Read time: 11 mins
By Justin Mikulka •
Friday, February 22, 2019
Los Angeles Mayor Eric
Garcetti recently announced the city is scrapping plans for a
multi-billion-dollar update to three natural gas power plants, instead
choosing to invest in renewable energy and storage.
“This is the beginning of the
end of natural gas in Los Angeles,” said Mayor Garcetti. “The climate crisis
demands that we move more quickly to end dependence on fossil fuel, and that’s
what today is all about.”
Last year America’s carbon
emissions rose over 3 percent, despite coal plants closing
and being replaced in part by natural gas, the much-touted “bridge fuel” and “cleaner” fossil
fuel alternative.
As a new series from the
sustainability think tank the Sightline Institute points out,
the idea of natural gas as a bridge fuel is “alarmingly deceptive.”
But signs are emerging that,
despite oil and gas industry efforts to shirk blame for the climate crisis and
promote gas as part of a “lower-carbon fuel mix,” the illusion of natural gas as a
bridge fuel is starting to crumble.
Market Forces
While Mayor Garcetti may be
right in predicting the downward slide of natural gas for power generation,
climate concerns won't drive that change — just simple economics.
It wasn’t long ago that
President Obama — who was accused of starting “the war on coal” because of air
quality regulations — was touting the benefits of “clean coal.” But automation in the
coal mining industry and competition with cheaper renewables and natural gas
began taking a toll on coal.
The struggling coal industry
thought things were looking up when Donald Trump was
elected, with his promise to bring back coal.
But he has failed.
Most recently, President Trump
tweeted that the Tennessee Valley Authority (TVA) should vote to keep two old
coal power plants open.
Nevertheless, the TVA voted to close those coal plants and said it
expected the move would save a billion dollars in future costs. Burning
coal for electricity is increasingly incompatible with profits.
Gary Jones, the economic
development director for the Kentucky county where one of the closing coal
plants is located, acknowledged this economic reality in his comments
to The Wall Street Journal, saying: “We definitely don’t blame
him [Trump] for this. It’s the market.”
Exactly. Coal can’t compete
with the historically low and unsustainable price of natural gas in the U.S. when
it comes to power generation. And it can’t compete with renewables either.
In July 2016 I wrote the following about a presentation on coal at
the annual Energy Information Administration conference:
“The presentation on India
ended with the following conclusion: Cheap coal remains critical to Indian
economic growth.”
India was all-in on coal for
the next few decades, and yet in the two and half years since I wrote that,
renewables have been hurting India’s coal industry. Why?
Just like in Tennessee and
Kentucky, it’s the market. But it isn’t natural gas taking down coal in
India, it’s wind and solar, according to a recent Reuters column by Clyde Russell:
“… the main reason coal may
battle to fuel India’s future energy needs is that it’s simply becoming too
expensive relative to renewable energy alternatives such as wind
and solar.”
A similar situation is
unfolding in Germany, which aims to close all its coal plants in the next 20 years. The
natural gas industry initially saw this as an opportunity to slide in and
replace coal, but the lower cost of renewable energy may lead Germany to
skip the “bridge” offered by natural gas and move straight to renewables, which
already provide over 40 percent of the nation's power.
According to Bloomberg, a large German energy company's study
predicts natural gas use in Germany (and other European countries)
will likely decline. Why?
“… the cost of solar and
battery systems will fall far enough that renewables may become the most
cost-effective way to generate new flows of electricity.”
Compare that to 2014,
when industry giants were trash-talking the future of renewables in
Europe. At an energy industry conference, Paolo Scaroni, the CEO of
oil and gas company Eni, said that Europe is realizing that renewables are
“more a problem than a solution,” and Siemens CEO Joe Kaeser said,
“Using solar panels in Germany is like growing pineapples in Alaska.”
Now renewables are the
solution. And that certainly poses a problem for the fossil fuel industry.
Building new natural gas
infrastructure looks like a bad investment right now to cities like LA when renewables
are already competitive. Natural gas seems poised to join coal as another
fuel that just couldn’t compete with renewables.
Here are more reasons why
that's the case.
Natural Gas Prices Headed Up,
Renewables Down
The price of renewable energy
and storage is trending downward while the already
super-low price of natural gas — especially in the U.S. — has
nowhere to go but up.
While India and Germany
already are finding renewables cheaper than fossil fuels for power
generation with today’s technology, further advances in research and
development as well as manufacturing will continue making renewables
even more competitive.
MIT professor and
former CIA director John Deutch recently presented a study
entitled, “Demonstrating Near Carbon Free Electricity Generation from
Renewables and Storage,” at a Stanford University
energy seminar, in which he said:
“You are going to find
yourselves very shortly in a situation where you have storage alternatives
that, when matched with existing solar and wind generating systems, will be
able to meet load extremely effectively.”
Meeting power demand
effectively and as the lowest-cost producer — using fuel sources (wind and sun)
that are free.
According to Greentech Media, energy industry analysts at
Wood Mackenzie say the combination of renewables with battery systems can
currently replace approximately two-thirds of U.S. natural gas
turbines — right now. Estimates predict the cost of storage alone could drop 80 percent by 2040.
