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'They're trying to use it like a Ferrari' | Southern Gas Association discusses natural gas prices, possible Texas lawmaker impact

The KVUE Defenders spoke with the president and CEO for Southern Gas Association about these changes and how the electric grid currently works.

AUSTIN, Texas — On Thursday, Texas lawmakers will discuss 10 bills that talk about potential changes to electricity.

These bills range from plans to draw power plant investors to taxing renewable energy. Lawmakers will also discuss State funding, which would get more power plants online, especially natural gas. These bills will be discussed in the Senate Committee on Business and Commerce.

KVUE Defenders Reporter Erica Proffer spoke with the president and CEO for Southern Gas Association, Suzanne Ogle, about these changes and how the electric grid currently works. Some minor edits have been made to the questions and responses to provide clarity.

Erica Proffer: I understand that we're primarily here to talk about how the weather impacts the weather forecasts impact the gas prices. Can you explain that to me? 

Suzanne Ogle: Sure. You know, there's a short-term impact, right? So there's the short-term impact on pricing. There's the demand issue around pricing. And there's storage. There's a number of components that create pricing dynamics. I think in the short term, you can look at an immediate move to pricing and say, "Oh, prices are lower, prices are higher." However, I think the fundamentals of natural gas pricing has changed materially with the export demand. So pricing is now regionally sensitive but globally anchored. Right. And so it's a shift to the way price you have to think about pricing of gas. Also the correlation of oil and gas, it used to be a tighter correlation, but that correlation isn't as tight anymore. So people used to look at oil and say, oh, this is what gas is going to do, and there's more of a disconnect. It's not as closely associated as it had historically been.

Proffer: Why is that? Is it because of that global distribution now?

Ogle: It is because gas, you know, now it's an export quantity. And there's a lot of dynamics to gas that are independent of what oil is doing because gas really is part of how the world is going to achieve their clean energy goals. And although there's a lot of talk around elimination of fossil fuel, that is a very uninformed conversation because much of your electricity comes from gas and it's a dispatchable source of energy. And that's why it's important here in the United States. But globally, it's important because, as you can see, for energy security and with that shift, how other countries are trying to create an assurance of electricity, and also not being dependent on the Russian gas, which completely had an impact last year. You saw that materially in the prices. 

Proffer:  And is that over with now? I mean, because we're still exporting right to Europe. 

Ogle: Well, there's a lot of reasons we export. It's a huge demand. The exporting increased significantly in a very short time when they cut off the Russian gas. But the other countries around the world are relying on U.S. gas. It's some of the best-priced gas, number one. But, you know, that's what they need to get their power. Any foreign country who's thinking about meeting the Paris Climate Accord, unless they have their own sources, are thinking about gas. 

The prices have fallen over the last few months to the historically normal range. Because of a warm winter, storage is a key component in this. And frankly, the United States needs more storage because that lack of cold weather removed that risk of not having enough gas to get through the winter. But storage, they're high right now, the storage is. We got a surplus to a five-year average. The storage is really a key component to the equation because you need to be able to draw on storage when you have a high demand for gas. And so one of the things that's fundamentally also changing is as they continue to create areas of electrification. You have to have the gas available to be on demand for if the sun isn't shining and the solar panels aren't getting it or the wind turbines aren't turning. The right mix is a mix of all these sources together. But to think about it strategically and because it's not looked at in a way that understands an energy system and in its complexity of how it energy system works. The administration has permitting backlogs that are frankly affecting not only gas infrastructure but renewable infrastructure as well. There's a really long wait for infrastructure. And all these things have an impact, especially in Texas, where ERCOT has a market-based demand. So it's created so that when you're not compensated for no gas. They don't have a kind of an insurance model where you prepare for what the worst-case scenario is. They have like step, step on the gas pedal and will pay a lot. Right? So if you think of a gas system, gas systems really designed like a locomotive to just continue on with some consistency is a really nice baseload. They're trying to use it like a Ferrari. 

Proffer: I like that analogy of it. You mentioned the backlog. I know we've had a backlog for a while. What's causing it? Is it a lack of staff? 

