Navigant Research Blog

As Future of US Energy Becomes Uncertain, China Moves Forward with Clean Energy Plans

— February 2, 2017

Cyber Security MonitoringChina is moving forward on its commitments to cutting back on coal generation. It recently announced that it was canceling the development of 103 coal-fired power plants. The announcement, made by China’s National Energy Administration on January 16, cites the goal of these cancellations as meeting a target in the country’s 13th Five-Year Plan to limit coal-fired power generation capacity to 1,100 GW by 2020. The plan includes canceling projects across 13 provinces, some of which are already under construction.

The cancellation of these plants comes in conjunction with another announcement made by the National Energy Administration stating that it intends to spend more than $360 billion on renewable energy resources, including solar and wind, through 2020. The plan includes creating more than 13 million jobs in the renewable energy sector, curbing the growth of greenhouse gas emissions contributing to global warming, and reducing the air pollution that hangs over cities like Beijing.

US Shifts Direction

These announcements come at a time when US President Donald Trump’s stated plans to revive the coal industry, scrap the Clean Power Plan, and focus on oil & gas have raised questions about the future direction of the US energy industry. Some experts claim that the Trump administration will only have so much power to change the fate of the coal industry; the economics behind the industry still point to a decline due to renewable resources becoming cheaper and natural gas proving to be a cost-competitive option in the United States’ current energy portfolio.

Based on statements in the first week of the Trump presidency, it seems unlikely that the United States will assume a leadership role in mitigating climate change. In fact, this shift in focus means that the United States risks losing ground to China in a race to lead the world forward in decreasing carbon emissions. This differs from the status quo just over a year ago at the Paris Climate Summit, where the United States and China both committed to fighting climate change.

Today, President Trump’s past claims that climate change is a Chinese hoax and suggestions of the United States’ withdrawal from the Paris Agreement could create a space for China to take on a leadership role in clean power. While the country still has a long way to go to prove its commitments to the environment, in the past few years it has made significant progress in terms of reducing its emissions, curbing coal generation, and ramping up investments in renewable energy resources. China has shown potential in its ability to lead the world toward a low carbon future.

 

Fracking Well Microbes Could Be Boon or Barrier for Oil & Gas Industry

— October 27, 2016

Pipeline (2)“Life finds a way.” It’s a quote seen on inspirational posters, calendars, and mugs. One location where this phrase is particularly applicable, though, is in hydraulic fracturing wells. Scientists recently discovered unique colonies of microbial organisms growing in these wells. Microbes have a massive impact on the flow of elements through our environment, so their presence in highly inhospitable fracking wells could have widespread implications for the oil & gas industry.

Thirty-one unique colonies of microbes were found in two separate wells in Ohio. Despite being geographically separated by several hundred miles, the microbial communities were strikingly similar. One species, never before identified, has been dubbed Candidatus frackibacter. This microbe likely developed in hydraulic fracturing wells, having only been found in that environment. The rest of the colonies probably came from surface ponds and adapted to the high pressure, temperature, and salinity of the shale well environment.

Increased Yield

The impacts of these microbes on the oil & gas industry are multifold. First, a number of the microbes identified are methanogens, which produce methane as a byproduct of metabolism. Methane is a key component of natural gas, so the presence of methanogens could actually increase the net yield of a natural gas well. Osmoprotectants, compounds produced by certain bacteria to protect them from very high salt concentrations, are converted into methane by these microbes. In this case, the compound in question is glycine betaine. More research must be done, but someday oil & gas companies might stimulate wells with osmoprotectants in addition to fracturing fluid. The process of exploiting microbial methane is already in use in the coalbed methane industry.

Potential Damage

On the other hand, these microbes could have a profound impact on the longevity of fracturing infrastructure. Corrosion of metal pipes can be a microbial process, and can happen rapidly in aqueous systems once microbes grow to a sufficient concentration. Microorganisms can greatly change the pH and alkalinity of water, leading to corrosion. This is one motivation behind adding chlorine or other disinfectants to drinking water distribution systems. As microbes become more adapted to fracturing wells, the rate of corrosion could increase over time, resulting in additional costs to natural gas producers. Thus, it may become necessary to inhibit growth of microorganisms, including the methanogens mentioned above.

