Panel
Will Natural Gas Fuel the Future?
Milken InstituteRalph Eads III, Rick Grafton, Yossie Hollander, Shaia Hosseinzadeh, Nathaniel Keohane, Brian Sullivan
- Natural gas is expected to displace coal in power generation due to emissions declines, regulatory advancements, and state-level leadership, with 20 to 60 gigawatts of coal capacity projected to retire, while no new coal plants are anticipated in the U.S. given their high cost and three-year construction timeline.
- Methane emissions are a critical risk to climate benefits, though initial EPA findings suggest leaks are lower than previously thought, and economic incentives coupled with technology deployment are expected to mitigate leaks; uncontrolled leakage could reverse climate advantages, whereas capped leakage offers significant economic and energy security gains.
- Regulatory frameworks are expected to remain state-specific, creating challenges for uniformity, with the federal government having limited infrastructure control but potentially issuing an executive order to accelerate pipelines; predictability is identified as the primary industry need for long-term investment.
- Infrastructure logistics, rather than resource availability, are expected to serve as the industry bottleneck, with half a trillion dollars in annual spending projected over the next five years; the U.S. is forecast to achieve energy independence and begin exports by 2020, while the Keystone pipeline faces a two-to-three-year delay.
- Market dynamics are expected to feature a three-year lag between supply/demand changes and price reactions, with current prices ranging between $4.50 and $6; prices may face upward pressure if massive methanol conversion occurs, and dry gas production becomes uneconomical below a $5 threshold.
- Methanol is expected to be produced domestically at $1.50 per gallon but faces legal hurdles regarding corrosiveness and explosion risks, with California's 15-year experiment previously halted by oil prices of $20 to $30; 160,000 gas stations would require a $16 billion conversion, and over-the-road trucks and trains are anticipated as early adopters.
- Energy investment is expected to focus on the Eagleford and Marcellus plays due to high internal rates of return, with 40% of large independent E&P companies potentially changing CEOs; conventional gas is expected at $2.50 per thousand cubic feet, while shale gas is expected at 50 cents.
- Long-term economic policies may include a carbon price starting at $25 and rising 5% annually, with a three-to-four-year capital formation cycle for major projects; by 2030 to 2050, carbon pricing is expected to impact natural gas, though it will immediately favor gas over coal.
- Technology is expected to advance CO2 capture for oil field injection and electrification of the transportation sector, with electric vehicles eventually winning out, while industrial applications like trucks and trains may reduce carbon footprints by 40% for major logistics firms.
- Production metrics for the top 10 U.S. gas producers are expected to decline between 2% to 10% with new reserves dropping over 50%, while the LNG sector shows a 7% secular demand growth trend.
- The shale industry is projected to evolve over the next four to five years, with benefits remaining primarily in North America, and the sector is viewed as transformative to the energy industry similar to the internet's impact on technology.