Clean Power

Published on February 22nd, 2012 | by Stephen Lacey

Cheap Natural Gas Won’t Kill Renewable Energy Growth (3 Reasons Why)

February 22nd, 2012 by Stephen Lacey

I’ll be the first to admit that cheap natural gas prices are one of the biggest short-term threats to deployment of renewable energy in the U.S. today. With a glut of gas dropping prices to historic lows, the competitiveness of technologies like wind, solar PV, and solar hot water are facing significant challenges.

But here’s the important thing to remember: The industry is being challenged, not beaten. Amidst all the hand wringing over what cheap natural gas will do to investment in renewables, we often lose sight of the fact that the cost and price of renewable energy technologies are still chasing the record price drops in natural gas. When the price of natural gas starts to climb back up (according to many estimates, it will fairly soon), renewables will be more competitive than ever.

Over the next couple of years, I believe that the age-old idiom will again be proven true: “What doesn’t kill you makes you stronger.”

Below are my top three reasons why natural gas won’t be the death of renewables.

1. Cheap gas won’t stay “cheap” for too much longer

Source: Slate.com

It’s often said that America has a 100-year supply of natural gas. However, those figures, which are based on estimates from the Potential Gas Committee, factor in “proved” reserves, “possible” reserves and “speculative” reserves. If we narrow these figures down to proven, technically-exploitable resources based upon current natural gas consumption rates, more cautious estimates put our supply at roughly 11-21 years.

With mature gas plays like the Barnett Shale and Marcellus Shale in decline or appearing to be nearing a peak, and drillers scaling back on operations because it’s not profitable to drill with such low prices, a growing number of analysts are questioning whether the U.S. gas industry is approaching peak production. Petroleum Geologist Arthur E. Berman recently wrote about the decline rates in conventional and unconventional gas fields at the Oil Drum:

“This development may expose the notion of long-term natural gas abundance and cheap gas as an illusion. The good news is that this adjustment will lead to higher gas prices in a future less distant than most believe. Higher prices coupled with greater discipline in drilling will allow operators to earn a suitable return and offer the best opportunity for supply to grow to meet future needs.”

In its latest Annual Energy Outlook, the U.S Energy Information Administration also cut estimates of unproved technically recoverable resources by 42%. As energy analyst Chris Nelder recently wrote: “Everything you know about shale gas is wrong.”

2. Renewable energy is challenged, but still competitive

Source: Institute for Local Self Reliance, using data from Lazard

Over the years, the conversation around gas has changed dramatically in renewable energy circles. For example, up until 2008 when gas prices were at their peak and wind development was soaring, the industry’s message was simple: We’re a far more cost-effective, reliable investment than gas.

But the tide turned in 2009, when gas prices started their precipitous drop. I remember the American Wind Energy Association’s annual conference in 2010, when shale gas dominated the CEO roundtable discussion. “Our single biggest challenge is improving technologies to compete with these low prices,” said one executive.

The industry clearly took the challenge seriously. Today, due to bigger turbines, more reliable equipment and better materials, the cost of wind has dropped to record lows. In fact, some developers are even signing long-term power purchase agreements in the 3 cents a kilowatt-hour range. And last fall, Bloomberg New Energy Finance projected that wind would be “fully competitive with energy produced from combined-cycle gas turbines by 2016″ under fair wind conditions.

The same technological improvements and maturation in project development in wind are driving down the cost of solar PV as well. For example, in California, solar developers have signed contracts for power below the projected price of natural gas from a 500-MW combined cycle power plant. (That projection does include a carbon price).

These trends are driving record levels of interest from investors. In 2011, for the first time ever, global investments in renewable energy surpassed investments in fossil fuels.

The bottom line: the price of renewable energy continues to come down while the projected price of natural gas is only expected to rise.

We do have to be realistic about the situation: assuming gas prices stay near record low levels for a long period of time — which they likely won’t — renewables deployment won’t grow at the rate we need it to. But if you look at the where large-scale renewables stack up with the cost of energy from peaking gas plants and combined cycle plants (chart above), you can see that the industry is still nipping at the heels of gas — even with a “revolution” underway in accessing shale resources. That’s something that can’t be ignored.