Previously thought too inhospitable an environment to support life of any kind, we now know hydraulic fracturing wells host their own unique population of microorganisms. These microbes can have a huge impact on the productivity—and lifespan—of these wells. As their exact composition becomes better understood, the oil & gas industry will need to make adjustments to maximize profits and minimize any potential damage.

 

Rail Looks to Move the LNG Market

— September 13, 2016

Pipeline (2)The natural gas market in North America continues to have oversupply issues and a much lower price than other regional markets. Natural gas producers in Canada, Alaska, and other parts of the United States that are looking for new outlets for gas deposits may soon see new sales thanks to an old form of transportation—rail.

For the first time in decades, liquefied natural gas (LNG) is being used to power locomotives in the United States, and trains will soon begin delivering LNG by tanker for the first time. In June, the Florida East Coast Railway (FECR) began the first line in nearly 20 years to operate an LNG-diesel duel fuel train in the United States. The train runs between Jacksonville and Miami, and the company intends on converting all of its locomotives to dual-fuel setups.

Displacing Diesel

FECR is currently sourcing its engines from General Electric. Also offering LNG conversion kits to railway operators are manufacturers Energy Conversion, Inc. and EMD. Railroad operator BNSF is also testing LNG locomotives. The use of LNG in locomotives first began in the 1980s by Burlington Northern Railroad, but after several trials, engine conversion efforts lost steam, until efforts to put them back online returned just a few years ago.

The potential market for LNG as a rail fuel is considerable as diesel fuel consumed in the top 7 major freight railroads was about 7% (3.6 billion gallons) of the U.S. total diesel fuel consumption in 2012, according to the US Energy Information Administration (EIA). Supplying engines with LNG fuel while in operation requires the addition or modification of an LNG tender car. LNG tender manufacturers in North America include Westport Innovations of British Columbia and Chart Industries. The EIA expects that switching to cheaper LNG will more than repay the cost of converting the engine and tender car that holds the fuel.

Alternative to Pipelines

Rail is also being proposed as an alternative distribution mechanism to sometimes-contentious gas pipelines. The Alaska Railroad Corp. (ARRC) became the first rail agency to obtain approval from the Federal Railroad Authority (FRA) to transport LNG by rail tanker in October 2015. Transportation of LNG from where it is produced to interior markets in Alaska is likely to begin soon, and Union Pacific Railroad has similarly applied for permission to transport LNG in the lower 48. Specially designed LNG tanker cars are needed to store the fuel during transport, and new designs are currently in use in Japan and in Europe, where companies VTG and Chart Industries are collaborating.

LNG and oil pipelines continue to face opposition for their potential to endanger the environment that they pass through, so transporting LNG by rail could be a less objectionable method of distribution. Switching from diesel to natural gas also has environmental benefits. According to the EIA, natural gas produces 27.4% less CO2 than diesel when being burned.

Utilizing the railways for both delivery and consumption of LNG has inherent synergies, especially if the refueling depots and processing plants can be located near rail terminals. Until this market matures, some natural gas producers in Canada struggling to find options for exporting the abundance of natural gas are moving into the United States and Mexico in order to maintain growth.

 

Take Control of Your Future, Part I: Megatrends in the Utilities Industry

— April 29, 2016

Energy CloudThe pace and impact of change in the utilities industry is unrelenting. Each of the following megatrends is changing the way we produce and use power globally. Together, these megatrends are revolutionizing the industry.

