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Coal is out and oil is fading, making natural gas the fossil fuel of choice

Coal is too dirty. Oil is too messy. And renewables are too intermittent. But natural gas is just right.

Energy companies of every stripe have fallen in love with the stepchild of fossil fuels. No longer considered an annoying byproduct of oil drilling, natural gas’ multiple applications and relative cleanliness guarantee it a place in the future energy mix.

The CEO of French energy giant Total, Patrick Pouyanné, joked that he runs a gas and oil company, rather than oil and gas, during his appearance at CERAWeek by IHS Markit, the annual energy conference in Houston. Every major international energy company in the world is emphasizing gas over oil.

Like other fossil fuels, natural gas is abundant, transportable and easily stored near where demand is high. Gas also produces up to 60 percent less in carbon emissions than coal and 15 percent to 20 percent less in heat-trapping gases than gasoline.

Natural gas can be burned to produce heat, combusted in turbines to generate electricity or injected into engines to propel vehicles. But constituents of natural gas are also used to make plastics and other petrochemicals, itself a growth industry.

The best part is that huge gas reserves have been found around the world, so no single country can control supply. Which is why China and India, the two main sources of energy demand growth in the world, are abandoning coal and expanding imports of liquefied natural gas.

China relies on coal for about 65 percent of its power generation, but the government has pledged to reduce that dependence by using more LNG and renewables. The government also wants to triple the uptake of electric vehicles to reduce oil consumption.

“China’s demand is increasing significantly. They’ve had a very active program to move off of coal in heating industrial applications, and that’s pulled on LNG,” said Pierre Breber, executive vice president for downstream operations at Chevron, according to the Reuters news agency.

India, which will soon become the world’s largest energy importer, plans to increase gas from 6 percent of the nation’s energy mix to 15 percent.

“Almost $15 billion is being invested in creating pipelines and an LNG terminal largely serving eastern and southern India,” said B.C. Tripathi, chairman and managing director of GAIL Limited, India’s largest importer of energy and builder of pipelines.

Indian companies also plan to provide gas to more retail customers in major cities for home and transportation use. The government is under intense pressure to reduce pollution and improve public health in major cities.

Tripathi said the goal is to go from 4 million homes using natural gas to more than 10 million, and government incentives have spurred a 20 percent year-over-year increase in compressed natural gas vehicles. Gas also can back up renewable generation.

“When I look at new business models, my view on that is the integration of gas with the renewables will offer a great opportunity,” he added.

He’s not the only one who sees opportunity.

“Renewables are growing faster than any energy source in history, and it’s growing five times faster than natural gas,” said Bob Dudley, CEO of BP. “That makes it an especially exciting investment opportunity, especially where you can partner it with natural gas to address intermittency issues.”

Today, the United States is awash with cheap natural gas due to increased drilling for oil. The U.S. has begun exporting LNG, sending prices lower. But as demand increases, the market could tighten.

“We believe early-mid next decade, we will see the supply-demand gap developing again, and it will convert from a buyer’s market back into a seller’s market, and it will require some elevated contractual gas prices to incentivize new green-field developments,” ConocoPhillips CEO Ryan Lance told the CERAWeek audience.

That’s should cheer up gas wholesalers. But more importantly, natural gas offers oil and gas companies the chance to become an ally in fighting climate change, if they can control methane emissions during the drilling and shipping processes.

“There is no other issue with the potential to disrupt our industry on such a deep and fundamental level as climate change. And in response, I think we will have to change,” Ben van Beurden, CEO of Royal Dutch Shell, told his fellow energy executives. “We will aim to bring down the net carbon footprint of our energy products by around half by 2050.”

That’s only possible by cleaning up the natural gas drilling process and plugging leaks in the distribution system. It also requires adoption of electric vehicles and carbon capture. The world can significantly reduce emissions and meet the goals of the Paris Climate Accords if gas and oil companies get on board.

All of these steps will not only help the environment, but also maximize return to shareholders while delivering affordable energy. Coal and oil may fade in importance, but natural gas is here to stay.

Chris Tomlinson is the Chronicle’s business columnist. [email protected] twitter.com/cltomlinson

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