long-term backup. Also, technologies that can provide reliable power during extended periods with low renewable outputs are limited.

Grids need electricity at all times, not just during favorable weather conditions.

Demand for flexible gas is increased by the use of renewables

It may seem counter-intuitive but the success of renewable energies could be one of the biggest drivers of gas demand.

Grid operators are increasingly in need of resources to balance intermittent supply as solar and wind power enters the system.

Evening demand can spike sharply after a daytime surplus. Long periods of cloudiness or low wind can cause large generation deficits.

The greater the amount of renewable energy that is available in the system, then the more valuable it will be to have resources ready to respond quickly when the renewable output drops.

Gas and renewable energy are complementary technologies, not direct competitors. When available, solar and wind can provide electricity at a low cost. Gas is a reliable alternative to solar and wind when they are unavailable.

This partnership helps to explain why many areas continue to add renewable generation, while simultaneously relying upon gas-fired capability to maintain system stability.

DEMAND GROWTH CHANGES ALLTHING

Gas is also likely to stay in place because the U.S. power grid is facing a challenge that it hasn't faced for years: a rapidly increasing electricity demand.

After a decade or so of relatively flat consumption rates, utilities now have to scramble to accommodate data centres, artificial intelligence infrastructures, semiconductor manufacturing, industrial relocation efforts, and transportation electrification. The industry is increasingly predicting sustained growth in load through the 2030s.

To meet the demand, you need a generator that you can deploy quickly and that has a high utilization rate.

Construction timelines for nuclear projects are often long. Permitting and completing transmission projects can take many years. The cost of large-scale storage is high, and most coal plants in the U.S. are several decades old.

Gas plants are a familiar technology, with mature supply chains, and a long history of operation.

These advantages are of great importance to utilities that face immediate reliability issues.

ECONOMICS STILL MATTERS

Economic arguments are also compelling.

The U.S. Natural Gas prices are relatively low in comparison to many other international markets. This has been the case for most of the last decade.

The cost of building gas-fired power plants is also lower than that of other alternatives, such as nuclear energy.

It is also important to note that a large part of the fleet already exists. Utilities don't need to spend money on new systems in order to continue using assets already built and connected to grid.

The economic inertia suggests that natural gas will continue to be a major component for the electricity sector.

This does not mean that the energy transition has stalled. In the coming decades, wind, solar and batteries will account for an increasing share of U.S. electric supply.

There is a difference between a fuel that loses market share and one that becomes irrelevant.

The growth of natural gas in the US power sector is no longer undisputed. Its combination of?abundant domestic supply, existing pipeline, affordability, and unmatched operational versatility gives it something that no other resource currently has: a credible claim of indispensability.

The grid of the future may be cleaner and renewable than that of today. If reliability is a non-negotiable requirement, then natural gas will remain a key component of the grid.

These are the opinions of a columnist, who is also an author. This column is great! Check out Open Interest, your new essential source for global financial commentary. Follow ROI on LinkedIn, X and X. Listen to the Morning Bid podcast daily on Apple, Spotify or the app. Subscribe to the Morning Bid podcast and hear journalists discussing the latest news in finance and markets 7 days a weeks.

(source: Reuters)