Opportunities Burning Bright for Natural Gas, AGA Chairman Says

June 2015, Vol. 242, No. 6

Jeff Share, Editor

At least for his new role as 2015 chairman of the American Gas Association Terry D. McCallister doesn’t have far to travel. The 59-year-old natural gas executive who is chairman and CEO of WGL Holdings and Washington Gas Light Co., the 165-year-old utility company that services the Potomac region, has plenty on his plate these days, as this interview found, so time is at a premium.

McCallister has led WGL and Washington Gas since Oct. 1, 2009 after having joined Washington Gas in April 2000 as vice president of operations. He was previously employed with Southern Natural Gas where he was vice president and director of operations and with Atlantic Richfield Co. He is a past chairman of the Southern Gas Association Board of Directors and is also chairman of the board of directors of the Gas Technology Institute. The fact is that McCallister is in the mainstream of the natural gas business, as much as anyone can be in this era of natural gas.

P&GJ: What do you think it will take for natural gas to – in reality – become the nation’s preferred energy source? What are some of the challenges that need to be overcome to make that happen?

McCallister: Natural gas is already a foundation fuel in the United States, meeting more than one-fourth of America’s energy needs and serving as the fuel of choice for over 72 million residential, commercial and industrial customers throughout the nation. There is tremendous opportunity to grow demand for natural gas in all sectors of the economy, from homes to manufacturing to transportation.

Because much of current natural gas policy was developed in a time of natural gas scarcity, policymakers and regulators should identify areas that may no longer fit the current picture. In order to seize this opportunity and see even greater benefits from natural gas, we should promote the expansion and enhancement of the natural gas delivery infrastructure; deploy energy efficiency programs that fully leverage the efficiency benefits of natural gas; expand the use of efficient generation technologies such as combined heat and power and encourage technological progress to unlock the potential for fuel cells, microgrids and future innovation; and encourage public-private partnerships to expand the network of natural gas vehicle refueling options.

P&GJ: Beyond knowing that we have a reliable supply of relatively inexpensive natural gas available, what would be the best way for us as a nation to make the most efficient use of natural gas?

McCallister: We are already seeing tremendous efficiency gains in natural gas production and use. Since 1970, natural gas usage per household has decreased even as overall demand for energy has risen. When used directly in homes and businesses through appliances for heating and cooling, water heating, cooking and clothes drying, natural gas achieves 92% energy efficiency from the point of production to delivery to the consumer. To realize the full benefits of natural gas, and to allow customers to make informed decisions, we need to rethink how we measure energy efficiency and account for the total energy and emissions impact of a fuel and its usage.

We need to take into account the full-fuel-cycle efficiency of a product, which measures the total energy required to produce and deliver energy from its source to its end use. In addition, developing and deploying innovative technologies such as microgrids and combined heat and power will allow us to unlock even more of the efficiency benefits of natural gas.

P&GJ: Where could we make greater use of natural gas than we are now doing, perhaps in home appliances?

McCallister: We have an enormous opportunity to expand our use of natural gas to more applications as well as to expand service to those who do not yet have access to natural gas. This includes using natural gas to power more vehicles, ensuring that customers understand the efficiency benefits of natural gas appliances, and fostering a policy environment that allows us to invest in and expand our delivery system. Doing so will greatly benefit our nation by boosting the economy, reducing reliance on imports and unlocking the efficiency and environmental benefits of natural gas.

P&GJ: What effect could the low-price environment for crude oil have on natural gas development, particularly in the short term? Are we going to see operators shutting in production and having a hard time hiring service contractors?

McCallister: In the short term, low oil prices are having only a marginal impact on natural gas development and production, and current natural gas production remains near an all-time high. Recent reductions in natural gas rig counts and other investments are most sensitive to the gas market and lower gas price expectations, not the oil market. That being said, there will be some loss of associated gas as oil drilling and production slows down. How much is hard to say at this time. As far as service contractor availability, that’s a demand-driven business and their availability tends to fluctuate up and down with the needs of the drillers and producers.

P&GJ: On the one hand, the administration seems wholeheartedly in favor of natural gas, but then proposes new regulations that the industry fears could hamper its growth. How does AGA interpret the administration’s stance toward natural gas? What’s the message you’re hearing?

McCallister: Natural gas continues to be at the heart of discussions about America’s energy future. President Obama, along with many other leaders and policymakers, has shown on many occasions that he supports a role for natural gas as part of a secure and sustainable energy agenda. The president and administration officials have repeatedly promoted the efficiency and affordability of natural gas, and AGA and its member companies continue to work closely with all parties to ensure that policy outcomes benefit all stakeholders – especially customers. We hope that the president and all regulators and policymakers will continue to seek input to help develop policy outcomes that recognize and encourage the environmental, economic and energy security benefits of natural gas.

P&GJ: Although natural gas does appear plentiful for decades to come, does it make sense to use huge quantities for power generation? Years ago, many thought this was a waste of a precious fuel.

McCallister: Our abundant resource base, which continues to grow, is able to satisfy existing and new markets at competitive prices for decades to come. Using natural gas for power generation provides tremendous environmental benefits, and will be essential to providing communities with reliable, affordable energy while meeting new regulatory requirements.

P&GJ: Similarly, what’s your view on LNG exports which the AGPA and a number of manufacturers oppose?

McCallister: It is our belief that U.S. exports of natural gas are unlikely to significantly impact natural gas utility customers for the foreseeable future. In fact, generating new market demand from a range of sources, including LNG exports, will encourage continued production and technological innovation, helping to maintain market stability over the long term.

P&GJ: What steps is the industry, including AGA, taking to reduce natural gas emissions, and is it proving to be effective?

