What President Obama's Emissions Proposal Means for Natural Gas

In a speech at Georgetown University late last month, President Obama outlined a detailed plan for tackling the pressing issue of climate change.

One of the main goals he discussed was reducing annual carbon pollution in half over the next two decades. To move closer to this goal, he plans to reduce greenhouse gas emissions from U.S. power plants by empowering the Environmental Protection Agency to establish carbon pollution standards for both new and existing power plants.

While the coal industry didn't take too kindly to his proposal, his words were surely well received by natural gas companies. Let's take a closer look at why the president's proposal could lead to a substantial increase in natural gas demand over the next several years.

Obama's proposal and future natural gas demand
According to industry analysts, President Obama's plan to cut carbon emissions from U.S. power plants could mean an additional 4 billion to 8 billion cubic feet per day of natural gas demand growth over the next decade.

"Using the National Resources Defense Council's notional 1,500 [pounds of CO2 emissions per kilowatt hour] as a starting point implies an incremental retirement of about 70 GW of coal-fired capacity by 2020 over and above approximately 40 GW of expected retirements associated with the MATS rule," said ClearView Energy Partners' analyst Kevin Book in a note released after the speech.

The basic idea is that the president's proposal to limit carbon emissions will give power plants incentive to use more natural gas instead of coal. That's because coal and natural gas compete directly for market share in the U.S. power-generation market. Though this market has historically been dominated by coal, gas suddenly became a much more attractive alternative as its price plunged to a decade low last spring.

Other natural gas demand drivers
In addition to demand from utilities, other key drivers of future demand for natural gas include industrial and petrochemical firms, LNG exports, and, to a lesser extent, residential and commercial conversion. Another wildcard source of demand may also come from the transport industry, where demand for natural gas-powered trucks has soared in recent years and is likely to increase further.

For instance, Waste Management (NYSE: WM  ) has amassed a fleet of around 2,000 trucks that are powered by compressed natural gas and plans to add more, while UPS (NYSE: UPS  ) recently announced plans to purchase 285 more gas-powered trucks next year.

Even some of the largest players in the railroad industry, including Berkshire Hathaway's Burlington Northern Santa Fe, Union Pacific, and Norfolk Southern, are carefully studying the costs and benefits of converting their freight trains' engines to burn natural gas instead of diesel. BNSF, for instance, is using units from General Electric (NYSE: GE  ) and Caterpillar (NYSE: CAT  ) , the biggest manufactures of locomotives in the world, to determine whether it wants to convert some of its trains to run of a mix of natural gas and diesel.

In all, these trends paint a highly bullish picture for the future of natural gas demand. Over the next five to seven years, we may see up to 20 billion cubic feet per day of incremental demand, according to Enterprise Products Partners (NYSE: EPD  ) , a leading midstream firm. As I have argued before, I believe that there's a good chance that gas demand could outpace supply in the future, which suggests to me that natural gas prices are likely to move much higher over the next three to five years.

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Read/Post Comments (8) | Recommend This Article (5)

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  • Report this Comment On July 21, 2013, at 8:21 AM, Snakepit456 wrote:

    Perhaps the notion that CO2 is being portrayed as a "pollutant" in the global warming scam should be examined a little more.

    The propaganda always shows chimneys belching smoke (never mind that CO2 is odorless and colorless.)

    This of course benefits the rent seekers and speculators who will directly benefit from the bizarre government created carbon markets.

    Moreover, the beneficial effects of CO2 cited by the people who do not support the scam are much more than theory and propaganda. Continuing satellite observations show that increasing atmospheric CO2, has been literally greening the planet. Measurements over the past 30 years record a major increase in vegetation across the world's land area, including equatorial regions such as the Amazon rain Forest. A quantity called the "Normalized Difference Vegetation Index" is used to monitor plant growth, vegetation cover, and biomass production. It shows a considerable net "greening" of the earth, due largely to increased atmospheric CO2.

    The global warming cabal has been dominated by poor science feeding a reinforcing political process for too long. The world has stopped warming for close to two decades now forcing the warmers to scurry around for explanations and excuses. There are no trends in extreme weather events, despite the astrology that now feeds the attempts to make everything that happens fit the dogma.

    We should bear these realities in mind when our elected and appointed public servants, rent seeking corporations, grant seeking academics, and news outlets try to tell us otherwise.

  • Report this Comment On July 21, 2013, at 10:13 AM, Paulson545 wrote:

    When every ones using NGas there do you think the price of NGas is headed in a few years. When Americans see their heating bills double will they remember that it was caused by a radical president and a radical EPA ?

  • Report this Comment On July 21, 2013, at 10:45 AM, SLTom992 wrote:

    All of the savings in emissions of CO2 and particulates in the entire history of man are overwhelmed by ONE single volcanic eruption. And there are presently 200 active volcanoes around the world. There are many others along the equatorial rim under deep seas that aren't known.

    Mt Pinatubo has been erupting continuously for over a year.

    Again and again the media and the government are lying to the people of this country and in so doing are destroying the energy availability and the millions of jobs in these areas not to mention the greatly increase energy prices because of these limitations. Our economy is purposely being destroyed by fools that know absolutely nothing and pretend great knowledge.

    Anything that has the name "environmentalist" should be completely ignored.

  • Report this Comment On July 21, 2013, at 11:53 AM, animald wrote:

    Obama's plans to reduce greenhouse gas emissions from U.S. power plants by empowering the Environmental Protection Agency = loss of MILLIONS of JOBS and power bills sky rocketing.

  • Report this Comment On July 21, 2013, at 11:12 PM, poorpeter wrote:

    Using natural gas in cars and more electrical generation is a good step in the right direction. I look at oil and coal as being used to generate materials, plastics, pharmaceuticals, and many other recyclable products. To waste a large carbon molecule by burning it is a waste. These materials we will need into the future to be taken into space. Man should not squander the resource of oil and coal by burning it. Natural gas has a far smaller carbon footprint with very pure byproducts of combustion. Again, if Obama does one thing right and this is it he may have a positive legacy after all. Can he do it?

  • Report this Comment On July 21, 2013, at 11:59 PM, PeteH66 wrote:

    The political propagandists were out in force this morning! Anybody telling you this is a radical president, or that there are no severe weather patterns to observe, or that "millions of jobs" are being destroyed by "fools that know absolutely nothing" is promoting an ignorance-and-fear agenda so they can hog all the resources for themselves.

    Even natural gas is not the ultimate solution, but it helps wean us from the dirty legacy of fossil fuel, and it's right here on U.S. soil. The jobs that will be created by building cleaner and more efficient engines and building out a supply infrastructure will dwarf the mining jobs rendered irrelevant.

  • Report this Comment On July 23, 2013, at 8:40 PM, MiserblOF wrote:

    Global warming caused by human use of fossil fuels, including natural gas, which, when fracked, is just about as bad a coal, is not a scam. It is a clear and present danger to our species.

  • Report this Comment On November 07, 2013, at 11:41 AM, alawrence37 wrote:

    What kind of consumer proposals has he shown (http://www.mclay.ca/services/proposals/index.php)? In Ontario, I feel like we have a better handle on things like emissions and air quality. Maybe we care more about the environment or have just taken the initiative to do something about it. Who knows?

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