Putting Round Pegs in Square Holes
Not wanting to miss a chance at earning their woke merit badge some cities have now declared war on natural gas by banning it from utilization in new housing construction.
Our US energy system is a modern miracle connecting a multitude of resources via the most technologically advanced and extensive set of infrastructures in the world. Its advancement is driven largely by market forces acting in concert with public policy, cultural preferences and sustainability, including concerns about Global Climate Change (GCC). Unfortunately it is also the breeding ground for some of the false narratives circulating in current culture. Among these are the dual notions that GCC is an easily ‘fixable” problem requiring but the will and determination of good people of conscience and that moving the US quickly to a green based economy with renewables providing the bulk if not total electricity supply is eminently doable with existing technologies. The refrain goes something like this,
“Any loss of energy capacity and operational convenience caused by compulsory decommissioning of fossil fuels-related systems are simply equipoised by still deeper investments in renewables.”
When asked about the economic destruction of trillions of dollars of critical infrastructure and the loss of millions of jobs occasioned by a Draco inspired abandonment of fossil fuels, disciples of decarbonization say not to worry ꟷ multi-trillion dollar investments in Green New Deal technologies and attendant creation of millions of new 21st century jobs will more than offset these losses. Hmm… maybe, but how soon?
We see other examples of this political and ideological theater playing out in multiple related arenas. For example, witness the parallel debate on personal and commercial transportation; specifically, calls for outlawing diesel and stiffening Corporate Average Fuel Economy CAFE standards which, if sanctioned, would result in a premature and costly shift to all-electric or hybrid vehicles. All the while charging infrastructure nationwide remains vastly undersupplied even in the more populated areas of the country.
Banning the Use of Natural Gas Appliances
A recent post in Forbes reports several California cities, including Berkeley, Los Angeles and San Francisco, are considering building electrification ordinances, and eight states, along with Washington, D.C. and Puerto Rico, have established 100% clean electricity goals. All-in-all over a dozen cities have banned natural gas in the last year alone. Ill-informed, politically impelled politicians and regulatory Czars proclaim that electric only homes and buildings are more carbon friendly than multi-fuel structures that utilize natural gas. “While we’re leading the nation in low-carbon green growth, as we’ve led the nation in our efforts to decarbonize our economy, we’re going to have to do more, and we’re going to have to fast-track our efforts,” California’s Gavin Newsome said this past September. The CEC and CARB have promulgated rules allowing for the banning of natural gas hookups in new residential construction. LinkedIn® and other professional and mass media publications are rife with articles authored by armchair vloggers, think tanks and research groups advocating abandoning natural gas in residential and commercial buildings. Almost without exception these critiques support a view that America can (and should) move quickly and easily away from natural gas
Whether you support mandates for all electric homes or prefer free choice in the powering of your home or business it is important to understand the far-reaching implications of consigning natural gas to leper status. We believe what’s missing from this discourse is an average consumer perspective; one that comes not from a think tank, Manhattan high-rise or Malibu beach house.
The Cost of Compliance
First let’s talk about cost. As things now stand natural gas utilization in the home saves the occupant on average $900/yr when compared to ‘all-electric’ homes based on studies done by American Gas Association (AGA). This is a significant savings; but especially for those in the bottom half of the income earning population. According to Federal Reserve Economic Data (2019) nominal median income per capita was $35,977. A $900/yr. increase in costs is roughly 2.5% decrease in per capita income. While such a decrease in average per capita income is material, clearly the impacts to the 50% of population with incomes below the median figure, the poorest in our society, are much greater. The popular story line is Global Climate Change most adversely affects the poor in our society ꟷ the real Inconvenient Truth is that pushing for all electric homes directly and most negatively impacts the poorest by driving up the cost for one of western culture’s most basic necessities. Current injudicious appeals for all electric focused policies appear to have forgotten the painful lessons of mid-20th century ideology and the unholy alliance between utilities and appliance makers via their ‘Live Better Electrically’ programs. Referencing the all-electric programs of the 50s and 60s, the Los Angeles Times reported on the deleterious impacts to LA basin homeowners and how, “All-electric homes pose a particular hardship for those on fixed incomes or with medical conditions. And they are harder to sell, with buyers leery of the high costs.”
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More Hidden Costs of Compliance
Next, let’s explore one of several hidden costs associated with the move from natural gas in buildings to all-electric; more specifically, an electric load supported by a largely renewable grid. Proponents of all electric space and water heating talk about how these systems can be “intelligently managed” to shift energy consumption in time, thereby aiding “the cost-effective integration of large amounts of renewable energy onto the grid.” Unfortunately peeling the onion skin back on these highbrow leitmotifs you find victims: namely, the freedom and the flexibility to operate your business and/or household during times of the day or night most convenient to your schedule. Intelligently managed grid systems will be required increasingly to balance loads to coincide with renewable energy intermittency and generating schedules.
Generation isn’t the only casualty. Electric transmission has a tendency to fail during extreme weather events, often the same type of events that require heating. According to the US Energy Information Administration average residential customers suffer through 6 hours of electricity interruption annually based on IEEE standards. This number can grow dramatically for those utilities subject to more extreme weather such as snow and ice storms or hurricanes. North Carolina, for example, experienced an average 30 hours of electric interruptions in 2018. Consigning ourselves to a single source of failure (i.e. all electric) we place ourselves in an untenable situation of further burdening the electric grid statistically increasing the frequency and severity of outages.
