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The landmark Inflation Reduction Act of 2022 (IRA) was a
long-anticipated legislative package for the industry because it
promotes investment in alternative forms of energy. During this
webinar, Partners Denmon Sigler and Philip Tingle hosted David
Herr, managing director of corporate finance at Kroll, and Chris
Culver, director of natural gas supply and strategy at Valero, for
an engaging discussion on how the IRA impacts the oil and gas and
natural gas industries.
Key Takeaways | How the Inflation Reduction Act Impacts the Oil and
Gas Industry + The Role of Natural Gas Moving
Below are key takeaways from the
1. A combination of the war in the Ukraine,
issues with the Nord Stream 2 pipeline stemming from said war,
widespread corporate commitments to net-zero emissions targets, and
the passage of the IRA have created immense levels of volatility in
the natural gas market and created a lack of clarity as to what the
future for natural gas will look like.
2. An additional knock-on effect from the
conflict in the Ukraine is that Europe has had to seek natural gas
sources from outside of Russia, with a significant portion of that
coming from the United States. An upshot of that trend is that
natural gas has become much more of a global commodity and is
priced like crude oil historically has been.
3. At its core, the IRA is a mechanism for
transitioning away from fossil fuel-based energy production,
however, there are features within it that apply to traditional
energy sources. For example, renewable natural gas (RNG) has
received a 10-year credit, credits for carbon sequestration at
natural gas-fired facilities are covered under the IRA and nuclear
energy is now entitled to a production tax credit.
4. For renewable fuel development, the 10-year
horizon for tax credits granted by the IRA allows investors to
participate in the full industry development cycle (pilot stage,
development stage and maturity stage) to see overall production
cost reductions that were evident in renewable energy development
over the past decade, all under the umbrella of tax credits during
that time horizon.
5. The current demand for RNG faces a multitude
of production challenges as today’s prevailing prices for RNG
are much higher than traditional natural gas. However, those high
RNG prices are expected to drop over the medium term as RNG
production benefits from tax credits under the IRA help boost
6. There has been significant growth in the
demand for greener motor fuels, which will drive up the overall
market demand for green hydrogen because green hydrogen serves as a
necessary feedstock for the production of green motor fuels.
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