McCallister: Emissions from the natural gas distribution sector are already low and are on a declining trend. The latest research shows that today, just 0.1 to 0.2% of produced natural gas is emitted from the delivery systems operated by local natural gas utilities. AGA and its member companies are committed to upgrading pipeline systems to make them safer, and this effort is driving down emissions even further.

In May 2014, AGA developed voluntary guidelines to assist AGA members in efforts to evaluate options for further reducing emissions from their delivery systems. Improved science and data is essential to accurately measuring natural gas emissions and how to address them, and AGA supports research to enhance that effort, as well as to identify cost-effective best practices for reducing emissions.

P&GJ: What are the latest growth projections for natural gas use in the U.S.? Residential, commercial, industrial and power generation?

McCallister: Projected to increase by 24 Bcf/d by 2035, the power generation sector is the fastest-growing market for natural gas demand, followed by industrial customers. While less growth is projected in the residential and commercial sectors, there is a tremendous opportunity to grow residential natural gas demand in the Northeast by expanding service and converting more homes from fuel oil or electricity to natural gas. AGA research recently found that over 500,000 housing units in the Northeast switched to natural gas space heating between 2000 and 2010. We could also see residential demand growth with installations of things like natural gas vehicle refueling units and backup generator systems.

P&GJ: What role do you see natural gas eventually playing as a motor vehicle fuel?

McCallister: There are about 152,000 NGVs on U.S. roads today and over 17 million worldwide. We can and should expand the use of natural gas in transportation in the U.S. By doing so, we can lower consumer costs, reduce emissions and decrease our reliance on imported energy. Today, the greatest potential for natural gas vehicle adoption is in the commercial fleet and heavy-duty vehicle sector, as the result of the faster pay-back period due to greater use.

We’re seeing cities throughout the nation transition buses, taxis and waste management trucks to natural gas. Expanding the use of natural gas-powered vehicles could create a role for local natural gas utilities as builders and suppliers of residential refueling stations.

P&GJ: Are we adding the necessary infrastructure in terms of pipelines particularly to move this gas?
McCallister: The natural gas industry operates over 2.4 million miles of pipeline – the most extensive, integrated, safe and reliable pipeline infrastructure in the world – and natural gas utilities are committed to maintaining and enhancing their systems by investing in safety, modernization and expansion. With the opportunities brought on by the vast resources of domestic natural gas, now is the time to invest in this infrastructure and expand service. We are working with governors, legislators and state regulators across the country to develop innovative models for making these capital investments possible.

P&GJ: When you talk to executives of natural gas utilities, what do they indicate are their greatest needs and challenges?

McCallister: With today’s record domestic abundance and stable prices, now is really the time to invest in enhancing and expanding a 21st century natural gas delivery system and cultivating a workforce capable of maintaining that infrastructure. At the same time, a significant portion of the natural gas workforce is set to retire in the next decade. Throughout the nation, local natural gas utilities are taking a close look at how they can encourage and support students as they pursue training and careers in natural gas. Building that pipeline of skilled and passionate professionals is critical to ensuring that we are able to meet the challenge of delivering American’s energy future.

P&GJ: Is the industry doing a good job of selling the importance of natural gas to the public?

McCallister: We have a great story to tell and we are working together across the industry to get those good messages across to consumers, policymakers, regulators and all stakeholders. For over a century, natural gas utilities have been safely and reliably delivering energy to their local communities, and are a trusted resource. By continuing to do what we do best – by focusing on safety and service – we’ll continue to earn the trust of our customers and the public – and we’ll be able to show the value natural gas and natural gas utilities can bring to the nation.

P&GJ: As the shale revolution continues is it fair to say that we haven’t even scratched the surface yet of how much natural gas may ultimately be economically available, or of the potential uses for this fuel?

McCallister: The natural gas resource base we are able to access continues to grow and advances in technology will unlock that resource even farther. We can expand our use of natural gas right now in homes, power generation, manufacturing and transportation. Continued innovation will open doors to greater use of natural gas in marine and air transport, microgrids and fuel cells, supporting renewable energy sources and more. The latest Potential Gas Committee supply report came out in April and topped the last assessment by another 121 Tcf. So we continue to see the highest numbers we’ve ever seen, and they just keep growing.

P&GJ: Should the industry be investing more money into research and new technologies? If so, what should the industry expect back for its investment?

McCallister: Technological innovation has always been at the heart of the natural gas delivery business. From building the natural gas delivery infrastructure into the expansive, 2.4 million-mile world-class system we now have to the revolutionary technology that unlocked today’s resource abundance, advances in technology have constantly enhanced our ability to serve our customers even more safely, efficiently and reliably. Continued innovation is essential to keeping up with the pace of our constantly evolving world, and I’ve no doubt that we will meet that challenge.

P&GJ: You’ve been in this business for 36 years. What motivated you to work in the industry and stay for so many years? How has the industry changed since you first joined it?

McCallister: The natural gas industry is an excellent place to begin a career. I began drilling wells in Alaska and as a young engineer I had the opportunity to try new techniques and develop different methods – this even included a failed attempt at directional drilling. At that time we were still unable to extract natural gas from shale – so the shale revolution has been an amazing phenomenon to witness.

I’ve never seen opportunities like the ones we see today, thanks to the strong position of natural gas supply and the infrastructure and talented workforce we have in place to deliver it. Natural gas can provide so many solutions to our nation’s challenges – from boosting the economy, to increasing security, to reducing emissions. In the utility business, we have the opportunity to really make that potential a reality for our customers, and I feel so fortunate to be a part of that.

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