Market Forces

How can the U.S. gas pipeline system support a path to net-zero GHG emissions by 2050?

An economist’s guide to filling in the research gaps.

Natural gas currently accounts for more than a third of U.S. energy-related CO2 emissions, but efforts to decarbonize the economy – in particular by replacing gas with electricity in a wide variety of critical applications – imply decreasing future gas demand and CO2 emissions from the industrial and building sectors as well as the power sector.

Resolving the economic and regulatory challenges that follow from this will require filling in crucial knowledge gaps about the U.S. gas transportation system – and how that market could be designed to support the energy transition.

An energy system already in transition

Transitioning the U.S. to a clean energy system is a critical step toward the long-term goal of reaching net-zero greenhouse gas emissions by 2050. The U.S. power system has already taken steps in the right direction. More electricity is coming from variable renewable energy sources (VREs) like solar and wind, while coal plants are being retired.

But even when we factor in options like energy storage, demand response and build out of electric transmission capacity, gas-fired generators will likely continue to have a role in the next decades by providing peak and ramping capacity at times when electricity production from wind and solar is low or electricity demand is high.

This, in turn, means that the country’s vast network of interstate gas pipelines has its own role to play in the US energy transition.

The problem is that the pipeline transportation market was built to support predictable, relatively constant demand (e.g. industry and buildings). It is not currently designed to accommodate the variability of demand from gas-fired power plants which can fluctuate significantly by the hour – or even more frequently. Nor is the pipeline system designed to be compatible with other low-carbon fuel options or phased down as electrification increases.

More economics research needed

To reconcile this disconnect, we need a much better understanding of how the pipeline market works, and how it could work. Compared to U.S. power markets, the interstate gas pipeline transportation market is characterized by opaque operations and practices and has not been studied much by economists. This has limited the economic analysis available to support decision-making by policy makers and stakeholders looking to address this problem.

More research and analysis is needed to inform how design, regulation and operation of the US gas transportation market can be improved, and the stranded asset risk and associated distributional impacts managed.

To stimulate and facilitate new research in this area important to the US energy transition, I recently published an introductory guide to the U.S. gas pipeline transportation market for researchers and energy market analysts. It outlines the main market features and regulations important for understanding the U.S. gas transportation market.

The objective is to facilitate further research that will help answer questions like:

  • Who is, or should be, shouldering the costs of gas transportation infrastructure and bearing the risk of some of these assets becoming stranded in a low-carbon-energy future? How should such long-term stranded asset risk be managed in the face of electrification and decarbonization?
  • What changes are needed in the gas transportation markets to provide more flexible gas delivery services to gas-fired generators that provide valuable balancing in the power markets?
  • What role can hydrogen play in U.S. decarbonization efforts? How could a potential hydrogen market be created and which parts of the gas pipeline network would be beneficial to make compatible with hydrogen transportation, given potential centers of hydrogen supply and demand.

By publishing this paper, we hope to inspire PhD students, researchers, consultancies and market analysts to conduct analyses on this topic crucially important to the U.S. energy transition. Such new research would ideally generate policy-relevant conclusions on how to reform the U.S. gas pipeline transportation market – and next be communicated to  energy market regulators and policy makers to support decision-making that will facilitate the US transition to net zero greenhouse gas emissions by 2050.

Also posted in Economics / Leave a comment