What Virginia’s new laws reveal about how the natural gas industry sees its future

Natural gas has a moment. The war in Ukraine has highlighted Europe’s heavy reliance on Russian gas and the challenge of replacing it with new supplies from other countries. Suddenly, after talking so much about the need to move away from fossil fuels, the Biden administration wants to expand oil and gas production and boost exports of liquefied natural gas.

The President still intends to address the climate crisis, just not now. The sudden change is reminiscent of the prayer of St. Augustine: “Lord, make me virtuous, but not yet!”

But don’t be fooled. In fact, natural gas is facing an existential crisis. Back when it was cheap, it wasn’t profitable; Now that prices are high, US consumers have better choices. Europeans will only want to import our expensive LNG until they have other options. Today’s scarce supplies mask the overall reality that the gas industry is struggling to survive.

The fracking industry likes to describe their product as the cleaner and cheaper alternative to coal for power generation. Indeed, advances in fracking technology have brought a years of flooding of gas and drives prices so low that gas coal obsolete as top fuel in US power generation as of 2015. Gas imitated 38.3 percent Electricity in 2021 compared to 21.8 percent coal.

But competition from ever-cheaper wind and solar power has stalled gas industry growth in the energy sector. Today, utilities are more interested in building renewable energy and battery storage than in new gas plants. Natural gas was provided as compensation only 16 percent of new US electric generation capacity in 2021, compared to 39 percent for solar and 31 percent for wind.

High prices will reinforce this trend. Natural gas prices today are at their highest level since 2008 and have more than tripled in the last two years alone. The surge started well before the war in Ukraine, and now international market demand has pushed it higher. That’s good for fracking companies spent the last 10 years losing moneybut from the point of view of an energy supplier, price-stable renewables just keep looking better.

Fortunately for the gas industry, generating electricity is just one use for their product. Methane remains the dominant fuel for heating buildings about half of US households and businesses that use it for space heating, water heating, cooking, and other appliances. It is also a raw material for many industries, including fertilizer and plastic manufacturing. Protecting the first use and expanding the second are critical to preventing obsolescence.

That explains three laws passed in Virginia in the past two years, all modeled on bills passed in other states. Awhich I will discuss in a moment, originally would have prohibited local governments from banning new gas connections from their territories in order to protect the industry’s access to new end customers. Other creates a way for gas companies to add methane from hog waste lagoons and other non-fossil sources into their pipelines, allowing them to claim green credits – and subsidies – for marketing what they call renewable natural gas.

Finally 2021 legislation is promoting the “advanced recycling” of plastic waste — using a process called chemical conversion to turn plastic into other plastic or into fuel and then incinerating it — in part to prevent efforts to phase out single-use plastic Styrofoam food containers and plastic bags. As a technology, chemical conversion is inelegant, energy intensive and heavily polluting. As a company, the profitability is questionable (and the main company benefits from the law Plans for Virginia facility canceled). But as a PR, the reframing is brilliant. Why not expand plastic production forever when we can turn the waste into fuel or new plastic?

In fact, the law’s success is evident in Gov. Glen Youngkin’s new executive order, which is said to encourage recycling cancel a previous order by Ralph Northam, who urged executive agencies to phase out single-use plastics by 2025. Members of the General Assembly also fall for the propaganda and make proposals on the state budget delay the ban on polystyrene food containers, which should come into force from next year.

A natural gas power plant. (Stock Photo via Getty Images)

Ban on bans: The gas industry is fighting against building electrification

RNG and plastics are important to the gas industry, but protecting its market share in the construction sector is central to its future. Ultimately, it is doomed to fail. All-electric buildings are a prerequisite for a fully decarbonized economy, and their health and safety benefits make a compelling argument for places looking to help meet climate targets by preventing new homes from being connected to gas lines. Some cities in solid blue states have banned new gas connections; elsewhere, Red state legislatures are passing legislation to outlaw the bans.

Public support for these bans will grow as people learn more about the dangers of using gas in their homes. Read enough stories about methane leaky from underground pipes and in dwellings (e.g now and again explodes and building fires) or on the health effects of indoor air pollution from gas heating and ovens, and you may be wondering why we ever thought having open flames in our homes was a good idea. However, once a home is built with a gas furnace and appliances, it is much more difficult for a homeowner to go all-electric.

To be clear, no jurisdiction in Virginia has attempted to ban gas connections, and it’s not clear if they could do so in a Dillon Rule state like Virginia. Right now, a law preventing them from doing that sounds a little hysterical, like banning people from walking tigers off a leash.

In fact, the proponents of HB1257 could only cite a much narrower threat. The City of Richmond recently made a commitment to achieve this Net-zero greenhouse gas emissions by 2050. Unlike almost every other city in Virginia, Richmond has a gas utility that serves its residents and businesses. Sometime in the next 28 years, if the city gets serious, it will have to sell the utility or shut down gas supply, which will force customers to look elsewhere if they want gas.

The gas industry and its industrial customers used this distant threat as a pretext for a Virginia ban-the-ban law. in its original form, HB1257 (Kilgore) declared it every person’s right to have access to natural gas, calling it “energy justice” and expressly forbidding any public entity from doing anything to interfere with this sacred right. (Oh, except that gas companies don’t even have to deliver gas to willing customers if they can’t make money from it, and they’re free to cut service to anyone who can’t pay their bills. That’s the only way justice stretches that far the profit allows.)

The Republican-led House of Representatives passed the entire bill, but the Democrat-led Senate reduced it to deal with just one place getting out of the gas supply business and required it to give three years’ notice and attempt to have it passed to sell or auction utility. The final version omits the “energy justice” language that was such an inspiring homage to George Orwell, but it resolves the “immediate” problem in Richmond.

But we’re unlikely to have seen the end of Virginia legislative efforts to ban local restrictions on natural gas connections. The gas industry needs to find new customers now because its future is indeed very bleak.

About Ellen Lewandowski

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