As we pointed out in our article last week, The Fusion Report reports on more than just fusion energy. One of the most important energy sources today, certainly in the United States, Western Europe, and part of Asia, is natural gas. Today natural gas, which is composed primarily of methane (CH4), is used to generate nearly one-quarter of the world’s electricity. The US Energy Information Agency (US-EIA) projections for natural gas electricity production worldwide is shown below, which go from 6,664 billion kilowatt-hours (BkWh, also known as a terawatt-hour, or TWh) in 2025 to 8,266 BkWh in 2050. More likely, this number will grow significantly more, especially between now and 2030, due to the increased electricity consumption from datacenters, especially in the US. If the increase in US datacenter electricity consumption was only supplied by natural gas, it would require an increase of up to 500 billion kWh by 2030.

Addressing the Elephant in the Room – Environmental Impact

Like oil and coal, natural gas is a fossil fuel. The methane that makes up natural gas is also one of the most impactful greenhouse gases, trapping more heat per molecule than carbon dioxide (CO2); this makes concerns about leakage during storage, transportation, and use of natural gas concerns. On the other hand, natural gas has several advantages compared to other fossil fuels:

• Highest Energy Density Per Gram: Methane, which makes up 95% of natural gas, is second only to hydrogen for energy density per gram. That means significantly less of it is needed to generate the same amount of energy as say coal or oil.

• Cleanest-Burning Fossil Fuel: Natural gas is (at least today) the cleanest-burning fossil fuel. The product of burning natural gas is primarily carbon dioxide and water. Because natural gas is typically processed prior to use either for electricity production or other uses such as a transportation fuel, pollutants such as particulates, carbon monoxide, nitrogen oxides, and sulfur oxides are much, much lower for natural gas than they are for other fossil fuels.
• (Relatively) Low-Cost Power Plants: Though no power plants are “cheap”, natural gas power plants tend to be one of the lowest-priced and fastest power plants to build, with pricing slightly lower than that of a comparable-capacity solar farm.
• Natural Gas is Very Plentiful: We have LOTS of natural gas, especially in the US. In fact, the US is a net exporter of natural gas, largely driven by increases in natural gas production and construction of liquified natural gas (LNG) ship terminals.
• So as far as fossil fuels go, the environmental and fiscal impacts using natural gas to generate electricity tends to be significantly less than other fossil fuels.

Issues in the Natural Gas Markets

Like most fuel stocks, the building and maintenance of the infrastructure for storing and transporting natural gas (mostly pipelines and tank farms) is deeply expensive, and the existing infrastructure has a fixed capacity. Today, there are  over 300,000 miles of natural gas transmission lines, and more than 2.3 million miles of natural gas distribution lines. Moreover, many of these lines cross national boundaries. It is the transmission lines that are the most critical, as these tend to be large-diameter, high-pressure pipes that carry most of the gas from where it is produced to where it is consumed. As with electrical transmission lines, the cost of these tends to be borne by the consumers.

The natural gas market itself is deregulated, and is subject to futures trading just like any other commodities such as oil, gold, and pork bellies. Both electricity utilities and natural gas utilities engage in futures trading for natural gas, trying to lock in advantageous prices and quantities for the winter heating season (for natural gas utilities) and for the production of electricity. And if the buying signs out there are any indication, 2025 will be a record year for natural gas consumption. The problem with both this and the infrastructure side of natural gas is that if utilities, looking to ensure supply for their customer, sign gas capacity contracts that exceed their needs (or their generating capacity), that cost goes directly to the consumers (with the utility’s markups). This is also true for pipelines, which must transport the gas from the supplier to the utilities.

There are signs that this is exactly what is happening in the southeast United States. These contracts, especially the ones for pipelines (transport contracts) tend to be across 20-year timeframes, regardless of how much gas the pipeline actually transports for the customer. As you can guess, these costs are directly passed on to consumers by the utilities.

Run Out of Gas or Pay Too Much – Not Great Choices, and Usually No Choice for Consumers

The problem with this system is that there are very few incentives to try to “get it right”. If you were a residential consumer (for natural gas-generated electricity, or for natural gas for heating), not having enough gas to make it through the winter isn’t a great choice. Moreover, the utilities themselves have no incentives to avoid over-ordering either gas capacity or gas transportation – the costs all go to the consumer, with (at least private) utility shareholders having no skin in the game. In fact, utilities, pipeline companies, and natural gas suppliers are all open to significant state and federal civil penalties if they encounter shortages and/or delivery failures due to negligence, mismanagement, or failure to meet regulatory obligations. This lack of reliance on fuel stocks is one of the greatest advantages that solar (no fuels), nuclear fission (limited fuels), and fusion (limited fuels, primarily deuterium) have versus fossil fuels.