Long before natural gas fired electric generation became a critical linchpin in this country’s energy supply portfolio, the daily demand from end use customers (homes and business) as well as heavy industry in parts of the country required significant infrastructure investments from gas utilities if they were to ensure the reliability of natural gas flowing from the production areas to market. The gas utility has always sought ways to optimize logistics and lower embedded costs to serve customers more economically. The twin peaks of summer electricity loads for cooling serve to offset and balance winter time gas heating loads to rationalize these investments; keeping gas utilities more fully loaded, operationally viable and therefore more cost effective throughout the year.
Electric and Natural Gas Businesses ꟷ Two Sides of the Same Coin
The return of natural gas fired generation and attendant load over the past three decades has not only given rise to a highly functional, reliable and efficient gas delivery system but it has resulted in a substantial decline in the nation’s CO2 emission. In a February 2020 report the IEA states that the United States saw the largest decline in energy-related CO2 emissions in 2019 of any country – a fall of 140 Mt, or 2.9%, to 4.8 Gt. U.S. emissions are now down almost 1 Gt from their peak in the year 2000, the largest absolute decline by any country over that period even as gas increased its share in electricity generation to a record high of 37%. In an efficiently operating marketplace without undue government interference natural gas can be both competitive and collaborative with renewable sources. A study published just this past October by the AGA shows that in a typical residential application, a natural gas home requires ca. 25% less total energy on a full-fuel-cycle basis than is required for a comparable all electric homes. AGA reports that the efficiency advantage stems from the fact that less than ten percent of the natural gas energy produced is used or lost from the point of production to the residence. In contrast, almost 63 percent of the energy produced to satisfy the electricity needs of consumers is used or lost in the process of energy production, conversion, transmission, and distribution.
Even if one accepts the notion that financial pain and hardship are simply the bitter harvest of a noble societal undertaking, what gains can we expect from the move from natural gas over to all electric homes and businesses? In short, de minimis. In a 2018 study done by consulting firm ICF for the American Gas Association, they report, “The U.S. Energy Information Administration (EIA) projects that by 2035, natural gas will account for 4 percent of direct residential GHG emissions, and the sum of natural gas, propane and fuel oil used in the residential sector will account for less than 6 percent of total GHG emissions. Reductions from policy-driven residential electrification would reduce GHG emissions by 1 to 1.5 percent of U.S. GHG emissions in 2035.” Remarkably, the ICF report also shows that potential reductions in emissions from policy-driven residential electrification are partially offset by an increase in GHG emissions from the power generation sector, even in a case where all incremental generating capacity is renewable.
Finally, it’s often helpful to focus on what lies beyond labels and headlines. Our natural gas utilities do not simply sell natural gas; they deliver affordability, reliability, convenience and comfort. Customers at all ends of the economic spectrum have excelled in large part because the U.S. has the blessing of affordable abundant energy, the life blood of modern society. Image what would happen if customers turned the electric switch and no power, turned on the stove and no gas? It’s easy if you try. Simply look at California over the last two years. It’s absurd to think that when an ill wind blows both residential electric customers and business must be cut off to avoid fires. Adding insult to injury is the fact that the utility is shut down during the most profitable time for Wind Energy, currently the heart of our green energy portfolio. Imagine how much worse it could be in an all-electric world? Electric generation cannot and should not be subject to interruption and current technology cannot save the grid. In a robust power portfolio you need natural gas fired generation to grab the oars and heave to when renewables fail to deliver. It only works if there is gas flowing in the pipelines.
It is critical that gas industry advocates such as the AGA, as well as other prominent Oil and Gas leaders remain steadfast in their battle to speak the truth persuasively concerning this issue.
Absent the strictures of misguided and reactionary policies, one could reasonably expect market forces would see natural gas deliveries to residential customers and commercial business remain as the backbone of the American economic engine well into the foreseeable future.
If our friends and neighbors can wake up each morning and put their lives on the line to ensure that the promises of natural gas: affordability, reliability, convenience and comfort are realized throughout North America, is it too much to ask our elected leadership and regulators to stand on the twin pillars of common sense and decency in the conduct of doing the people’s business?
Make no mistake. It’s foolish to think there stands a single silver bullet solution to such a complex and nuanced challenge. This piece is NOT offered as blind advocacy of fossil fuels nor of natural gas producers, midstream operators or even gas utilities specifically. Rather, we hope to generate conversation, useful debate and possibly momentum towards a more rational approach to meeting both the challenge of GCC as well as the economic and humanitarian interests of our country’s residents. Energy companies of all stripes struggle today to find strategic direction to generate policies which can effectively balance and serve multiple masters; the contractual and fiduciary responsibilities to customers, the financial health of their investors both private and public, the requirements of regulators and other governing bodies with jurisdiction as well as the duty to responsible, sustainable stewardship of God’s given resources. We here at HINDSFEAT Advisors pledge to remain engaged and committed to working with our clients and all stakeholders within the broader energy complex to define these challenges and to design, support and implement effective strategies that best meet these often competing interests.
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