CERAWEEK: US gas decarbonization role depends upon security, affordability

Natural gas has been the most powerful decarbonization tool in the US for the last 15 years, and it can be a bridge to cleaner energy in other parts of the world as long as security of supply and affordability are ensured, executives said March 8.

"Natural gas being produced in the US is some of the cleanest gas out there," Cheniere Energy's Scott Culberson, senior vice president of gas supply, told attendees at CERAWeek by S&P Global. As it has done in the US, gas can displace coal in other markets, but Culberson and his co-panelists at the conference outlined challenges to gas and LNG advances at home and abroad.

At home, permitting reform is top of mind among gas industry executives. Chad Zamarin, Williams executive vice president of corporate strategic development, noted how quickly Germany has been able to stand up floating LNG storage and regasification infrastructure following Russia's invasion of Ukraine.

"[The United States has] been trying to build Mountain Valley pipeline for eight years, he said of the project that has been repeatedly held up by permitting challenges.

Permitting uncertainty and infrastructure delays contribute to volatility and supply insecurity, speakers said.

The easy opportunities to add gas transmission capacity in the United States have largely been taken, Zamarin said.

Speaking on the same panel, Dustin Meyer, American Petroleum Institute vice president of natural gas markets, said he sees reason to be optimistic on infrastructure permitting. Meyer cited comments earlier in the week by John Podesta, senior White House climate advisor, who described permitting reform as a "top priority" for administration officials under US President Joe Biden.

"It's time to get back to work and pass permitting reform legislation," Podesta said during a March 6 panel.

While newbuild opportunities are sparse, there are asset optimization plays if one looks hard enough. Zamarin called Williams' Transco system a "big couch" in which the company has been able find some "loose change" in the form of additional capacity. Finding such efficiencies at the company level is good, but he said the industry should focus collectively on extracting "pockets of capacity" from existing infrastructure.

Upstream of infrastructure capacity constraints, US producers face other challenges to serving the global LNG market. Chesapeake Energy and its peers some time ago pivoted from a growth strategy and embraced capital discipline, returning more value to shareholders. The "growth model" was not sustainable, Chesapeake's Josh Viets, COO, said.

Success now depends upon an attractive drilling inventory supported by a healthy balance sheet, he said. Chesapeake takes a portfolio approach with a foot in the Marcellus and one in the Haynesville. Marcellus Shale operational breakevens are "extremely low," he said. The basin isn't challenged by carbon dioxide or hydrogen sulfide, and decline rates are low. "Really what that means is it's a cash flow machine." The only drawback is regional pipeline constraints that hold production back from markets.

In the tougher-to-drill Haynesville it's a different story. Carbon dioxide and hydrogen sulfide need to be handled. It costs more to drill and decline rates are higher. But the Haynesville is just north of the Gulf Coast with its growing LNG export infrastructure and access to global markets.

This week Chesapeake and trading firm Gunvor announced a tentative deal for Chesapeake to supply up to 2 million mt/year of LNG at a price indexed to the Platts JKM spot LNG price for delivery into Northeast Asia, giving Chesapeake global gas market price exposure.

Meyer warned that the decarbonization advances made possible by global gas can be reversed if gas prices are not competitive relative to coal.

"I do get a little concerned that in this focus on Europe that the Asian experience is forgotten," Meyer said of the global LNG pivot to Europe after Ukraine's invasion. Countries like Bangladesh, Pakistan and China will revert to burning coal if gas prices become unpalatable, he said.