Everybody knows that coal is on the way out, but the latest electricity report from BloombergNEF is something of a shocker. It casts a shadow of gloom over natural gas, too. Low-cost renewables are creeping into gas territory, helped along by falling costs for energy storage. In fact, according to BNEF, energy storage is now a cheaper alternative to building new gas “peaker” plants in some regions. And by some they mean Europe, which was supposed to be a lifeline for US gas exporters.
Natural Gas & The European Connection
BNEF cautions that the new report is based on data from recent months and does not fully reflect the longer term impact of the COVID-19 global economic crash. Nevertheless, the findings are rather juicy from a geopolitical point of view.
During the Obama administration, the US engaged in a concerted effort to help Europe reduce its dependence on Russia for natural gas. The first step was to ease limitations on exporting liquid natural gas from the US, and boy howdy did that open the floodgates.
According to the US Energy Information Agency, by July 0f 2019, the US had become the third-largest LNG exporter in the world, surpassed only by Australia and Qatar.
The lion’s share of all that had been going to Asia, but in January of 2019 — after something of a kerfluffle with China over tariffs — US exports to Europe topped Asia for the first time ever.
The Energy Department’s latest monthly LNG export report reflects that trend. As of February 2020 three of the top five countries of destination were EU members, topped by the UK with France and Spain following. Japan and Turkey were the non-EU members in the top five.
As of last summer EIA was still expecting demand in Europe to continue increasing, mainly as a consequence of decarbonization efforts.
It certainly seems that gas stakeholders are counting on that. With the help of new LNG facilities coming on board in the next few months, the US will end up with the biggest LNG export capacity in the world.
Energy Storage Throws Cold Water On Gas
With all this in mind, let’s take a look at that new BNEF report. One of the key findings is that new battery energy storage facilities can be a cheaper alternative in gas-importing regions, compared to building new peaking power plants.
For those of you new to the topic, peaking (or peaker) refers to power plants that kick in only during periods of high demand. Gas has been the go-to fuel for new peaking plants in recent years. However, since they only run for short periods of time, they could be replaced by batteries that discharge for only a few hours, as is the case with today’s technology.
BNEF looked at two-hour battery energy storage and found that batteries now beat the cost of building new gas peaker plants in major gas importing regions, including Europe as well as China and Japan.
There’s more where that came from. BNEF makes the point that scale is driving down costs, with the average capacity of battery storage now weighing in at 30 mWh, up from the 7 mWh average of just four years ago. That’s bringing down the cost of longer-duration batteries, too.
“Since 2018, increasing project sizes combined with a rapidly expanding manufacturing base and more energy dense chemistries, have halved the LCOE [levelized cost of energy] of energy storage. BNEF’s global LCOE benchmark sits now at $150/MWh for battery storage systems with a four-hour duration,” the firm explains.
That should send up some red flags for US gas exporters. Even before the COVID-19 outbreak, European demand was down last winter as a consequence of mild weather (oh, the irony). On top of that, last December the EU reached a transit deal with Ukraine that will pretty much guarantee that Russian gas will flow to Europe for the next five years.
Energy Storage & Decarbonization
To top that top, the global economy has collapsed and along with it, demand. It’s likely that recovery will be long and slow, and not particularly receptive to the idea of building new gas peaker plants if something cheaper is available.
In addition, EIA’s pre-COVID forecast about an increase in European demand for gas was based on the assumption that gas would continue to be perceived as an effective tool for decarbonization.
Apparently that view is not holding up over time. As Europe plans on a post-COVID recovery, momentum is building for a European Green Deal recovery plan that de-emphasizes natural gas in favor of renewable energy.
So far, 12 EU members have also signed on to a letter calling for a green recovery, meaning green as in renewable energy not fossil gas.
“We should withstand the temptations of short-term solutions in response to the present crisis that risk locking the EU in a fossil fuel economy for decades to come,” the letter states.
Another warning sign is the emerging green hydrogen or power-to-gas area, in which hydrogen is “split” from water with electricity from wind or solar farms, and treated as a renewable energy storage medium for excess wind and solar power.
Right now most of the world’s hydrogen comes from fossil natural gas. Competition from green hydrogen could pull that rug right out from under it.
The US is all over the green hydrogen idea and so is Europe. In both countries, researchers are beginning to see evidence that green hydrogen is already on track to compete with fossil gas on a niche basis. The challenge is getting costs down for mass-market application. Last week the Hydrogen Europe consortium pitched that very thing. They set a target date of 2030, meaning that competitive green hydrogen would be poised to hit the mainstream even while the US completes its current LNG buildout.
It’s anybody’s guess where all that LNG will go. If you have any ideas, drop us a note in the comment thread.
Follow me on Twitter.
Image (screenshot): “Map shows Countries of Destination of Exports of Domestically-Produced LNG (February 2016 through February 2020)” via US Department of Energy.