3. Natural gas is a fossil fuel and still contributes to global warming

Source: Nature

When considering our energy investment choices, it’s important for us to remember why we want renewable energy in the first place. Sure, it’s a domestic resource that empowers local communities, encourages entrepreneurial innovation, and spurs new types of economic development. But ultimately, renewables are an important tool for helping us reduce greenhouse gas emissions and combat global warming. We should never lose sight of this environmental context.

So while gas will be an important short-term tool to knock old coal plants out of the energy mix and provide a source of back up for intermittent renewables, the global warming challenge will eventually present limits to our investments in natural gas, if not this decade, then certain in the 2020s.

As we’ve pointed out numerous times, without a price on carbon, natural gas is not a bridge fuel — it is a bridge to nowhere. Under the International Energy Agency’s “Golden Age of Gas” scenario that assumes an aggressive build-out of “clean” natural gas plants, we would still see global temperatures rise 6° Fahrenheit.

While the science is still far from settled on the life-cycle emissions issue, measured emissions in some cases are well above what drillers claim (see chart above).

Even if natural gas is cleaner than coal, it is still a fossil fuel. When we get serious about addressing global warming and put a price on greenhouse gas emissions, the current economic advantages of natural gas are diminished or disappear. Last October, three center-right economists — Nicholas Z. Muller, Robert Mendelsohn, and William Nordhaus — found that with a carbon price of $27 per ton, the cost of environmental and health damages from natural gas were greater than the resource’s added value to society.

In other words, natural gas isn’t nearly as inexpensive as current prices suggest (see also “Economics Stunner: Natural Gas Damage Larger Than Its Value Added For Even Low CO2 Prices“).

Writing to 415 of the world’s biggest global warming polluters this week, global investors representing $10 trillion put it best:

“The external costs of greenhouse gas emissions will become internalized into company cash flows and profitability,” Paul Abberley, chief executive officer at Aviva Investors in London said in the statement today. ‘‘Managing greenhouse gas emissions is therefore essential to delivering sustainable shareholder returns.’’

Natural gas certainly has a role to play in this long, complicated energy transition — assuming we properly value its environmental impact. But if we listen to these forward-thinking global investors and take their call for a low-carbon strategy seriously, renewables, efficiency and demand response will not be swept aside, no matter what the short-term challenges are.

This article was originally posted on Climate Progress and has been republished with permission.

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Tags: cost of natura gas, natura gas co2, natura gas co2 emission, natural gas greenhouse gas emissions, natural gas prices

About the Author

Stephen Lacey is an editor at Greentech Media. Formerly, he was a reporter/blogger for Climate Progress, where he wrote about clean energy policy, technologies, and finance. Before joining CP, he was an editor/producer with RenewableEnergyWorld.com. He received his B.A. in journalism from Franklin Pierce University.

pjcpjc

Your first point re: pricing is interesting (although if you are confident the price of natural gas is going to rise, it would be a lot simpler to make a fortune on the futures market than to play with windmills).

Certainly it will be a great boon to society in general if wind and solar can compete with minimal subsidies.

Re: global warming/fossil-fuel/bridge-to-nowhere – this is just noise. Politically, cap-and-trade and/or a carbon tax is not going to happen for the forseeable future. Renewable subsidies will, if anything, decline in the future. (Subsidies for natural gas will decline as well, but there “subsidies” are really just accounting tricks and are much less relevant to teh production of gas). So the renewable industry will need to truly beat gas on a technology basis, without any significant advantage due to pollution issues, because that is the political reality.

I hope solar and wind can do it, but honestly, I don’t see it happening. Both of these technologies sorely need some storage/transmission solution to move forward. Gas pipelines and storage tanks are much cheaper than batteries and powerlines….
- Bob_Wallace
  
  December 2020 natural gas futures are currently selling for $5.76.
  
  That’s more than twice the selling price today, so I get the feeling that the folks who follow NG the most think prices are going up.
  
