The Environmental Protection Agency (EPA) released its new methane reduction rules aimed at limiting emissions from oil and natural gas operations from the wellhead to the distribution city gate. The rule includes elements targeting hydraulically fractured oil wells—something the New Source Performance Standards did not cover in 2012. The new standards would be expected to cost the industry about $370 million to implement annually by 2025, but bring in $460 to $550 million in benefits. It is not expected (at least by EPA) to be a limiting factor for future domestic production.
U.S. production averaged 72 Bcf per day in August. An extended maintenance season this summer has moderated some production growth in all areas of the country. Still, current average daily production year to date has been 4.0 Bcf higher than the same period in 2014.
The release of the nearly 1,000 page EPA study on hydraulic fracturing and drinking water begs the question, “what will be next?” Perhaps the environmental focal point will shift to continued analysis of methane emissions within the value chain. Only time will tell.
Natural gas acquisition prices are currently quite modest and the domestic storage position is back to more normal. In fact, from the end of May through the balance of the traditional net injection season daily injections would only have to average about 11.5 Bcf per day to bring national inventories to 4 Tcf entering the winter for the first time in history. Production fundamentals and requirements for natural gas to serve cooling loads will make that determination as the summer progresses.
“Our nation is fortunate to lead the world not only in domestic energy resources but also in energy delivery infrastructure. America’s abundance of natural gas, which continues to grow according to the latest Potential Gas Committee report released this month, holds the key to meeting America’s energy needs and growing our economy while improving our environment. As the final link between this game-changing resource and homes and businesses, America’s local natural gas utilities are committed to ensuring that it can be delivered to customers safely, reliably and at affordable prices. While I am pleased to see the Administration’s continued support for natural gas in our clean energy future and their recognition of the critical importance of robust and reliable energy infrastructure, it is imperative to recognize the significant work already underway and the contributions current industry efforts are making.
Every natural gas utility works every day to monitor, maintain and identify ways to expand and invest in smart modernization and enhancements to the more than 2.1 million miles of natural gas pipeline and infrastructure they operate. Since 1990, natural gas utilities added more than 600,000 miles of pipeline to serve over 17 million new customers. This has included installing updated plastic lines at a rate of 30,000 miles per year in the past decade. These efforts have led to an approximately 40 percent decline in pipeline incidents over the past ten years. A recently published study led by a team from Washington State University found that emissions from local natural gas distribution systems in cities and towns throughout the U.S. have decreased in the past 20 years, to levels 36 to 70 percent lower than the 2011 U.S. Environmental Protection Agency inventory. The study concludes that as little as 0.1 percent of the natural gas delivered nationwide is emitted from local distribution systems.
38 states now have specific programs in place to foster accelerated replacement of pipelines. We appreciate the recognition that most of the authorities for energy infrastructure reside at the state and local level, and we will continue our efforts on these local fronts, while continuing to work with President Obama, the U.S. Department of Energy and other key stakeholders in addressing the energy challenges that face our nation through the use of clean, reliable natural gas.”
In March, the U.S. Department of Energy (DOE) proposed a rule that would mandate the manufacture of natural gas furnaces that meet a 92 percent or higher specification for energy efficiency. At first glance, the rule appears to be a positive step forward for energy efficiency. In reality, DOE’s proposal would create a number of counterproductive and unintended consequences that could increase energy use.
In this post, I want to focus on the economic burden placed on consumers and in particular low-income households, which are disproportionately vulnerable to higher costs.*
On April 13, DOE held a public meeting on the proposed rule. In its response to concerns about how the rule will affect low-income households, DOE stated that “most low income households are tenants.”
DOE’s argument is that property owners, not renters, are responsible for the higher upfront costs of a furnace installation. Tenants do not have to cover the costs of a higher efficiency furnace, but would enjoy the lower fuel savings. Consequently, low-income households, most of which DOE says are renters, are insulated from the higher costs imposed by DOE’s rule.
Except this is not true. An analysis of US Census data** shows that 53 percent of low-income natural gas households are owner-occupied. Less than half are renters. In fact, 1 out of 7 U.S. households is low-income with a natural gas furnace.
This means up to 9 million low-income home owners with a natural gas furnace would be faced with higher upfront costs imposed under DOE’s rule.
Because low-income households have fewer resources to pay for the installation of a higher-efficiency gas furnace, they are more likely to switch to less-expensive electric equipment that costs more to operate. This, in turn, means low-income households are more likely than other homes to see higher utility bills under DOE’s rule.
Even renters could pay more. If a property owner cannot or chooses not to cover the upfront costs of a furnace installation, they may make a switch to less efficient equipment, in which case fuel costs will go up. Many renters pay separate utility bills (myself included). Landlords of these properties don’t see operating costs, so they don’t directly benefit from an upgraded furnace.
Ironically, even the study that DOE cited notes that rental units are less likely to have efficient equipment. In fact, it’s this principal-agent problem that stymies a lot of energy efficiency potential. Are we to just assume, as DOE does, that no landlords will switch to lower-cost electric equipment?
The disproportionate effect of higher costs is one reason why 71 percent of gas utility efficiency programs target low-income customers.
The rule may have a pernicious secondary effect on low-income assistance. Each year, through the Low Income Home Energy Assistance Program (LIHEAP), the Federal government assists the most vulnerable households to meet heating and cooling needs. But the program is stretched already.
Current LIHEAP funding leaves 4 out of 5 eligible households without assistance. The furnace rule could exacerbate this condition. If this rule induces customers to switch to higher cost heating fuels, the requirements of a low-income program like LIHEAP will increase, putting further strain on the program.
Industry concerns about this rule are not about taking a position against energy efficiency. Natural gas utilities have a demonstrated track record of supporting efficiency and reducing household gas consumption. Rather, it’s about re-examining a top-down prescriptive approach and instead applying a comprehensive vision for furnace efficiency, one that recognizes proven approaches that are cost-effective and protects all customers.
*Here’s a rundown on the costs. A 92 percent efficient furnace costs roughly $300 more than unit rated at 80 percent, which is the mandated minimum today. However, the installation cost of these higher-efficiency furnaces be in excess of $1000 to $4000 more, a result of new venting requirements that may be difficult or impossible in some homes.
**AGA analysis of the U.S. American Community Survey, 5-Year 2009-2013 multi-year combination microdata files, accessed via DataFerrett. The summary table shows the breakdown of occupied households with natural gas space heating by tenure and income level (using $45,622 as the low-income threshold)