What Do Falling Natural Gas Prices Mean for Renewables?

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"What Do Falling Natural Gas Prices Mean for Renewables?"

With a glut of shale gas on the market, natural gas prices continue to tumble in the U.S. And they’ll only fall more throughout the year.

According to the U.S. Energy Information Administration, average natural gas prices on the wholesale spot market dropped another 9% in 2011, falling to the second-lowest price average since 2002. And the agency expects prices to fall substantially in 2012 due to record-high inventories of supply.

In a few short years, domestic energy supply has undergone a major shift in favor of natural gas, challenging the economics of renewable energy technologies that compete directly with the resource. It’s not exactly the kind of shift that renewable energy proponents imagined. But it has helped keep electricity and heating prices low, while also shifting enthusiasm away from coal. Those are notable short-term victories — assuming renewables don’t get swept aside in the process.

The picture is mixed. Although wind development has dropped off a cliff in states like Texas, in part because of low gas prices, Bloomberg New Energy Finance believes that wind will be competitive across the board with natural gas by 2016. And in utility-scale solar, large photovoltaic projects are also keeping pace with projected prices of natural gas.

However, a study released earlier this month by the Massachusetts Institute of Technology modeled an energy scenario with and without shale gas, finding that renewables were indeed being negatively impacted:

The continued need for strong renewables prompts concerns, as the study finds that shale use suppresses the development of renewables. Under one scenario, for example, the researchers impose a renewable-fuel mandate. They find that, with shale, renewable use never goes beyond the 25 percent minimum standard they set — but when shale is removed from the market, renewables gain more ground.

We should also always remember that some of the leading (center-right) economists in the country — Nicholas Z. Muller, Robert Mendelsohn, and William Nordhaus — publishing in a top economics journal found that natural gas damages were larger than its value added for electricity generation even at a low-ball carbon price of $27 per ton. At a price of $65 a ton of carbon, the total damages from natural gas are more than double its value-added.

That means renewable energy deserves strong support by state and federal policymakers even in the face of low natural gas prices.

So will the slide in gas prices continue? Not according to some forecasts. EIA expects prices to rise again in 2013. With an increase in exports, a build out of new combined cycle power plants and continued questions about how much shale gas is actually in the ground (it’s still a lot, even on the low end of estimates), IDC Energy Insights Analyst Sam Jaffe doesn’t see how prices can stay as low as they are today:

Electric power production accounted for approximately 24% of overall U.S. gas consumption. Keep in mind that much of that power production is done with peaker plants, not baseload plants. The new plants that are being built are mostly combined cycle baseload plants, thus if we were to double NG-sourced electricity over the next decade, it would actually end up with a tripling of NG consumption by the power sector. That means an overall doubling (approximately) of NG demand. There’s no way that you can double demand in a product and expect its price to remain the same.

The MIT researchers who found that shale gas has a substantial impact to renewable energy argued the same thing:

But [Henry Jacoby, co-director emeritus of MIT’s Joint Program on the Science and Policy of Global Change] warns, “Natural gas is a finite resource. We will eventually run into depletion and higher cost.” He adds, “It still releases greenhouse gas emissions. So if we’re going to get to a point where we strictly limit those emissions, we need renewables.”

In the meantime, however, gas prices are very low. And aside from the political freeze in Washington, this will be one of the biggest challenges for renewable energy in 2012.

However, it does say a lot that renewable energy technologies continue to nip at the heels of natural gas, even with a “revolution” underway in shale gas production.

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24 Responses to What Do Falling Natural Gas Prices Mean for Renewables?

  1. Mike Roddy says:

    This has been planned for a while, starting with Cheney’s Energy Task Force in 2001. By accelerating gas development through things such as barring disclosure of fracking chemicals and opening up Federal land (a policy Salazar has continued), a lot more gas becomes available to the market.

    It’s an easy way to make prices artificially low, and they did the same thing in 1977. I ran manufacturing for Alten Solar in California at the time, and gas prices plummeted so low that we lost the market- after two years and thousands of systems. Expiration of state tax credits hurt, but cheap gas was the main cause.

    They don’t care if it’s profitable in the near term. Cheap gas makes construction of gas plants pencil out better than just about anything, and these plants will spew carbon for 50 years. Gas and oil companies lock in pollution and profits for decades, since fossil fuel power plants are never shuttered before their useful lifespan is over, and retrofitting for clean energy is not practical.

    They have been way ahead of us here. Wishing and hoping for higher gas prices in a couple of years is defensive speculation. We have to get off fossil fuels, period.

