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Gas Sector to Trump: What About Us?

The natural gas sector pushes back against the Trump administration love affair with coal, nuclear power.

Bloomberg --As Energy Secretary Rick Perry considers whether the U.S. should do more keep coal and nuclear power plants online, natural gas producers are trying to ensure they aren’t left in the dark.

Lobbyists for the natural gas industry are telling the administration their fuel is just as reliable as coal or nuclear, and that gas-fueled plants have the added advantage of being able to ramp up quickly to respond to price spikes or a drop in wind speeds. The lobbying push illustrates how fulfilling President Donald Trump’s pledge to save coal has downsides for other fossil fuel interests, including those closely allied with the president.

"We’re not taking shots at coal and nuclear," but it’s important to "tell the whole story," said Marty Durbin, executive vice president and chief strategy officer at the American Petroleum Institute. "We want to make sure if they go down this road, they understand" that reliability is about more than the fuel itself, he said.

API, which absorbed America’s Natural Gas Alliance in 2015, released a study last month describing an array of natural gas attributes that make for a more reliable grid -- including fleets that are both flexible and stable. The advocacy by API, which represents companies such as Exxon Mobil Corp., tracks similar arguments about the grid by wind, solar and battery companies.

Proponents of natural gas, which topped coal to be the primary source for electricity generation in 2016, are trying to fend off any decisions by the Energy Department to push for changes to the structure of power markets and give advantages to coal or nuclear producers. That prospect is real: FirstEnergy Corp. wants to see what moves Perry would make before a possible sale of its coal plants in competitive markets.

Coal is more reliable because that fuel sits in piles at the plants whereas natural gas must be delivered by pipelines to the facilities, coal producers say. That makes coal plants less vulnerable to disruption than those burning natural gas, its advocates argue.

Perry’s Energy Department is set to release this month its assessment of the grid -- a study designed to examine whether policies favoring wind and solar energy are accelerating the retirement of coal and nuclear plants viewed as providing steady, reliable "baseload" power. Perry’s initial memo for the study referenced natural gas as supplying "affordable baseload power" as well. That suggested the focus would be on how to counter the surge in renewable wind and solar power, which benefit from federal tax breaks. 

Since then the coal industry began highlighting that fuel’s perceived benefits over gas.

"Coal is more resilient than natural gas," said Paul Bailey, the president of the American Coalition for Clean Coal Electricity, which represents coal-mining companies, utilities and railways. "We think coal-fired power plants are necessary to have a resilient electricity grid."

Competition from cheap gas is only set to grow.

The American Gas Association, which represents distributors, released a report Wednesday showing that technically recoverable natural gas resources in the U.S. have grown to the highest level in 52 years of assessments by the Potential Gas Committee. The U.S. now has a resource base of 2,817 trillion cubic feet that is yet to be discovered, up 12 percent from the previous high, according to the analysis. 

More supply generally leads to cheaper gas.

A draft version of the study prepared by career staff at the Energy Department suggests they are taking a broad view. 

"Fuel diversity does not in itself assure or improve grid reliability, and having fuel on site does not assure better grid resilience," the draft report says. "The grid is more diverse today than ever before, despite the loss of coal and nuclear generation and greater dependence on natural gas-fired combined cycle power plants."

Two factors are largely to blame for the financial woes of coal and nuclear plants, according to the staff draft, which was obtained by Bloomberg last week. Cheap natural gas is driving down wholesale rates for electricity, cutting the profit margins for those competing plants and demand for electricity has flattened out. The final report will reflect changes from the staff analysis, according to a department spokeswoman.

Advocates for coal say there is one important example that shows the importance of a fuel that can be stored on site: the 2014 Polar Vortex.

Soaring electricity prices during that stretch of frigid days led to record winter demand for power and depleted natural gas supplies. Wholesale power prices reached $2,205 a megawatt-hour in PJM Interconnection LLC, the largest U.S. power market, on March 4, 2014. The average PJM price that year was $63.32.

“Had it not been for coal power plants, the gas-supported generation would not have satisfied the demand that peaked that winter,” said Luke Popovich, a spokesman for the National Mining Association, which represents Arch Coal Inc., Peabody Energy Corp., Murray Energy Corp. and other miners.

But coal was not immune from the extreme cold of the Polar Vortex. Piles of coal froze, as did control and sensor equipment necessary for operations. An assessment found that 26 percent of unplanned power plant outages then were at coal plants; natural gas accounted for 55 percent.

When baseload resources failed, wind power and demand response -- with consumers turning down thermostats and conserving energy -- helped save the day, said Arvin Ganesan, vice president of federal policy at Advanced Energy Economy.

"If anything, what the Polar Vortex shows is there is diversity in the electric system, and that diversity is actually helping to solve reliability problems," he said.

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