pipeline regulation

Are we building too many natural gas pipelines?

Natural gas has been considered a bridge fuel between coal and renewable energy in the energy transition. Since 2005, coal-to-gas switching has been the largest driver of electricity sector CO2 emission reductions, accounting for 61% of the total in 2019 (cumulative 3,351 MMmt, EIA’s data). However, natural gas is still a carbon-emitting energy source and will be substituted by 2050 under the U.S.’s net-zero emissions plan. Natural gas infrastructure assets today thus will likely be stranded in the future. The consequences of massive stranded asset costs might delay the energy transition progress in the long run. Besides, on the regulatory side, Federal Energy Regulatory Commission (FERC) has been criticized for the combination of two reasons (1) approving a new interstate pipeline project based on self-dealing contracts between pipeline companies and theirs affiliated shippers as proof of market needs, and (2) offering an above-risk rate of return to pipeline companies. Such projects cause the inherent risk-shifting from pipeline companies to captive customers who are imposed with substantial reservation costs regardless of whether their gas utility uses the pipeline capacity. This paper contributes to the ongoing regulatory debate by examining the efficiency of the current natural gas pipeline network in the contiguous U.S. In addition, we provide a model-based project evaluation method that will be useful to assess the need for a new natural gas interstate pipeline on the pathway to net-zero emissions. The preliminary results show that the U.S. had built too many pipelines and slightly less storage than necessary. Pipelines had been overbuilt in some regions while under-invested in others. The model solution suggests that building additional storage is more efficient than building more pipelines in some states. Besides, investing in gas storage rather than pipelines also supports energy security in extreme weather events.