    • Kathy Roach says:

      Mike,

      I was just a kid in the 70′s but when my husband and I were chatting about this topic last evening, I too said we’re back in the 70′s. Pathetic. The general US population doesn’t seem to have become wiser or learned from history, so here we are again. And wouldn’t it be a karmic twist (and a sort of deja vu) if in 15 years, the US power holders will be complaining because China will have taken the lead in renewable energy markets from the clutches of the US? ha

    • pwt says:

      Prices are not ‘artificially low’ due to an increase in supply. They are low because demand has not increased nearly as much as supply – basic economics.

    • Mulga Mumblebrain says:

      Plus, at the same time, renewables are directly attacked. In Austr-failure the new far Right state regimes in New South Wales and Victoria (the latter quite insanely fanatic in its hatred of all environmental progress, current, future and past)are actively sabotaging renewables. Wind is being hit by a fraudulent campaign claiming, without a skerrick of evidence, that it makes people sick (but only, strangely on properties where the residents have not been paid for the presence of wind turbines. Where they have, no ill-health has been reported)and solar is being undermined by campaigns to remove subsidies and lower feed-in tariffs. Our ‘fracking’ is coal-seam gas, immensely unpopular with the public, particularly farmers, but, as ever, money wins, every time.
      Let’s face it. The people who run this planet are either so greedy that they do not care how many billion die as a result of their actions, so in love with power and dominance that they act as they do simply to gain the psychic rewards of bullying, or are actively seeking to cause climate destabilisation. In the latter case, which I have come to believe must be the correct answer, given the relentless fanaticism and determination of the powers-that-be, I’m pretty sure it’s a Malthusian gamble to greatly reduce the human population. I’m afraid I cannot see any other rational explanation.

  2. clays says:

    damn this cheap clean getting in the way of our expensive clean energy.

  3. John Tucker says:

    I will take issue with the EIA price projections (and many energy commentators) here :

    Natural gas IS THE common denominator fuel. To the best of my knowledge just about everything can be rendered into methane or a close approximation.

    There is such a cheap, ample supply of this planet killing gas that its use needs to be heavily taxed and regulated.

    There is enough extractable coal bed methane and seam gas probably to last for centuries at above current usage rates – and that cant happen.

    Between the US and Canada there is about 900 trillion cubic feet of the gas.

    After that there is Underground coal gasification (UCG). [ http://en.wikipedia.org/wiki/Underground_coal_gasification ] Estimates are that UCG could increase recoverable coal reserves in the USA by 300%.

    And then there is all the oil shale and brown coal that can be partially burned in place and gas extracted,

    So what would that be if exploited throughout the world ? Enough for them ?? Enough for a real end game???

    In upgrading the technology and installing the capacity for NG we’ve probably created a bridge to oblivion.

  4. Earl Richards says:

    Google the “Global Oil Scam” by Phil Davis. Purchase electric cars and solar panels.

  5. Lou Grinzo says:

    The fairly recent development of NG fracking will eventually be seen as one of the worst things ever to happen on the energy and environmental (and therefore sustainability) fronts. It will be a close second behind the widespread availability of cheap coal.

    Anyone here remember how just a few years ago the big concern for the US was that we had only 4 or 5 LPG import terminals, and we wouldn’t be able to import enough gas from overseas (as opposed to land-based pipelines bringing in NG from Canada and Mexico)? Now we’re up to our eyeballs in it — if you believe the claims of the fossil fuel companies. And who wouldn’t believe them. I mean, it’s not as if they have a gigantic, visible from space-size incentive to lie about reserves and extraction rates, right…?

    As for my claim about just how bad NG is: It all comes down to brute force economics and human nature. We are, once again, being forced to choose between the easy and cheap (as valued by the current market system) GHG-spewing resource and what we should do to act in our own best interests. Just like coal. Just like oil. Now it’s NG’s turn to give us an opportunity to accelerate as we approach the cliff that’s dead ahead, and given the absurd enthusiasm for NG fueled cars, plus the lock-in effect of NG-fired power plants, it seems we’re about to take a running leap into the open arms of yet another fossil fuel. What makes it so hideously bad this time around is, as always, timing. We’re now at a major nexus point, when the path we choose regarding energy and environmental policies will largely determine what the planet looks like and how accommodating it is toward humanity for not just decades but centuries.

    Circumstances largely of our own making are presenting us with the biggest single challenge in the history of humanity, the ultimate test of our maturity and ability to exercise enlightened self-interest. I detest saying this, but I expect us to succumb yet again to brute force economics, myopia, and greed.

