Conversations with DNV Experts on Critical Issues in the Gas Transmission and Distribution Industry for Adaptation of the Natural Gas System to Reach Decarbonization Goals in North America is a 3 part series as part of DNV's Adapting Gas Systems for Decarbonization, A New Framework for the Energy Transition. In this series, DNV's leading energy expert Pedram Fanailoo dives into the complex issues that gas distribution operators and utilities are facing in adapting systems for decarbonization.
How did you get started in oil and gas and what is your perspective on the industry’s outlook in the energy transition?
Some people consider me to be an “oil and gas guy,” but when I left school with a degree in mechanical engineering, I never dreamt about entering the oil and gas industry. I wanted to solve difficult technical problems and work with people. I kind of just fell into oil and gas. During the recession of 2020, after the dot com bubble burst, a friend asked for my résumé and shared it with a small consulting company operating in the oil and gas segments. With all the economic challenges going on and an uncertain job market, I was just thankful that this small company showed interest in me, and I was eager to do something positive and forged my new future in the oil and gas industry. DNV acquired the company in 2005. Working with a global corporation created new opportunities to connect with the oil and gas industry leaders.
Over the past twenty years, I have experienced all the twists and turns of the upstream, midstream and downstream sectors in the oil and gas industry. Technology has drastically changed how energy is produced and transported. Today, I see the convergence of energy systems as the demand for decarbonized fuels accelerates. So, I ask myself, “How can I continue to help this transition forward to be safer, more reliable and efficient despite the challenges?”
What are the critical issues influencing the gas transmission and distribution industry in North America?
The current energy transition affects many parts of the economy and society. Residential and commercial users of natural gas depend on a reliable and cost-efficient energy carrier for heating buildings and for high heat load industrial applications (e.g., steel, cement etc.). While natural gas meets much of the criteria required as an energy source in today’s economy, it produces a significant amount of carbon in the atmosphere. As more and more states begin to enact decarbonization goals, natural gas producers are forced to look at the negative contribution their operations have on global greenhouse gas (GHG) reduction targets. Although natural gas is a much cleaner fuel as compared to some other forms of energy such as coal, which emits double the amount of CO2, natural gas still contributes negatively to GHG emissions in its unabated form.
So, one of the challenges we face is meeting the commercial fuel needs of the market while meeting the environmental demands of GHG reduction strategies.
In the northern United States and across much of Canada, utilities face a significant challenge in ramping up energy capacity to meet demands in the winter. Natural gas can meet the heat load (i.e., the energy demand to meet heating needs) quickly, assuming the infrastructure is winterized, but the equivalent energy from the electric grid requires scaling up by a factor of approximately four to five-fold, leading to increased GHG emissions. To keep GHG emissions low on an all-electric energy system, we would have to supply significantly more electricity from renewable sources such as wind and solar.
To illustrate this, New York state would have to increase its electric capacity from 37GW to 150GW if the gas grid’s heat load transferred over to the electric grid; there simply isn’t enough renewable energy to meet 100% of the demand during peak times and remain reliable.
Another challenge facing the oil and gas industry and the utilities are grid impact when considering alternative fuel sources to meet consumer demand and GHG emissions goals.
This is a complex and multi-dimensional challenge; we need to decarbonize but need to pick and choose where it makes sense in terms of practicality and where it is affordable. And affordability is a big issue, not only for its impact on businesses but also on low-income families who will suffer a disproportionate effect on their finances if utility bills significantly increase.
The challenges for investor-owned gas utility companies are meeting business revenue goals while operating ethically and within regulations. Forcing gas utility customers off the gas grid and onto the electric grid to benefit GHG emission reduction goals can have a negative socio-economic impact.
So, Pedram, what do we do about it?
When considering the energy transition and the gas utility space the below questions and considerations should be evaluated:
How do you decarbonize an energy distribution system? Identify parts of the infrastructure to decarbonize through new or alternative technology, while managing the socio-economic impact on customers. It’s important to recognize that one type of energy will not be the answer for all consumers and there are hard to abate sectors that simply cannot be electrified. A good understanding of the capabilities of technology, sources of energy, regulatory requirements and market trends are essential for creating the right plan. Clean electric energy is an obvious answer to things, but we have a finite landmass that can be used. Renewable natural gas from dairy farms is a great resource with net negative GHG emissions but there are only so many farms that can feasibly connect to gas trunk transmission lines. Hydrogen blending has the potential to be a game-changer, but it needs a sustainable business model from production to utilization to really take off.
How do you meet peak demand effectively? Identify reliable solutions to increase supply to meet unpredictable weather patterns. We must be conscious of the fact that renewable energy is cheap but also variable. Energy grids need to meet demand when everyone turns up or down their thermostats during a winter storm or during a heatwave, respectively. During the February 2021 winter storm in Texas, we saw how catastrophic the consequences can be if energy systems are not able to respond when needed. It’s not just about an individual plan but also the coordination of plans across players in the power sector and regulators to make sure the “system” works as a whole.
What are the alternative options? Examine repurposing existing assets. North America has engineered an amazing infrastructure system of pipelines. Identify ways it fits in a decarbonized economy to transport clean fuels, especially for hard to abate industries. Energy efficiency will need to continue to improve in order to bring the demand side down and other approaches such as demand response which has a long way to go on the gas side. But at the same time, we have to repurpose our existing assets to reduce the burden on taxpayers while creating opportunities for new business models to supply clean energy.
What should companies do to start considering alternatives?Start early. Early planning is crucial. There are many challenges to overcome, and time is limited. Taking prompt action can reduce costs in the long run. Partner with experts in decarbonization to evaluate the best options for your infrastructure. Part of why I love working with DNV is that we bring global knowledge to local problems. We have been supporting pipeline operators and owners in extending the life or decommissioning pipelines with our expansive understanding of materials and limitations for conversions. We have robust teams of experts who understand the financing and rate cases that impact our customers, and the challenges utilities are facing when considering how to decarbonize their infrastructure options. We also understand the policy development around climate change. I wanted to solve difficult technical problems and work with people, and while I may not have envisioned working in the oil and gas industry 20 years ago, I couldn’t imagine being anywhere else. I am passionate about the future of our environment and know that while for oil and gas, we face difficult challenges, the future is full of opportunities.
Join the discussion and together we can thrive forward in a new energy future
In our next series, we will dive into the available options for gas system owners and operators to address the challenges discussed above.