Gas Pains: Cheap Natural Gas Is Great–Except for Clean Energy
Crude oil has fallen, but plenty of people expect it to rebound sharply in coming years. Natural gas prices, on the other hand, are set to stay low for a long time. And that makes the economics of clean energy even dicier.
Wood Mackenzie, the energy-industry consultants, expect U.S. natural gas prices to hover around $5.00 to $6.00 per million BTUs for the next five years. That’s a more bearish outlook than the U.S. Energy Information Administration, which figures gas will average about $6.75 next year.
After gas spiked over $12 this summer, why the price collapse? Jen Synder, head of North American gas research for Wood Mac, says it boils down to the perfect storm of oversupply and disappearing demand.
U.S. natural gas production has been more successful—and production costs lower—than expected, especially in the much-hyped gas shale plays. There are also plenty of foreign natural-gas producers slated to export liquified natural gas to the U.S. in coming years.
At the same time, Ms. Syder says, the tanking economy is wrecking demand for natural gas both for power generation and industry. She points to other knock-on effects from falling oil prices, too—such as lessened demand from oil sands producers for natural gas, since cheaper oil has put many of the more-expensive oil sands projects on hold for now.
That’s probably good news for many U.S. power producers (natural gas makes up about 20% of the nation’s electricity mix) and consumers who had been buffeted by volatile gas prices earlier this year. It probably won’t help the already-troubled Alaskan natural gas pipeline project, either.
It’s even less cheery for renewable energy. The sector’s recent growth, especially in wind power, was underpinned by both government policy and improving economics as fossil fuels got pricier. But cheap gas makes wind more expensive, as T. Boone Pickens has noted, even if Wal-Mart is in for the long haul.
That puts the onus for clean-energy’s progress even more squarely on government shoulders. States have already taken the lead with renewable-energy mandates, such as California’s recent decision to make power companies get 33% of their juice from renewable energy in 2020.
From Washington, President-elect Barack Obama has pledged more and longer-term support for clean energy. He’s also promised a climate change bill that would make fossil fuels more expensive, and thus help out clean-energy economics—sometime down the road.
In the meantime, government support for clean energy is troubled. The federal tax credit works when companies have taxable income to offset; that’s been called into doubt with the recession. At the same time, as Knowledge Problem points out, the federal production tax credit is a far from perfect tool to boost clean energy. In Texas, federal subsidies actually encourage wind power companies to generate power even when it’s less than worthless.
If Wood Mac is right and natural gas prices are going to stay low for five years, then clean energy is probably going to need a bigger—and better—hand from government.
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This post misses the enormous differences in the electrical grid across the U.S. For those in the Upper Midwest, where coal provides the majority of the power, lower natural gas prices is a tremendous boon to the environment. Existing natural gas combined cycle (NGCC) power plants can operate at higher capacity factors and reduce the tremendous carbon, sulfur and mercury emissions from our coal plants.
Also missing is the fact that natural gas power plants are extremely compatible with higher penetrations of wind power in the Upper Midwest and Great Plains. This is because natural gas plants can ramp up and down very rapidly, thus a wind/gas resource mix can provide a much greater portion of electrical demand. Gas plants also have a much lower capital cost than coal or nuclear so they can be a bridge to a greener future since less money will be sunk.
While low natural gas prices make renewable energy comparitively more expensive in California, Texas and New England, they will make it much easier for the heavy coal states to reduce coal consumption. Natural gas has half the carbon content of coal; the much higher efficiency of gas plants compounds this advantage so that a gas plant has between 1/3 and 1/4th the greenhouse gas emissions of coal.
Predict the price of natural gas? Pick me, pick me, teacher I know. There comes a time in life you stop listening to the so called experts because the say such dumb things. I just checked the Henry Hub, same as last year. Same pattern for the last 8 years.
In th good old days, natural gas ranged from $1.50/MMBTU to $2.50/MMBTU. Then idiots like Peter Taglia come along to tell whoppers. For those in California and New England, a whopper is a big fat lie.
Along with the speaker of the house, Peter does not know that natural gas is a fossile fuel. The environmental impact of coal and natural gas are about the same. Modern fossil fuel production does not have significant environment because of regulations. I have not read any LCA comparing modern coal plants to modern natural gas plants that supports Peter’s claims. The range of ghg emissions for coal and natural gas plants over lap.
The US has increased electricity generation with natural gas about 10% to 21.5% last year. At the same time North American natural gas production was declining causing the US to start importing LNG again. Hello Jimmy Carter. Fortunately, Bush was presidential and has encouraged natural gas drilling and production has stopped declining.
Those of us who do not live in California, Texas and New England listen to those folks complain about high energy bills and air pollution. I can check the facts on coal generation. Just a minute.
Done Peter, coal generation is increasing. This will allow those in California, Texas and New England reduce the amount of LNG they import.
So how is renewable energy ‘other’ doing? We can not build renewable energy booming but we can build them fast enough to make a dent in the growth of natural gas generation. In the US, natural gas out grew renewable energy ‘other’ by a ratio of 16:1.
A utility could buy natural gas generation at $50-80/MWh or they could make their own with coal at their own plants $20-30/MWh and sell what is left over $50-80/MWh California, Texas and New England.
The real problem is not picking generation choices based on environmental impact. Reserve margins are very thin. Hope for mild weather and good fortune. Natural gas prices will remain at their current high level but will not go through the roof. This winter no one in New England with a wood stove will being heating with natural gas because it is cheap.
Does it really matter what the price of natural gas is? When the gas bill comes in every month does industry and our government agencies look at it and say “We have to find a way to reduce our natural gas bill”. No, they complain and then pay it.
Does industry and our governments ever look at how much of the natural gas they are consuming is being wasted? 20% or more of the natural gas that comes in their building is going up the chimney as hot exhaust. Not good for global warming.
The technology of condensing flue gas heat recovery is designed to recover almost all of this waste energy from this exhaust. A lot of industries and government facilities could be consuming their natural gas at over 90% efficiency. Instead of hot exhaust, it would be cool exhaust. Better for global warming.
For every therm of energy saved, 11.8 lbs of CO2 will NOT be emitted into the atmosphere.
Did President Bush say, Americans are energy hogs?
Data points are always interesting, but hopefully we can plan a long term strategy that recognizes the fact that our limited natural resources will forever remain limited. From now on we need to be implementing a strategy that takes this fact into account, regardless of the short term market prices.
Well, at very least, priority #1 is to prevent new coal plants.
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This succeeds in doing that.
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