  6. Sandra says:

    I live in Sublette County WY and can say that natural gas in NOT clean. We now have 88 contaminated wells and ozone alerts in the winter from the Jonah Field and Pinedale Anticline. It may burn cleaner but the drilling is a filthy business.

    • Mulga Mumblebrain says:

      Ozone alerts! There’s a terrible predictability about these developments, don’t you think? Not just the predictable horrors, but always those we should have remembered, but carelessly forgot, and the nasty surprises. A very Unholy Trinity.

  7. Bird Thompson says:

    We reap what we sow…

  8. Frank Zaski says:

    Unintended Consequences! Collateral Damage!

    30% of US natural gas is used to generate electricity. The rest is just “wasted” on industry, commercial, residential, fertilizer and other DOMESTIC uses – many of which have few if any good alternatives.

    If we waste NG today, we will pay dearly in the not too distant future. Massive NG use for electricity, exporting thru LNG facilities, flaring it off at oil wells, etc., is reckless. We will need reasonably priced NG for a long time. For example, half the homes in the US heat with NG. The alternatives to this are FAR too expensive for the average family, let alone the poor.

    A policy is needed to stop our drunken sailor approach to energy and preserve our long term resources and security. Plus, NG emits CO2.

  9. Raindog says:

    The MIT article is a good read – it captures most of the truth of the situation. Shale gas is cleaner than coal. It emits about half the CO2 per unit of energy on a life-cycle basis as has been confirmed by many studies since the now debunked Howarth et al study that were done by far more knowledgable groups with no discernable ulterior motives. It also emits no mercury or SO2 and a tiny fraction of the particulate matter of coal. So a switch from coal to gas is good for the environment. Without shale gas this switch would not be possible.

    Natural gas is also a great complement to intermittent wind and solar power. Wind all needs to be backed up by some other source of energy that can be turned up and down easily and gas is a natural fit. Without some sort of backup, we can’t really do massive wind and solar right now.

    Fracking will not contaminate groundwater where shale gas is being developed. It could contaminate groundwater if one were to pump a frack job directly into the aquifer as they did in Pavillion, WY. That is a very different scenario from what they are doing with the Marcellus and other shale gas plays where there are thousands of feet of low permeability strata between the shale of interest and the fresh groundwater.

    The worry that cheap gas will slow renewables is a legitimate concern. Therefore we still need to make it a national priority and keep the incentives alive. If we can continue to build renewables quickly (and we are doing that right now) and at the same time switch from coal to gas (which we are also doing), we will be doing the right thing on climate.

    Those who would ban fracking would be committing us to a worse than business as usual case for GHG emissions because we would be massively switching from gas to coal instead of the other way around.

    Natural gas has also been a big boost to the economy and the Obama Administration. Like it or not it has been a huge job creator and without those jobs and cheaper gas prices the economy would not be improving as it is now. the average consumer of natural gas is saving >$500/yr because of cheap plentiful shale gas and that money goes back into the economy. Like them or not, the Obama administration is far better for green energy than any Republican alternative would be.

    Don’t let the perfect be the enemy of the good.

    • Joe Romm says:

      Howarth hasn’t been debunked, sorry. Gas only makes sense replacing coal, otherwise it accelerates the destruction of the climate.

  10. John Tucker says:

    Wow comment in perpetual moderation. Is that like a pocket veto? Oh well.

    I wonder though if people actually think that the only way we will achieve clean energy is by hydrocarbon fuels becoming too expensive in the supply chain? Or convincing conservatives with some vague “Jobs” argument?

    You didn’t write the article to sound like you have exclusive faith, or even much faith in those factors Mr Lacey. I dont think either is a legitimate expectation.

    Why do we seem to come back to them so much?

  11. David B. Benson says:

    More wind farms will be built in the state to satify the so-called renewables plan (which unfortunately I also voted for). What is happening is that the more wind farms the more natgas burners follow after to provide balancing agents.

    Little carbon dioxide emissions improvement, I fear.

  12. For me, that our actions are to be guided by the market rather than prudence was a dark and gradual realization.

  13. tim bastable says:

    this UK appraisal of Shale gas might interest you – published earlier this week – http://www.tyndall.manchester.ac.uk/public/Tyndall_shale_update_2011_report.pdf

    i wrote a short piece about the issue for my web site from a UK perspective – http://www.biggreenbang.co.uk/index.php/shale-gas-no-solution-to-climate-change