  1. The power of customer choice and changing demands: More customers want to control their electricity usage and spend, as well as when and what type of power they buy. Customers want the ability to self-generate and sell that power back to the grid. Amazon, Apple, Cisco, Google, Honda, Walmart, and many other large energy buyers have increased their focus on sustainable energy solutions. This trend, in turn, is forcing new power purchase agreements with the incumbent utilities in order to minimize their risk of losing significant load. For example, a second (Google was the first) major technology company, Cisco, has confirmed that it is using Duke Energy’s Green Source Rider to provide clean energy for its North Carolina operations.
  2. Rising number of carbon emissions reduction policies and regulations: The impact of COP21 will be significant. Navigant believes that the “hold” on the U.S. Environmental Protection Agency (EPA) is temporary, and state governments and utilities are not waiting. They are taking actions now to be compliant. In fact, sustainability objectives between government, policymakers, utilities, and their customers are much more closely aligned than ever before.
  3. Shifting power-generating sources: U.S. electric-generating facilities expect to add more than 26 GW of utility-scale generating capacity to the power grid during 2016. Most of these additions will come from three resources: solar (9.5 GW), natural gas (8.0 GW), and wind (6.8 GW), which together make up 93% of the expected total additions. Existing assets (coal, but also nuclear) are devaluing and are at risk of becoming stranded as source shifting continues and newer natural gas and renewable generation sources come online.
  4. Delivering shareholder value through mergers and acquisitions (M&A): New industry ventures and M&A are happening at a rapid pace. Exelon’s acquisition of Pepco, Southern Company acquiring SoCoGas, Duke acquiring Piedmont Gas, Emera acquiring TECO, etc. In search for shareholder value through scale and increased synergies, this is a path that utilities will continue to explore.
  5. Regionalizing of energy resources (interstate, north-south, global): In order to provide reliable and affordable power, more energy resources are being regionalized. For example, PacifiCorp and Puget Sound Energy (PSE) and, later this year, NV Energy is joining California ISO. One of the main drivers is to achieve the benefits to manage local differences with regard to renewables, wind, and solar. Another example is Florida Power & Light’s (FPL’s) investment in natural gas exploration and production companies in Oklahoma and gas transmission pipelines to secure fuels for its natural gas combined cycle plants in Florida. Meanwhile, the global availability and movement of natural gas has created an abundance of natural gas. Some of the world’s biggest entrants into the growing global gas market have considered investing in power plants and other big projects now that their multibillion-dollar exporter terminals are about to open, executives said at the Columbia Global Energy Summit on April 27.
  6. Merging industries and new entrants: Several industries, including utilities, oil and gas (O&G), technology, manufacturers, OEMs, etc., are merging around areas like renewables, distributed energy resources (DER), energy management, smarter cities, and transportation. Navigant sees many cross-industry movements, and one of them is increased crossover investments between the electric utility and O&G industries. We see utilities investing in natural gas assets. And we see oil companies making investments in utilities. We also see both making investments in new areas of opportunity, like renewables, DER (distributed generation, energy efficiency, demand response, energy efficiency, etc.), transportation, smart infrastructure and cities, and energy management. That’s why the announcement in April by French supermajor Total is not a surprise to me. Total announced the creation of a Gas, Renewables and Power division, which it said will help drive its ambition to become a top renewables and electricity trading player within 20 years. According to a statement by the supermajor, “Gas, Renewables and Power will spearhead Total’s ambitions in the electricity value chain by expanding in gas midstream and downstream, renewable energies and energy efficiency.”
  7. The emerging Energy Cloud: Old infrastructure is being replaced and geared toward an increasingly decentralized and smarter power grid architecture known as the Energy Cloud. The Energy Cloud is an emerging platform of two-way power flows and intelligent grid architecture expected to ultimately deliver higher quality power. While this shift poses significant risks to incumbent power utilities, it also offers major opportunities in a market that is becoming more open, competitive, and innovative. Fueled by steady increases in DER, this shift will affect policy and regulation, business models, and the way the grid is operated in every single region of the world.

These megatrends cannot be underestimated. They are accelerating transformation in the energy industry, enabling the entry of new players, putting pressure on incumbent players, and altering traditional strategies and business models. Organizations will need to adapt, and there will be winners and losers as this transformation takes shape. My advice to senior leadership of energy companies is to take an integrated, holistic view of the opportunities and challenges that are flowing from these megatrends. Only then will you be able understand the full impacts and path forward. And that is the only way you can really take control of your future.

This post is the first in a series in which I will discuss each of the megatrends and the impacts (“so what?”) in more detail. Stay tuned.

Learn more about our clients, projects, solution offerings, and team at Navigant Energy Practice Overview.

 

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