By Irina Slav
Natural gas has been hailed as the bridge fuel between the fossil fuel economy of the past and present, and the renewables economy of the future. With renewable energy costs falling steadily and considerably, some are beginning to worry that gas is facing increasingly fierce competition amid fast-growing supply.
A recent couple of reports from a nonprofit organization promoting renewable energy suggested solar and wind, plus storage, could become cheaper than most gas-fired power plants in the United States in just 16 years.
“We find that the natural gas bridge is likely already behind us,” one of the reports said, “and that continued investment in announced gas projects risks creating tens of billions of dollars in stranded costs by the mid-2030s, when new gas plants and pipelines will rapidly become uneconomic as clean energy costs continue to fall.”
This would certainly be impressive. Solar and wind costs have indeed been falling steadilybut storage is not normally included in these falling costs. Whether or not the forecast is overly optimistic remains to be seen but it does seem that renewables are gaining on gas as fuel for power plants: probably the biggest arena where fossil fuels are fighting renewables.
The second problem for natural gas is methane emissions. The main component of natural gas is a much more potent greenhouse gas than the notorious carbon dioxide and it has been garnering increasing attention from regulators and investors alike. Oil and gas investors have had a lot to worry about recently with the crusade against fossil fuels winning stronger support among governments. Investors now need assurances that the industry is strong enough to survive the double offensive from renewables and regulations.
One way to give them these assurances is by lowering costs to match the cost decline in renewables. The gas industry, at least in the U.S., has already proved it can do it, albeit unwillingly. Several times this year benchmark spot prices for natural gas in the country fell below zero because of oversupply. Renewables have a long way to go to fall into negative territory without even trying.
But such price swings aside, the gas industry both in the U.S. and elsewhere is actively looking for ways to make their product more competitive. After all, competition within the industry is intensifying, too, as global gas demand rises and companies and governments rush to respond to this rising demand.
So, one way of gaining an advantage over competitors is by lowering costs and improving production efficiency, as Nick Butler, the chair of The Policy Institute at King’s College London wrote in a recent column for The Financial Times.
Another way is by becoming renewable. Methane collected from waste and manure – a renewable sort of natural gas – is a popular source of energy in Europe, but in the United States, it has yet to establish itself as a viable alternative to fossil fuel gas. Thanks to tax incentives and improving technologies, however, companies are making increasingly wider inroads into this segment of the renewable energy industry. This would go a long way towards solving the methane emissions problem and it would certainly improve natural gas’s reputation. As for when renewables will take over, based on projections about a continued strong rise in global gas demand, chances are it will be a while.
By Irina Slav for Oilprice.com