  Will we not get some sort of cap and trade or carbon tax? That’s debatable. Public opinion/concern about global warming is rising. If we melt out the Arctic Ocean in the next few years and have some more years of massive weather disasters I think people will start calling for something to be done.
  
  We’re just now crawling out of the enormous economic hole that the financial industry collapse shoved us into. I think people will start refocusing on the environment.
  
  You’re right about renewable subsidies falling in the future. The wind industry has repeatedly stated that they need only three more years of subsidy in order to get their infrastructure in place. No one is going to push for subsidies for an industry that says that it doesn’t need them.
  
  Solar, some are projecting, will be fine without subsidies by 2020 if not sooner. 2012 is the year of solar panels prices under $1/watt. Projections are for manufacturing costs to fall to roughly $0.60/watt by year end.
  
  And I’ll repeat my guess that we will be looking differently at natural gas in five or so years. Once we’ve used up the current glut and the word has spread that natural gas wells don’t behave like oil wells, that they produce a lot at first but after a couple of years fall off, we’ll be less ‘gas happy’. Throw in all the new uses we’re creating for NG and supply could be a lot tighter in the near future.
Bob_Wallace

Check my math here…

$1.62 billion dollars of electricity from waste (their claim).
$0.1144/kWh (Ohio residential electricity cost 2010)
14,160,839,161 kWh per year generated
14,161 Million kWh per year generated

146,300 Million kWh per year consumed in Ohio in 2010

I get 9.6%. My number is a bit low because I used the residential rate for all kWh rather than an average of residential, commercial and industrial rate. Didn’t have that number. So, best case, double the amount produced and you come in a bit under 20%.

That’s a lot of power and if they are able to generate electricity or gas from biomass at a competitive rate then good for them.

—

EV batteries. The CEO of Tesla is claiming $200/kW in the near future. Tesla is now a publicly traded company, so management has to be careful about statements they make. Get out too far past reality and you open yourself up to a potential stock-owner suit.

Secretary Chu is saying $300/kW by 2015. As the Energy Secretary Chu has access to some of the brightest minds in the business and the ability to look inside the labs to see what’s in the tubes. As a scientist it’s very unlikely that he gets far out in front of the data when making predictions. His statements are full of a bunch of weasel-words.

A year ago Secretary Chu also predicted that batteries will double, or perhaps even triple, the energy density within six years. Doubling the Nissan Leaf highway mileage from 70 to 140 makes it usable for almost all drivers if they have access to Level 3 chargers along major corridors.

GM worked on electric cars for a long time. The EV1 wasn’t ready for the real world. After several more years GM came up with the Volt. The Volt is an excellent option for those drivers who have a need to drive longer miles at times. Just need to get the price down, which cheaper batteries will do.

I’m really glad that the government has provided some money (a tiny bit if one is objective) to get US battery manufacturing kick-started. Because batteries have low labor inputs and are bulky to ship they are something that we can manufacture in the US and be competitive. Tax money very well spent.
Movinman138

In reference to biogas quality, the Quasar biogas, (and no, I am not employed or otherwise compensated in any way) significantly surpasses pipeline gas quality. Their fuel is such high quality that it easily dispenses directly into vehicles and is easily /efficiently used for internal combustion. Biogas or fossil CNG are both sold as a GGE or GDE, that is a gallon of gasoline equivalent or gallon of diesel equivalent. So the consumer is purchasing a given amount of energy not a volume, ensuring apples to apples comparisons when evaluating monetary considerations.
Bob_Wallace

Stephen – those 11-21 year numbers from Slate are based on 2010 NG consumption rates. We’re building a number of new NG electricity plants, starting to run some of our transportation on NG, and getting ready to export NG to other countries. The 2010 consumption rate will not hold.

My guess is that we’ll hit a NG supply wall in no more than 15 years and that should soon be obvious to utility companies. I suspect they know how to project fuel prices into the future.
Movinman138

Stephen, dude … really? you TOTALLY ignore Biogas and the VAST potential from harvesting biogas from human sewage and trash! That is the bridge to where fossil natural gas leads! Nice intellectual honesty!
- Bob_Wallace
  
  How vast might the potential from sewage/landfill gas be?
  
