Today, corporate and state decarbonization announcements are progressing into actual strategic plans, often calling for increased production of hydrogen and renewable natural gas (RNG—cleaned methane from a landfill or anaerobic digester). These gases can use existing infrastructure while producing low-to-negative carbon emissions, making them an attractive lever for decarbonization. As a result, government incentives are pushing low-carbon gases into the market and other fuels out. Current policies direct those “clean” gases to the transportation market, where they displace gasoline and diesel. But on the horizon are state and corporate targets for blending RNG into pipelines, indicating that shale could be the next fuel to be displaced.
The falling production cost of “green hydrogen” drives much of today’s interest. In this instance, “green” means hydrogen produced by electrolyzing water into hydrogen and oxygen, powered by a zero-carbon electricity generation source. Previously, electrolyzers were expensive, and renewable electricity was expensive, making green hydrogen expensive. Improving technology and mass production are changing this paradigm. After significant declines over the last decade, IHS Markit anticipates the levelized solar and wind level cost could fall a further 50% and 25% by 2050 in our planning scenario. Combined with improved electrolyzer technology, green hydrogen looks set to be competitive with fossil fuel-derived hydrogen by the 2040s. In the meantime, subsidies and tax credits up and down the value chain incentivize production not only of hydrogen, but also cars, trucks, furnaces, and fuel cells that will enable society to use hydrogen in the energy transition.
Policy support also buoys renewable natural gas production. By capturing methane that would otherwise contribute to global warming, (at least 20 times more so than carbon dioxide), facilities like landfill recovery and agricultural digesters can produce natural gas with low or even negative carbon intensity. Incentives from the Federal Renewable Fuel Standard and state Low-carbon Fuel Standards make RNG production one of the U.S.’s hottest energy markets. New production facilities are sprouting across California’s Central Valley to capture what had formerly been a waste management burden. While production is booming, the bonanza doesn’t impact shale today as those subsidies direct RNG into automotive fuel markets, where they displace diesel and gasoline.
Depending on how you view the matter, mandates to blend increasing quantities of low-carbon fuels could displace shale in two ways. First is the physical displacement of shale gas by other molecules. With companies like SoCalGas and Dominion targeting upwards of 20% and 12% of total gas deliveries as RNG, the quantities are significant. Oregon is the leading state in RNG ambitions with voluntary RNG targets of 5% now and upwards of 30% by 2040. Second is economic displacement. Ratebasing development of RNG supplies will increase final consumer prices, making electrification and alternative technologies more attractive. In turn, that could displace additional shale gas.
But another view is that hydrogen and low-carbon gas enables shale. SoCalGas estimates that, because of the negative emissions effect of methane recovery, a 20% RNG blend could offset the CO2 emissions of the remaining 80% of fossil-derived gas. Green hydrogen contributes too. Oregon’s targets explicitly define hydrogen from renewable sources as a “renewable natural gas.” In states with net-zero emissions targets, utilities can continue to invest in and maintain infrastructure. Development of RNG resources also offers new revenue streams to dairy farms, landfills, sewage plants, and other sources of biomethane. While the concept is rife with controversy, the challenge of deep decarbonization makes hydrogen and low-carbon gases low hanging fruit.
About the author: Alex Klaessig is a research director on the IHSMarkit hydrogen and renewable gases team. Mr. Klaessig specializes in understanding how environmental regulation, technology, and innovation drive change in North American transportation and electricity markets. In addition to co-chairing the IHS Markit Energy Innovation Pioneers program,
Mr. Klaessig has been instrumental in several IHS Markit studies, including “Hydrogen in the Golden State.” He has authored numerous reports on research into air quality regulations and retrofit/retirement decisions on coal-fired generation and trends in technologies like cogeneration.
