Natural gas end users are increasingly focused on sustainability and have shown a keen interest in the availability of low carbon fuel options. Still, the question often arises – are they willing to pay a premium?
At the recent LDC Gas Forums Southeast in Ponte Vedra Beach, FL, executives of local distribution companies and natural gas utilities delved into the question of low carbon fuel options.
The executives underscored the value of renewable fuel options, including renewable natural gas (RNG) and independently certified low emissions supply. They also reassured the audience about the continued necessity of geologic natural gas as a primary fuel for the ongoing energy transition.
Natural Gas Resiliency
The Tennessee Valley Authority (TVA) plans to lower its carbon footprint partly by retiring its coal-fired generating units and replacing them with natural gas-fired generation that would be operational before coal is fully decommissioned.
TVA’s Jeff Avery, director of natural gas, said on one panel that he believes “we are going to be out of our coal generation no later than 2035.”
The replacement? Natural gas.
TVA, the federally owned electric utility serving Tennessee and portions of six southern states, is adding about 2,950 MW of natural gas-fired generation by 2027 to maintain system reliability.
Customers want reliable service, and natural gas “is a crucial enabler for electric grid stability,” said Shell plc’s Jill Davies, general manager for liquefied natural gas Trading and Origination Activities across the Americas.
Davies underscored the pivotal role of natural gas in balancing fuel switching and displacing coal for power generation. She said it enables a higher concentration of renewables, making it a crucial component of the energy transition.
Further, despite increased interest, until the premium comes down, “You won’t see RNG as a mainstream fuel,” according to Patriot Energy Group executive director Mike Enoch.
RNG Queries
Although it hasn’t bought any RNG, Duke Energy Corp. is considering certified gas and sees it as part of its portfolio in the future, said Sarah Stabley, who directs Gas Supply Optimization & Pipeline Services.
For now, “We are just facilitating the sale of that gas to others on our system.”
Stabley noted that Duke has several RNG interconnections on its system and a tariff that provides gas quality specifications. “As long as the RNG provider can match the gas quality specs as needed, they can hook up to the system,” she said.
Meanwhile, Duke’s Piedmont Natural Gas unit launched the GreenEdge program in 2023. The initiative allows customers to purchase a blend of RNG environmental attributes and carbon offsets to reduce greenhouse gas emissions.
Patriot, a joint action agency that operates a natural gas transmission pipeline providing energy solutions to upstate South Carolina Gas Authorities, also has seen an increase in customer interest for RNG.
“Industrial customers will ask us, ‘Can you get RNG? Can you get certified natural gas?’ We say, yes, we can get it,” Enoch said. However, when conversations turn to price, RNG becomes less of an option, he said.
Enoch said customers want low and stable prices, and would pay a small premium for RNG and certified natural gas. Panel members said a reasonable premium would be about .05-1.5 cents over the market price for natural gas.
NGI’s forward fixed prices show natural gas at the national benchmark Henry Hub trading below $3.000/MMBtu until October as of Wednesday (April 24), according to NGI’s Forward Look. Prices further out the curve, while higher, are seen remaining largely around $3.00-$4.00. Meanwhile, certain dairy-based credits have fetched more than $100/MMBtu in recent years.
Pricing RNG
The cost differential between RNG and geologic natural gas can be high because of the process of turning waste into fuel, according to NRG Energy Inc.’s Rock Graham, manager of origination. He noted that organic dairy and food waste must be collected and processed, and the product upgraded to the quality necessary for utilities, interstate pipeline networks.
What’s more, what typically drives the economics of RNG is not the intrinsic value of the fuel, but the carbon credits that RNG generates and could be traded separately. The credits, also known as carbon allowances, work like permission slips for emissions, allowing companies to offset some carbon dioxide emissions.
While RNG and certified natural gas offer diversity of fuels and improve sustainability, they are not required to do so.
For example, Dallas, TX-based Atmos Energy Corp. serves about three million natural gas customers in eight states, with separate regulators for each branch, according to Kenny Malter, director of Gas Supply and Services.
“Those state commissions have not come out to mandate putting a certain amount of RNG into our system,” he said. “Nor have they said if we put a certain amount of RNG on our system, we would be able to recover those costs from our customers."
Malter said regulatory support is needed to ensure that the costs of adopting RNG and certified natural gas are recovered, which could be 20-30 times more than the current natural gas market.
