The prolonged power outages that left millions of Texas customers in the dark during a February winter storm point to natural gas's long-haul role in the energy transition, one market expert said.
"To me, having wind [account for] north of 40% [of power generation] one week and then less than 3% the next week and expecting gas that's really spot market-based to have to ramp from 35% of generation to over 80% … it may be both a flawed design and a flawed expectation, but clearly there is some rationale," Sam Andrus, executive director for North American Gas at IHS Markit, said during an April 15 LDC Gas Forums webinar, referring to gas's function as a bridge fuel.
"Natural gas will be the marathon runner in the energy transition," Andrus added. "There may be some ways to go before that gets generally accepted."
The Electric Reliability Council Of Texas Inc. earlier in April released a report concluding that fuel limitations caused just 12% of Texas power plant disruptions during February's polar vortex, with cold weather causing 54% of the outages or output reductions. But regardless of which factors were most impactful leading up to the outages, natural gas clearly was fundamentally in demand, Andrus said.
"Clearly ... on peak there's a need for gas to keep the lights on," Andrus said.
The storm's repercussions have spurred market reform efforts in the state Legislature and by the Public Utility Commission of Texas. In the private sector, billionaire Warren Buffett's Berkshire Hathaway Energy is pitching Texas lawmakers on an $8.3 billion proposal to build 10 new gas-fired power plants across the state to help avert another energy crisis.
Andrus also presented IHS Markit's expectations for 2021 gas supply, forecasting an average 92.6 Bcf/d of production in the Lower 48 for the year. Any upside to that estimate would likely come from Louisiana's Haynesville Shale, where private operators funded by hedge funds are more prolific, Andrus said. Appalachian shale gas production also has "some room to run" given that drillers Cabot Oil & Gas Corp. and EQT Corp. "seem to be in reasonable financial shape," he added.
Analysts at Scotiabank agreed that private companies in the Haynesville and Marcellus Shales could drive production growth in both basins this year.
"Based on our discussions with multiple private companies ... several are looking at production growth in order to achieve scale while still focusing on [free cash flow] generation," they told clients April 15. "This is an objective they feel confident in achieving given hedge portfolios and reduced operating costs."
Andrus said that when it comes to U.S. gas exports, IHS Markit anticipates that LNG feedgas will average just over 9 Bcf/d during the summer after recently reaching record levels of about 11 Bcf/d.
Analysts at Goldman Sachs recently forecast an average 85% utilization rate at U.S. LNG export terminals during the summer, an outlook that accounted for occasional feedgas fluctuations because of maintenance and other temporary events.
IHS Markit is subject to a merger with S&P Global pending regulatory and other customary approvals.