  I’ve seen no numbers but my guess is that, fully harvested, biogas would be a minor player.
  
  It’s kind of like when people first started talking about bio-diesel from restaurant grease. Exciting until you considered how few gallons of cooking oil a fast food joint uses compared to the number of cars that drive past their window each day.
  
  Not that we shouldn’t use it, we should use every affordable green energy source we can identify. But let’s be reasonable about the role biogas might play.
  - Brad Couch
    
    According to http://www.QuasarEnergyGroup.com Ohio has enough biomass sources to be energy independent (and we consumed $7 billion worth of energy in 2008). But it will take a decade or so to get enough of them online. But the infrastructure and consumption is already under development with fossil natural gas. Hmmmmm sounds like a bridge fuel to me! Ohio is already leading the country in Biogas for transportation fuel as half of our CNG fueling stations are biogas in origin. Now, we dont have many so that sounds more impressive than it really is. But Ohio has the first 31 biogas facilities either operational or already permitted!
    
    Regarding the CNG supply projection. Those that are discussing the longevity are only considering the consumption side of the equation. Currently many of these big plays will only yield 10% of the total volume as technology/techniques will only harvest that much. But this is vastly improved over just a decade ago let alone longer. So as more gas reserves are found, as more biodigesters are built, as more companies go back and refurbish/recycle previously “dead” wells, the supply will fluctuate as well.
    
    The main reason I am a natural gas supporter is because of biogas. As long as humans produce waste, we can generate biogas, and that is a carbon neutral event as well meaning the gas that is burned is releasing carbon that was a year ago some other organic form above ground and simply cycled, just like biodiesel. It would love it if we could transfer to biogas so quickly that significant natural gas reserves are left in the ground.
    
    Do I think we all will mostly be driving EV’s sure … but it is way farther way than EV’s enthusiasts want to admit. I guess it will be at least two decades before EV’s are truly mainstream. Until then, do we really need to be spending $4-$10 a gallon on fuel made from foreign oil or should we keep our energy dollars at home?
    
    I also believe the entire alt fuels community should all work together and not be so separatist, which was the original emotion that got me to initially respond to the author. We are all in this together and tearing each other down instead of lifting each other up, is counterproductive.
    - Bob_Wallace
      
      I looked at your site for a while but I didn’t find the place where they claim that Ohio could get 100% of its energy from biomass.
      
      I’m skeptical about biogas playing a large role in our energy future, but I’m willing to be convinced with some reliable numbers. (A skeptic, not a denier.)
      
      I’m fairly optimistic that we will have very good EV options in our near future. Five years or less. I’m watching the behavior of car manufacturers and almost all are bring electric models to the showroom. Almost none are including the ability to swap batteries, which to me would be a sign that manufacturers feel range/recharge time won’t be adequate soon.
      
      It’s very hard to get information about the state of the industry but it seems that battery prices have fallen from their $1,000/watt level a few years ago to around $400/watt today. The CEO of Tesla has been talking about $200/watt “in a few years”. If/when prices reach that point and highway ranges reach 175 miles or so the game is settled. One will be able to drive all day, ~500 miles, with only a couple of short stops and do it for “$1/gallon”.
      
      I don’t think liquid fuels from any source can reach the very low cost of electricity. Liquid fuels, I suspect, have a future for airplanes, ocean transport, and long distance trucking.
      
      —
      
      BTW, I did find one statement that landfill biogas is about 50% methane and 50% CO2. That means that there’s a lot less energy available than one might assume based on volume.
  - http://cleantechnica.com/ Zachary Shahan
    
    to check where it’s gotten in Europe, check p. 176/177 of this doc: http://www.eurobserv-er.org/pdf/barobilan11.pdf
- http://soltesza.wordpress.com/ sola
  
  It is true that those peaking natural gas plants could be easily transformed into biogas plants and therefore continuing their useful service life using a renewable fuel.
  
  Biogas should be actively developed.
  
  @Bob Wallace
  I believe that biogas absolutely has potential in areas with good agricultural properties. A good example is Germany, where a huge number of farms already have biogas based co-generation on-site.