Who wants to own a gas power
plant in 2040 knowing that?
Meanwhile, the cost of
producing power with natural gas is dependent on the cost of the fuel.
Right now, gas companies are losing money — and have been for some time — at
the current price of natural gas in America. As DeSmog has detailed, the
fracking industry, which is responsible for most U.S. natural gas
production, has been on a decade-long, money-losing streak.
The industry has proven unable
to turn a profit at current natural gas prices. So, unless Wall Street wants to
lose billions more subsidizing the natural gas industry, prices will have to go
up at some point. And when natural gas prices go up, residential electricity rates go up.
Additionally, if all of
the planned infrastructure gets built to export U.S. natural
gas in liquid form (known as liquefied natural gas, or LNG),
prices for natural gas are very likely to rise. This is the industry’s
survival plan for the future. However, the higher prices natural gas producers
need possibly will kill off one of the industry’s main markets.
Tom DiCapua, managing director
of wholesale energy services at Con Edison Energy, recently summed up the
situation to Reuters: “As LNG exports increase, so
will future gas prices.”
When it comes to the long-term
economics of power generation, it isn’t a fair fight. There is no clear
way natural gas can compete with renewables on an economic basis in the coming
decades. Which is why the oil and gas industry works so hard to convince people
gas is clean and cheap.
It knows it can’t win a
fair fight.
Structural Financial Issues
With Natural Gas Industry
In a July 2017 Forbes column, energy industry expert Art Berman
laid out the details of the structural problems in the finances of natural
gas production. Since then, things have only gotten worse as huge volumes of gas are pumped simultaneously out
of Permian oil wells in Texas and New Mexico.
However, even before the huge
ramp-up in the Permian, Berman made the case that the natural gas industry was
producing record amounts of gas at prices in which companies could not make
money.
How could they do that?
Wall Street's coffers.
As Berman explained, “Credit
markets have been willing to support unprofitable shale gas drilling since the
2008 Financial Collapse.”
Of course, now credit markets
are not as willing to loan money to shale companies to produce
gas at a loss. Berman estimated that natural gas producers needed prices of $4
per million Btu of gas to break even. Prices are
below $4, and the average price has been below that for years.
Not looking good for
natural gas.
If You Can’t Beat Them,
Join Them
Similar to the fossil fuel
industry, electric utilities also have fought renewable energy options. In
2016, utilities in Florida spent almost $30 million to limit residents' ability to
install rooftop solar — perceived as a direct threat to the utilities.
Much like coal's prospects in
India, a couple of years has made a huge difference, however. In
February, the Christian Science Monitor reported that utilities
in Florida have begun embracing utility-owned solar farms. And while
utilities have still been fighting residential rooftop solar, it's started making gains in Florida anyway
— despite regulatory restrictions.
“The utilities are putting out
solar like you wouldn’t believe,” said James Fenton, director of the University of Central
Florida’s Florida Solar Energy Center.
The utilities didn’t suddenly
decide the climate was more important than profits. They just see a better path
to profits with solar, as long as they can be in control of it, at least.
“It is simply undeniable now
that this is often the lowest cost source of generation,” Ethan Zindler, the
head of U.S. research at Bloomberg New Energy Finance, told the Monitor. “So you can pat yourself on the back for
doing something environmentally conscious, but at the same time, you’re also
actually doing something to procure power at the lowest cost for
your customers.”
Arizona Public Service (APS)
is the largest investor-owned utility in the state, and it spent big money to
help defeat a 2018 ballot initiative that would have required Arizona get 50 percent of its electricity from renewables by 2030.
However, because APS is “investor-owned,” the utility is now investing in
solar and claims that solar plus batteries are an even cheaper option than
natural gas power plants for peak power. The need for so-called gas “peaker
plants” that can quickly ramp up electricity in times of peak demand is one of
the energy industry’s favorite arguments against renewables and for
natural gas.
But because investors
want to make money, APS is moving forward with solar
and batteries.
“This is a head-to-head
[economic] comparison where we’re trying to select the best resources to meet
our customers’ needs,” Brad Albert, vice president of resource management
for APS, told Greentech Media.
In that head-to-head
comparison, natural gas lost.
As usual with the oil and gas
industry, it’s best to watch what it does, not what it says.
The Permian Basin is the heart
of the shale oil fracking boom in the U.S. and is producing so
much natural gas along with the oil that the price of natural gas there
actually went negative in 2018.
It takes a lot of electricity
to power the fracking boom. And the Permian needs more. But is the industry
taking advantage of all that cheap natural gas to produce that power?
Nope. Plans for new
electricity generation in the heart of the Permian oil and gas region include a
solar farm and the world’s largest battery.
Renewables have become the
low-cost source for new power generation much faster than most anticipated,
which is great news for the climate.
Natural gas, with its potent
globe-warming effect, is a climate-killer. And a money loser.
If the lobbyists don’t win and
the free market is allowed to work for power generation, natural gas — like
coal — looks less and less like a “bridge fuel” and more like a fuel
of the past.
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