Category Archives: Natural Gas

Will this be the Natural Gas decade?

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Nuclear plants are suddenly very unpopular around the world, since the Japan tsunami accident of 2011. Coal, while plentiful and cheap, is a climate change antagonist and contaminates the environment. Several economic trends favor natural gas. Lets look at four of the biggest.

LNG1. Asia boosts imports of natural gas  Japan already was the world’s biggest importer of liquefied natural gas before the earthquake upended its nuclear industry.  Japan has closed all of its 54 nuclear reactors. As recently as 2010, nuclear reactors supplied 30% of Japan’s electricity. This electricity capacity is being replaced by natural gas fired plants, through imports of liquefied natural gas (LNG).   China and Korea are also boosting their contracts and sources of natural gas.

2. Fleet truck conversion to natural gas accelerates  Lowes already has 7% of its trucks on gas and could reach as much as 20% within two years. UPS plans to buy 1,000 natural gas trucks by the end of next year. FedEx will shift 30% of its trucks to natural gas over the next decade. New natural gas truck engines are coming to market this year from Cummins and Volvo that can handle vehicles up to eighty thousand pounds. Long-distance truckers Con-way Inc., Swift Transportation and Werner Enterprises are testing compressed natural gas and liquefied natural gas powered trucks. T Boone Pickens has led an investment effort toward a nationwide fueling and repair infrastructure for natural gas. His Clean Energy Fuels Corp as well as Pilot Flying J have been building the infrastructure for long haul trucks to fuel with natural gas for two years. For shorter hauls, this year about 60% of all new garbage trucks purchased use natural gas. At Waste Management, 90% of its future purchases will be natural gas fueled. And many city public bus systems are substantially converted to natural gas.

3. European demand for natural gas is rising and sustained. Europe collectively is the world’s biggest energy importer. The energy import dependency of Europe is forecast to continue for the next decade. And the European Union has strict environmental controls on electricity power plants that have shifted demand from coal to natural gas in 2013. Germany will close all of its nuclear power facilities by 2022. In addition to electricity, natural gas is preferred for home heating in Europe in winter. With high prices and strained business relations with Europe’s leading historical natural gas supplier, Russia’s Gazprom, their market share has dropped from over 50% in the past to about 30% this year. For example, In Britain, BG Group PLC has signed a contract to import U.S. natural gas, and companies are exploring for new supplies.

4. LNG terminals for U.S. exports of natural gas U.S. companies are looking at building export terminals in at least eight locations. The U.S. Department of Energy has approved four terminals and four more are in approval cycles. Cheniere Energy Inc. is furthest along with its project at Sabine Pass, La., The Sabine Pass LNG Terminal commenced service in April 2008. Sabine Pass became the world’s largest LNG receiving terminal in 2008, and will be the first LNG export terminal online in the U.S.  In the next five years, the U.S.  will become an overall exporter of natural gas.

All of these megatrends suggest that although current supply is plentiful and prices are historically low for natural gas, the new uses of natural gas and competition for sourcing in the world economy may make this the decade of natural gas.

 

 

 

 

Are Natural Gas and Renewable Energy competitors? Or complementers?

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Natural gas proponents have a tendency to bash solar and wind generated electricity. Both solar and wind are intermittent sources of electricity they argue. Short term weather patterns as well as seasonal variations in temperature and precipitation can create havoc in predicting output from either solar or wind farms.  And neither solution is good at handling peak demand, those times when utilities need extra short term capacity to meet demand.

1 And low natural gas prices over the past few years have accelerated the use of natural gas for new utility capacity.  Nearly 90% of new electricity capacity in the western United States is planned to be natural gas fired electricity generation in the next decade, in spite of this area being one of the best areas in the world for both solar and wind energy.

With the big boost in U.S. natural-gas output from new horizontal fracturing technology, some experts concluded that solar and wind energy would be battered by this cleaner, less expensive fuel.  Indeed both markets have experienced a slowdown at the utility scale level of development.

I believe this is a reflection of the near term economy and the fluctuating uncertainty around Federal and State tax credits and benefits for solar and wind. For the long term, we predict gas and renewables will coexist in more and more utilities’ portfolios.The recent data shows that both are growing.  Natural-gas electricity generation rose 34% from 2009 to 2012, starting from a much bigger base than renewables. Wind generation rose 92% in the same period and solar generation about 4X, according to the Wall Street Journal.