Ogle: I know. It's a lot of things, Right. So FERC, just like any other company—FERC is an agency, right— but I mean, there's a personnel shortage on a lot of things. I mean, there's a lot. FERC has a lot of open positions, but I think many factors will impact this year. And one of them is, there's not an energy policy for the United States that's consistent, So thoughtfully planning out the infrastructure that you need to create this evolution. I like to use the word evolution because I think the word transition is a very misleading name, right? Because gas is not going to go away. What you want to do is you want to evolve it so that you're reducing the emissions to the degree that you can reduce any emissions too, that you can integrate carbon capture and storage and create carbon negative solutions. So when someone says transition, it doesn't give you a really good picture. It's an evolution of how the systems work and its integration of renewables and it's using gas where gas is needed to create that reliability and resilience. And it's integrating all these other sources that have carbon-negative because that's the only way you're going to get there to meet the emission that we're all hoping for and the increasing demand of energy. 

Proffer: Yeah, I know I had a conversation with— I'm not sure if it was a trade group or if it was actually with the Department of Energy, may have been both— but about how they are looking to use natural gas wells, oil wells as well, for geothermal. And I thought that was interesting, too.

Ogle: Absolutely. That's what I'm saying. When someone says get rid of fossil fuel, they're not really thinking through. It's very misaligned agendas. So if your agenda is to create clean energy that powers the world, we can all work together for that end. If your agenda is to get rid of fossil fuels, well, then that's not an agenda that's really working towards what the UN, the Sustainable Development Goals are. That's in contra to that. But it's positioned as this altruistic great thing that they're doing and it's not really a nuanced or informed conversation. It's more of an agenda. 

Proffer: If you don't mind, let's talk a little bit about what's going on in the legislature right now here in Texas. What's your overall thought? The high-level view looks as if Texas leadership is saying, 'hey, we want to invest in power plants", whether that be coal or natural gas, leaning towards natural gas. And let's either tax or disincentivize, I guess, other types of renewables in order to get more power plants,' more what do they call it…? 

Ogle: Dispatchable energy. 

Proffer: Dispatchable energy, right. Thank you. 

Ogle: And so I don't think that the answer is coal. I think fuel switching is essential, right, to be moving to the right thing. But then you have to have the infrastructures in place so that you can have that nice baseload that assures that the people are going to be safe and warm and have the electricity that they demand. And there's a dynamic shift about the way, like I said, about the way the energy systems working. So as they are increasing the electrification, you're having to have more gas that's being pulled for power plants. And so think about that, right? There's an amount of gas here. And when it comes, it's when the weather's good and you know, it's normal. There's not a lot of pull, you know, just a normal, predictable pull on the gas and the renewables are kicking in. It's only when you get to a really stressed out situation and then you have to make, when there's these restrictions on your access to energy, then you have to make some really critical decisions. Does the power plant need the gas or do the consumers that have the infrastructure are paying for the service, need the gas? So unless that's thought out in a really in unless it's thought out without a specific agenda, you really want to be agnostic to your energy source. You want to pick the energy that's the most dense, that's the cleanest that is appropriate for that right situation. So I don't think anybody who comes in here with a predisposed idea of what it should be is going to give you the right answer. Right. Because you got to sit down and look at it in its entirety to figure out it's no different than any supply chain issue. Right? This is what we need. So how do we get the supply that we need to deliver that and supply being a commodity in this instance? And, you know, when it's really hot, the wind doesn't blow, and when it's cold and snowy, it's usually not sunny at the same time, until after the storm passes. And so you've got to take all those factors into consideration to have a really informed policy. 

Proffer: If we build more power plants, and I know you talked about that, that balance and the need for storage, is that the answer in order to help balance the need to get natural gas to homes, to the consumers and the need to get the natural gas to the power plants, especially if we're building more.

Ogle: Essentially I think storage is great and we need to, we need to get more storage. Because that gives you— you can call it some fluff. So you don't have to be so specific on what you need. And it used to be when there were more sources of energy that were going into the grid, there was more room on systems to compensate for an extreme day. Right. But with the infrastructure bottlenecks, with the inconsistent policies, and you don't know what's going to happen one day to another. You've got a permit. You don't have a permit. You know, the capital that's invested in it. None of this stuff can get turned on overnight and just wala, right? That's not how it works. So you have to be intentional about what you are going to need and be really thoughtful about that. You've got to think about what is the power plant going to need? What are the consumers going to need? And it'll become an order of priority about the most impact, right? And so there are essential levels of how these decisions are made, but there needs to be a more informed and collective conversation about who do we give the gas to and when. Because if you're a consumer and you pay for gas service, you shouldn't get bumped to the side because a power plant doesn't plan. But I can assure you that any kind of finger-pointing between anybody isn't going to do anybody any good. Right. A producer, it has to make the supply, but they can only make the supply if they know where it's going to go. Because it's got to go somewhere. It can't just sit there.

