As generation grows increasingly reliant on natural gas, challenges that bedevil electric utilities — peak demand and supply shortages for instance — are cropping up for local gas distribution companies in some regions. And in turn, a few gas companies are taking cues from electric demand management programs as they look for solutions.

While there are only a handful of clear examples right now, two recent reports suggest more gas utilities could embrace demand management concepts, to help ease congestion on stressed distribution systems. But while the concepts are similar between the electric and gas sectors, experts say there are important differences that create challenges.

A niche market

"Gas demand response is still pretty niche right now. It's not going to be as widespread as electric," Navigant Principal Research Analyst Brett Feldman told Utility Dive. "Electric demand response can really be used by any utility — there is always some benefit. But gas is more specific, so there's only certain areas were you have these gas constraints, typically the Northeast and California."

A recent Navigant report authored by Feldman concludes, "market trends are forcing utilities to readdress their approach to gas system planning," and identifies both gas demand response and "non-pipes solutions" — the gas sector's answer to the electric industry's non-wires alternatives — as "emerging trends." 

"The gas industry is following the electric industry's footsteps in engaging distributed system solutions," Navigant's report says, while predicting gas DR and non-pipe solutions (NPS) "will change the planning process for utilities and offer new opportunities."

Similarly, a recent Brattle report called natural gas demand response an "underexplored" resource that "could also provide value by deferring or avoiding investments in the longer run." The firm estimated, for example, that deferral of a $100-$500 million gas pipeline or liquefied natural gas peak-shaving facility could save customers $10-$70 million annually.

Gas demand response "has the potential to be an important component of addressing gas supply constraints during peak demand periods," Jürgen Weiss, a Brattle principal and study co-author, said in a statement.

In New England, Brattle estimated that if demand response could reduce the region's peak gas utility demand by 10%, it could free up enough natural gas to displace up to 54,000 MWh of oil-fired generation. When gas supplies run short and utilities must continue delivering firm supplies to other customers, many dual-fuel generators switch from gas to oil when their gas supply is not available.

Freeing up natural gas to generate electricity would help make natural gas the marginal fuel on most winter days, Brattle said, "resulting in lower electric prices, and also providing added fuel security benefits by increasing natural gas supply to the gas-fired generation fleet."

Gas demand response, Brattle said, could "entirely avoid some price spikes and help improve reliability."

Just a handful of programs exist so far

Perhaps the most well-known of gas demand response programs is one developed by Southern California Gas, after a leak at the the Aliso Canyon storage facility left the region facing potential gas shortages. The utility launched a winter heating demand response program in January and concluded its first program year on April 1. More than 9,200 customers signed up, utility officials told Utility Dive, allowing SoCalGas to directly control almost 10,800 ecobee and Nest smart thermostats.

"As far as we know, SoCalGas is one of the first natural gas utilities to have a wide-scale deployment of smart meters that offers hourly natural gas usage data," spokesperson Irene Nguyen told Utility Dive in an email. "Having this level of detail in our customers' usage patterns has been a key factor in making this program possible."

In New York, regulators last month approved Consolidated Edison Co.'s request to spend $5 million on a gas demand response program in New York City and Westchester County. Also similar to electric programs, ConEd's efforts will work with third-party aggregators to reduce demand. The utility's pilot consists of two components: one focused on large commercial and industrial customers, the other allowing residential and small commercial customers to use their own internet-connected smart thermostats.

Also in New York, National Grid has been working with AutoGrid Systems and IPKeys Technologies to install direct load control devices for furnaces, boilers and other gas-fired equipment in facilities, including city agencies, schools and commercial buildings.

With the first year of its winter demand response program in the books, SoCalGas said that an independent evaluation report concluded customers saved 0.03 to 0.05 therms during morning events, "representing load impacts between 16-25% per customer." For evening events, the utility said customers saved 0.012 to 0.019 therms, representing load impacts between 10.7%-15.6% per customer.

The utility said it is reviewing the evaluation results and is "conferring with stakeholders on testing new event strategies to improve upon the results from last winter."

Greater challenges exist for gas DR

While there are many similarities between gas and electric demand response, analysts say there are also enough differences to pose challenges for the fossil fuel. Navigant's Feldman said that gas markets are not as precise as power markets, making valuations of gas demand response difficult.

"There is no equivalent price for a nega-molecule of methane in natural gas markets," he wrote in Navigant's analysis. "The price value of gas DR has to be a negotiation due to lack of a market structure."

Another challenge is that many gas consumers are already insulated from price volatility because of the way natural gas is traded — often hedged to reduce volatility — making it difficult to send market signals. Because much of a utility's gas supply is contracted in advance, if there is a need to purchase additional supply it typically winds up being just a small fraction of overall demand — making the value of of avoiding that extra gas difficult to work out.

"On the electric side, you have very well-developed hourly energy prices and capacity markets. On the gas side, the markets are less transparent and you don't have hourly pricing," Feldman said. There are also differences in the technology. There has not been as much development of control technology for gas loads, he said, "whereas on the electric side there are all kinds of control systems."

Gas metering capabilities are also more limited, according to Brattle's research. "The deployment of advanced gas meters (for daily measurement) for small- and medium-size customers is relatively limited, while it is widespread for electricity," the firm said. 

The lack of diversity in use cases is also a hurdle. Gas customers tend to have less flexibility, and so far they have been less engaged than their electric counterpoints, according to Brattle. But the resource is worth pursuing, the firm stressed.

"In the short-term, natural gas DR could entirely avoid some price spikes and help improve reliability," Brattle said. Gas demand response could also "allow gas-fired generators to displace high-cost alternatives and potentially set electricity price[s]."

Severe weather use

Analysts are also looking at severe weather — like the bomb cyclone which occurred this January — ​as another use for gas demand response. Severe weather earlier this year created record levels of gas demand and spiked both gas and power prices around the country, according to the U.S. Energy Information Administration. 

"A constrained natural gas pipeline network led to a significant increase in oil-fired and dual-fuel generation in New England and New York and, to a lesser extent, in the Mid-Atlantic," EIA said of the industry's response to the frigid January weather.

In April, U.S. Sen. Sheldon Whitehouse, D-R.I., introduced legislation that would direct the U.S. Department of Energy to study natural gas demand response, and require federal regulators to develop a pilot program using the latest technology.

Whitehouse told Utility Dive in April, when the bill was being developed, that he knows demand response can be a part of the natural gas supply solution, but the key is in educating gas companies and consumers. "Utilities are already succeeding with these programs," he said, adding that the new legislation "will help spread that success around the country."

The legislation was referred to the Committee on Energy and Natural Resources on April 11, but no action has been taken since.