In a state where nuclear power and coal dominate politics and electricity markets, can natural gas find a place at the table?
A national trade group tasked with finding new markets for America's abundant supply of natural gas thinks so.
That state is Illinois. And while natural gas powered just a tiny fraction of the electricity generated there last year, Washington-based America's Natural Gas Alliance is making the case for it to play a much larger role in the state and elsewhere in the Midwest as regulators look to slash carbon dioxide emissions under the Obama administration's Clean Power Plan.
ANGA has taken its message on the road to Illinois and other states across the Midwest to speak with state officials about the advantages of diversifying their fuel mixes to include more natural gas as a way to help comply with the carbon rule issued Aug. 3.
Their pitch in a nutshell: Natural gas can help achieve CO2 emissions reduction while maintaining reliability and affordability.
"Gas is the one fuel that can achieve all three," said Amy Farrell, vice president of regulatory affairs for ANGA.
While the group's ambitions to increase gas use in Illinois might not be shared by coal, nuclear and renewable energy advocates, there is little doubt that the state is one where gas has plenty of room to grow.
The fuel represented almost a third of the state's generating capacity in 2013 but was 3 percent of the electricity produced. By contrast, coal and nuclear dominated with 91 percent of the megawatt-hours.
Part of the reason is that much of the 13,000 MW of natural-gas-fired generation in Illinois is less efficient combustion turbines that run only during periods of peak demand. Even so, ANGA says the utilization rate for the 3 gigawatts of combined-cycle capacity in Illinois was 11 percent last year.
Ill. already has pipelines, infrastructure
ANGA's message to state policymakers and regulators begins with a bullish long-term outlook for U.S. natural gas supplies and prices.
In the case of Illinois, it's also to drive home the geographic and infrastructure advantage as a natural gas consumer.
With its central location, Illinois is a crossroads for more than a dozen interstate natural gas pipelines, with gas arriving from Canada, the Gulf Coast, the Rockies Express Pipeline to the west, and the Marcellus and Utica shale formations. The state also has more than 1 trillion cubic feet of annual natural gas storage in 28 separate fields, according to ANGA.
Frank Brock, a senior energy market specialist at ICF International, said proximity to Eastern shale formations, pipelines and gas storage leaves it well-positioned. Initially, that could mean just ramping up use of existing combined-cycle gas generation and longer-term development of new plants.
"Certainly, gas has room to gain in Illinois, and it's a well-piped state," Brock said. "What players are looking for in the placement of new combined-cycle units is the trifecta" of proximity to gas supplies, pipeline capacity and electric grid access.
David Kolata, executive director of the Citizens Utility Board, a Chicago-based utility watchdog group, said energy efficiency, demand response and distributed energy are the best paths to help Illinois slash CO2 emissions. But natural gas will play a role, too.
Relatively stable and inexpensive natural gas has been a good thing for electric and gas utility customers in recent years. But as with any commodity, prices can be fickle.
"You just don't want to be in a position of being too dependent on gas because of its historic volatility," Kolata said.
The steep and sudden prices shocks of the early 2000s, or more recently the 2014 polar vortex, continue to provide fodder for the gas industry's critics.
But today's natural gas industry is vastly different from what existed in the early 2000s because of the shale gas revolution, Farrell said.
"It's not the same game," she said.
And just as important as the uptick in gas prices during the polar vortex was the response by gas producers to that increase.
ANGA points to the quick price response as proof. Natural gas averaged $4.91 per million British thermal units in the first half of 2014 as inventories were drawn down. But prices subsided to $3.85 in the second half of the year and were sub-$3 by the following January, Farrell said.
Longer term, the U.S. Energy Information Administration forecasts Henry Hub spot prices of $4.88 per MMBtu in 2020 and $7.85 in 2040 in its "business as usual" case, with a range in a high oil price environment.
Nuclear industry seeks a low-carbon standard
Even armed with a bullish supply outlook for gas and Illinois' geographic and infrastructure advantages, the natural gas industry faces no easy task influencing public policy in Illinois, where a robust debate is underway about how to achieve a low-carbon future.
In terms of electric generation, coal's share of the market will only shrink in the years to come, and some of Exelon Corp.'s nuclear plants are merely trying to hang on. That means power from gas, wind and solar will be the options for utilities.
The state's wholesale electricity market is competitive, but two key energy bills under consideration in Springfield could help shape its direction.
Exelon is asking for support to help its nuclear fleet by creating a low-carbon portfolio standard that would require 70 percent of generation for much of the state to come from zero-carbon resources such as nuclear plants or renewables. The Chicago-based company said it will continue to push for the measure even though one of the plants considered to be the most at-risk will operate at least through mid-2017 (EnergyWire, Sept. 11).
Meanwhile, a coalition of clean energy and consumer advocates are lobbying for a separate bill that would expand the state's renewable portfolio standard to 35 percent by 2030, the date for the Clean Power Plan carbon reduction target. The bill would also expand Illinois' energy efficiency standard (EnergyWire, Feb. 20).
ANGA said it doesn't view renewable energy expansion as competition for natural gas. Rather, the association says expanding gas-fired generation provides quick-ramp capability that can help support more renewables.
"We don't see it as a competition," Farrell said. "From our standpoint, you can't have more renewables without gas."
ANGA said it is not looking for special treatment in the form of state policies; it is only looking to ensure that energy sources compete for market share based on economics when it comes to Clean Power Plan compliance. On that basis, the group said, natural gas should fare well.
Said Farrell: "As those states look to the options, they need to look at the relative cost of those options."
For more information on Illinois and the Clean Power Plan, visit E&E's Power Plan Hub.
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