It used to be more that the energy system could be looked at in silos. So you could look at production and they would operate over here, you could look at transmission and midstream and they would operate here. You would look at distribution and you would look at power generation. And there wasn't such a pull on the way that it is because there were a lot more sources available. As they restrict the sources available, everybody has to be very coordinated on this. I mean, electric has to be locking hand-in-hand with gas to figure out how are they going to get the electricity that they're now mandating? And I mean, if you put even cars and more things on it, it's going to be you've got to be even more coordinated in how do you create that electricity? 

Proffer: What about when it comes to speaking of coordination? One of the bills (H.B. 2049) talks about having the PUC (Public Utility Commission) be able to weigh in and help regulate, I guess, natural gas. Specifically, I believe it's the pipelines. So you already have the Railroad Commission with their regulations. 

Ogle: You also have FERC.

Proffer: and FERC. So what are your thoughts on that?

Ogle: If the government worked together, if these all these agencies worked together, I think multiple duplicative regulation that isn't good with a consistent energy, this fundamentally comes back that there's not an energy policy for the United States that's thoughtful and going to address what we need to do to create this evolution in a way that supplies the energy. So you've got each independent regulatory body. There's somewhat duplicative there. You've got to look at it as a whole, right? You just can't have everybody looking at their parts of it. And if you keep piling on regulation without figuring out how do you get them there, that's how we got to this infrastructure backlog in the first place. And so it doesn't solve the problem. And so I think people have to be looking. Ideally, maybe it's like the world of utopia, but everybody sits down and anybody that has agenda doesn't get it come into the room and everybody sits down and says, Here's all our puzzle pieces. How do we put this puzzle together? I like to do puzzles, but if you ever do a puzzle, you've got to have the box, right? It's really hard to put a puzzle together if you're looking at all the little individual pieces because you got to look at the big picture on the box to see what you're trying to build. And if we don't do that as a country or even as a globally, as a world, then we're never going to be able to put our puzzle together because everybody's just got their one puzzle piece and they're moving it all over the table, trying to figure out where it goes. 

Proffer: But what about here in Texas? I mean, should the PUC have a say in those regulations? 

Ogle: Well, I think everybody should have input. So ideally, what you would do is you get all these agencies sitting down together and having input. Ultimately, you can't have conflicting regulations, though. That's what I'm trying to say. So if you have the PUC having regulations and you have the Railroad Commission and then you've got FERC, you've got to get these things aligned, otherwise, you can create a ground stop. It's essentially an air traffic controller that doesn't have the controllers talking to each other. For God's sake, we don't want to look like what's going on on the runways. 

Proffer:  Let's say we do build more power plants. We, you know, we pass incentives. Investors are saying, 'yes, let's let's build power plants.' What sort of processes that have been put in place since Winter Storm Uri to—answer the viewers questions of everything at some point, had some sort of issue with the freezing weather—So when it comes to natural gas, what I look at is the pressure system, right? From wellhead freeze offs and the components, I guess, along the way, reducing the pressure is there. What’s going in place now if we're going to be relying more on natural gas in order to prevent that? 

Ogle: Well, you know, we do something what's called a Unity of Effort. I run mutual aid for Southern Gas Association. So, Southern Gas Association is kind of a misnomer of a name because it came back from 1908 when it started in Georgia. But our membership base is across the entire value chain. So all the way from producers to distribution and sales and marketing, storage, distribution, transmission, midstream are all part of it. And it's North America. So we have members all the way from Upper West Coast to the Upper East Coast and in Canada. So when you think about this, but specifically in the Texas area, there's different ways that each of the ISOs operate. They have different people that pull on them. They have different dynamics. And ERCOT is very specific. Here in Texas, one of the largest basins of gas production, Permian Basin. And the Permian Basin gets cold. And so you have to think about it. It's cost-prohibitive. It does not make any sense on a well that has a steep decline on it to go and winterize every well. What you need to do is plan, and this is why I'm saying storage comes into this play. So there are things that become cost-prohibitive, but it can be planned out. And coordination was definitely one of the issues during URI. Right. Because they didn't have what the critical infrastructure identified was. That was a lack of coordination between the electric companies and their constituents. They need to know what's in their base and what is essential. We were getting there, but it was a more of a proactive conversation that should have been having. And so those are some of the things that can be addressed. 

