9 Worries That Keep The Natural-Gas Magnates Awake At Night

The boom times in America’s natural-gas industry are not without their anxieties.
Many of those involve the looming climate crisis, which gives gas a leg-up over coal today but promises to knock it back down tomorrow.
“Are we in an age of golden age for gas? Yeah, probably,” said Matt Watson, vice president of energy for the Environmental Defense Fund. “So how long will that last? I think that depends in no small part on how energy companies engage the climate imperative.”
But other worries are purely economic, and energy experts confessed them earlier this month in Houston at Rice University’s Baker Institute. The spectres that haunt the magnate’s nightmares include:
1 People, Especially Young People
“The first is the public. We know now that the support for action on climate is polling higher than it ever has in the US. That's across party lines, and it's especially strong with youth. It's off the charts with youth,” Watson said, displaying a photo of the recent global Climate Strike led by Greta Thunberg. “These young people will soon be occupying and influencing the halls of power, and they've had it. So, you know, demographics are not on the side of continued inaction.”
2 Investors
Investors increasingly recognize that the climate crisis presents a risk to investments. At the Paris Climate Conference, 200 funds representing $6.5 trillion in assets called on energy companies to align their businesses and their lobbying efforts with the goals of the Paris Agreement.
“That's happening on the oil and gas front. That's happening on methane as well. Last month when the Trump administration proposed its rollbacks to the federal methane rules, investor groups representing about $5.5 trillion in assets came out to oppose that proposal.”
3 Utility Companies
The natural-gas industry’s largest customers, utility companies, no longer want to be associated with sources of energy that contribute to climate change. Watson attributes the shift to “reputational risk.”
“Again, when the Trump Administration proposed last month to eliminate federal methane rules for the oil and gas industry, we saw about a dozen of the nation's largest gas and electric utilities come out in opposition to that proposal,” Watson said. “This hasn't happened before. You know the old norm was that industries kind of stayed in their own lane, didn't get in each other's way, but this shows us that reputational risk isn't just confined to the production sector anymore.”
4 Bananas and Cavemen
It’s becoming increasingly difficult to get natural-gas infrastructure permitted, said Peter Hartley, a professor of energy economics at Rice.
“Well I think probably the biggest challenge (is) just getting infrastructure permitted and approved,” Hartley said. “People used to say BANANA—you know, Build Almost Nothing Anywhere Near Anybody—but the other one these days is CAVE man— Completely Against Virtually Everything. I think there's a big issue, you know, getting pipelines built, the liquefaction terminals built, and so on and so forth. To me that would be the biggest issue the industry has to face.”
5 Too-Low Prices
“That's a good answer,” said Aaron Berg, president of Vega Energy Partners, in response to bananas and cavemen. “I mean that's one of the things that keeps me up at night, but in addition to that I'd say, you know, some of the current environment with low gas prices, which is a great thing for for end-users, ultimately is not sustainable for our producer community.”
Low prices have also made it difficult to know where to invest capital, Berg said. Mid-stream operations that gather, compress, process, and transport gas are no longer as sure an investment as they once seemed.
6 Trade Wars
“We stand at this hallmark where really American energy can do a lot for what most politicians on both sides of the aisle say that they would love,” said Brian Lloyd, director of regulatory strategy for Sempra Energy, “which is better trade balances for the U.S.
“I'm one who believes that global trade, knitting economies together, is one of the most effective ways for America to not just export products and energy and fuel but export principles and values, and, you know, freedom and things like that. (But) I think we are in a period not just in the U.S. but elsewhere in the world, a kind of retrenchment on on trade issues.”
The retrenchment threatens the United States’s advantage, Lloyd said, its ability to produce large volumes of cheap natural gas and its potential to export that gas.
“The danger is to kind of continue down a cycle where we start closing off the benefits of trade and the comparative advantages between countries, really to the detriment of this country, given how much technology has given us this advantage or dominance, however you want to call it, in the sector.”
7 Overdoing It
To prepare for those exports, the U.S. has more than 100 LNG projects in the works that can handle 1,000 metric tons of liquified natural gas per year (MTPA), said Kassia Yanosek, a partner with McKinsey & Company.
“But frankly between now and 2035 we only need 125 MTPA of supply,” she said, “so that will have some implications for that part of the market.”
Meanwhile, the dream of U.S. gas supplying the world may not be feasible, Hartley added.
“If you think about us supplying some other parts of the world, in some situations it's actually somewhat of a cost disadvantage from a transport point of view,” he said, “and possibly also even though you've got the the price of natural gas so low in some parts of the country, it may still be higher than some other” countries.
8 Renewables
The Texas grid met all of the state’s demand last summer “by the skin of its teeth,” Watson said, but well enough that it’s unlikely Texas will seek to build excess capacity in the form of natural-gas power plants.
“What I'm hearing—and I’d be curious if you're hearing the same thing though—is that the investment response is not more gas-fired generation. What people are talking about is solar to meet those peaks. So I think competition is probably one of the biggest challenges that the industry faces domestically.”
9 Stranded Assets
Watson, at least, sees natural gas fading before the end of the infrastructure’s useful life, which could also mean before its investments are paid off.
“That's the question of stranded assets,” he said, “and how to rationally and economically and equitably unwind or repurpose that system.”
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