National Fuel Gas Co.'s natural gas production, transmission and distribution segments can continue operating profitably under emissions reduction scenarios, according to a company-issued report.

The company released its first climate report March 7, which outlined the energy transition's financial impacts on the company's divisions and assessed the risks of climate-related events to its assets. National Fuel recently raised concerns about efforts to "electrify everything" in New York, where it distributes gas through National Fuel Gas Distribution Corp.

"As this report describes, our assets and operations are expected to be resilient to climate risk and will provide a strong foundation for the company's long-term role in the energy complex," National Fuel President and CEO David Bauer said in a news release.

Developed in partnership with consultant Environmental Resources Management, the report analyzed National Fuel's business resilience under two scenarios included in the International Energy Agency's 2021 World Energy Outlook. The stated policies scenario assumes that nations implement current and announced climate policy, while the sustainable development scenario, or SDS, assumes that they achieve more stringent United Nations Sustainable Development Goals.

Advantages identified in Appalachian footprint

The company said its Seneca Resources Corp. exploration and production segment can continue to generate "meaningful" cash flow through midcentury, even in a $2/MMBtu price environment outlined in the SDS. In National Fuel's view, falling capital expenditures associated with lower production would offset declining long-term pricing.

Additionally, National Fuel expects its core operating region, the Appalachian Basin, to experience less-severe production declines than other basins. That is due to the low carbon intensity of Appalachian gas supplies and low operating, finding and development costs relative to other producing regions, the company said. National Fuel also counted its proximity to large gas markets in cold-weather climates as an advantage.

National Fuel also said it has adequate development locations where it can produce and gather gas at costs that would be economical in a $2/MMBtu environment. That inventory would be sufficient to meet projected demand through 2050, the company said.

Midstream forecast to kick off cash flow through 2050

The company indicated that its pipeline transmission and storage business will also be "substantially" free cash flow positive under both scenarios as long as material changes to the federal ratemaking framework do not prevent National Fuel from recovering its cost of service.

However, National Fuel acknowledged that the SDS does carry more risk to cash flows. A "significant" reduction in total transportation volumes anticipated under the scenario would increase the burden of maintaining reliable service on a shrinking pool of customers. That could require National Fuel to discount rates in order to maintain customers, the company said.

National Fuel said its analysis did not incorporate potential revenues associated with transporting and storing low-carbon fuels such as renewable natural gas and hydrogen or converting its gas storage assets into CO2 reservoirs to accommodate carbon capture operations.

Gas distribution throughput expected to decline

To assess impacts on its gas utility business, National Fuel outlined three scenarios through 2050: one in which all residential and commercial customers convert to electric heating and appliances, one with very high use of fuels and no electrification, and a hybrid approach in which customers continue using gas during cold weather.

In the high fuel use and hybrid approaches, gas throughput would decline 28% and 53% through 2050, respectively, though the company would "substantially retain" and possibly grow its customer base. To meet emissions reductions in the SDS, more than 80% of fuel deliveries would be renewable natural gas and hydrogen in the high fuel use scenario. National Fuel said sourcing that much low-carbon fuel could present technical and resources availability challenges and would require significant investment in new infrastructure.

In the high electrification scenario, throughput would plunge 72% through 2050 as only hard-to-electrify customers would remain on the system. However, even in this scenario, National Fuel assumed it would continue to recover costs and earn a reasonable return on capital investments and operating expenses needed to provide safe, reliable service.

Climate-related natural disasters such as landslides and fires present the greatest financial risk to National Fuel's facilities and operations, the analysis found. However, the company does not expect the impacts to be significant and saw little financial risk from hurricanes, flooding and extreme heat.

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