Proffer: That was addressed to the mapping committee, right? 

Ogle: Right. Yeah. And so yeah, that's, that's one of the that's a very essential part of this component. Also, in the gas world there's contracts. And contracts are called interruptible or they're called firm. And so firm means you're guaranteed space on the pipeline and they can plan for it so they know what gas is going to be required. And you have to pay for it even if you don't use it. But interruptible means that you walk up to it and you get it if it's available. And if it's not available, you don't get it. So more planning and contractual agreements around firm and planning for what you're going to need is an important aspect of this as well so that you can plan for it. And that's why some of those gas prices got so high, because those people had not planned for that gas. They were planning to walk up and get it if it was available. Right. Which is the way which is exactly the way ERCOT has their system designed. So they weren't doing anything wrong. That's the way the system's designed. You pay a high price during an immediate issue and it goes down. That's how Texas has low cost of energy. 

Ogle: I just came back from California, who has the highest cost of energy there. And I think incentivizing—I'm going to call wind and solar are a commodity. They're a commodity source, just like gas is. If you look at all of this as a commodity, if incentivizing a commodity that is not able to be sold at a market-based rate is a long-term issue as well, because unless you plan to incentivize that for the life of you ever using that commodity, you can't get to market-based sense for how you are going to plan a system. And so I don't believe that any commodity should be incentivized so that it's not based on a market rate. A market is efficient if you allow a market to be efficient. And if you have these incentives in there, you're not creating this market efficiency. 

… The underlying issue is you have to have capacity. ERCOT is designed as a market-based thing. So the way that ERCOT is designed is to have the prices go up and not to compensate people for investment in infrastructure before you need it. If you cap it, you've got things that are opposing. They're working against each other of the way it's designed versus that. So it's not, again, it's not looking at it as a holistic picture. It's like it's trying to stick a Band-Aid on a problem. Does that make sense? It's complicated, right?

Proffer: Yeah, it's very complicated. 

Ogle: That's why anybody that comes at it with 'this is how it's going to be,' that's a very naive conversation and it's very harmful because there's real consequences to this. I mean, look at what 246 people froze in Texas during that (Winter Storm Uri). You know, if the country doesn't get together and have a more informed conversation around this, it's scary. There's real consequences that will happen. And I can assure you, from looking at the way the world behaves these days, they're going to go, 'Well, it's your fault. It's your fault. It's your fault.' And it doesn't solve any problem. Nor does it help anybody who dies. And I mean, Texas gets cold, but it doesn't get cold like Chicago gets cold. It does not get cold like, you know, some of the East Coast gets cold.

Proffer: It's a 'yes and' response to anything. 

Ogle: Absolutely. Mm hmm.

Proffer: Makes a lot of sense.

Ogle: Mm hmm. 

Proffer: And I know we talked about, you mentioned the firm fuel and how if you essentially if you order too much, you're still having to pay for it. Is that also, going back to the very beginning, is that part of what's happening with the prices, with it being the warmer weather? I would assume that they would have had just more on hand because they would have expected colder, right?

Ogle: Yeah, the firm contracts aren't related to the price dropping. It's a supply and demand issue. So they've got the storage fault, then they've got moderate or more-moderated demand because of the weather that's been, and Europe's got some built up over there. So it's more of a supply-demand issue than a contractual issue. 

Proffer: I see. I see.

Ogle: They all work hand in hand together, right? I mean, the contractual issue becomes very relevant in a high-stress situation. It's like walking up to a buffet. You know, you only ordered the salad, but now you want the food. And they were planning for whatever. Right? So, I got all kinds of strange analogies. Airport runways, buffets. You know. 

Proffer: I was just about to say I love your analogies. 

Ogle: You know, this is what's really important to me, though. I try to come up with things that make energy understandable to somebody because it is a complicated system. And if you talk in these obscure terms, it's hard for people in the general public to translate, 'What's that going to mean to me in my house with my four kids,' or 'what is it going to mean to my community?' And so I try to bring that conversation down to something that people can relate to. So because I think it's really important to have a more informed conversation. And so you've got to make it relatable. You can't talk so abstract about it and that people can't get engaged in the conversation to me. You know, Southern Gas Association is a training organization, we're not a lobbying organization. We don't do any lobbying at all. And so my whole focus is to help expand a conversation and train so that I can increase influence by education.

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