Natural gas plants are compact in size, can be sited in and around large cities, can be quickly permitted, and can be easily financed. Output can be easily turned up or down to meet demand. However, building these facilities means the utilities are now at risk for long term natural gas prices. Yes the prices are low today. But what will the price be in one year? Five? Ten? Regulators know consumers and businesses are notoriously aware of price increases for electricity, so it can be hard for utilities to recover increased costs at the time they incur.

Over the longer term, volatile gas prices and new environmental controls add up to a big risk for utilities.  How to hedge this risk? Utilities can resort to price hedging their fuel cost, just as airlines may hedge jet fuel prices. But that may not stop a steady rise in fuel costs over time.

A different hedge is to build a balanced portfolio of electricity capacity that includes wind farms and solar projects. Almost all of the costs for these renewables are upfront and predictable. The future costs of electricity are much more certain than for natural gas fired plants. This alternative view of hedging makes solid business sense for utilities, especially now that the solar and wind industries have the capacity to provide meaningful gigawatts of electricity at competitive costs to natural gas over the long term.

Competitors or complementers? Expect natural gas and renewables to coexist in the utility industry for the next 20 years.

 

Obama on climate change: big talk, not much action

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The President’s climate change program offers nothing new to impact carbon emissions.

On June 25, President Obama announced a goal of curbing greenhouse-gas emissions 17% from 2005 levels by 2020.  The key program to accomplish this is “…establish carbon pollution standards for both existing and new power plants.”

This would be the first-ever federal effort to regulate greenhouse-gas emissions from electricity generating power plants, the source of about one-third of such carbon emissions in the U.S.  The main strategy is to reduce the use of coal, in favor of cleaner, less carbon emitting fuels, mainly natural gas.

Obama is only a decade behind!  In the past decade (see charts), the electric utility industry has already reduced its coal usage by over 1/3, from 51% of total electricity generation in the U.S. to 37% in 2012, as reported by the Nuclear Energy Institute .

12002Fuel 12012Fuel

Natural gas has taken up all of the slack, because natural gas fired plants are physically smaller, can be situated near customers in large cities, have much shorter regulatory approval cycles, and because horizontal deep fracking drilling has made natural gas plentiful and cost effective, now and in the future for North America. Over 90% of the new capacity for electricity currently in the approval process in the U.S.  is for natural gas fired plants. Natural gas’s portion of total electricity will continue to rise, with or without regulation by the federal government.

President Obama’s plan includes other measures meant to reduce emissions, including $250 million in federal loan guarantees for cleaner fossil-fuel energy projects; new fuel-economy standards for heavy trucks; and greater cooperation between the U.S. and major economies including China, India and Brazil. These proposals are either too small to have a meaningful impact, or they lack any specific proposals that could achieve meaningful results. Big talk, but little results will come.

Mr. Obama’s proposals don’t require congressional approval. One can expect legal and congressional challenges to regulating carbon emissions from power plants. But the electric utility industry will continue its progress away from coal, with or without those regulations.

 

 

Energy letter to Santa

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Dear Santa, It’s that time of year when kids young and old dream big dreams. Here is our big dream list for energy.

image courtesy Any Tots

1. “The Lady in Red, is dancing with me…” Take all the red tape in Washington for liquefied natural gas and use it to wrap more presents instead. You’ll need thousands of yards of the stuff to wrap a several state-of-the-art LNG facilities, for U.S. exports. Save a few yards to wrap Chris de Burgh’s beautiful song in.

2. “The answer my friend is blowin’ in the wind….” Please send a copy of Dylan’s song and a multiyear, stable production tax credit program to our wind energy friends.

3. “Baby you can drive my car.” Our electric car industry needs a 300 mile, one hour rechargeable battery system. Can that be so hard to fit under the tree, along with the Beatles tune?

4. “Let the Sunshine In…”, how about 25% efficiency and a copy of the 5th Dimension song for every silicon photovoltaic module maker?

5. “Jive Talking”, the Clean Coal marketing hype has far outweighed the actual results. Since we need coal for decades, how about some real sequestering breakthroughs scaled up to meaningful projects, while we dance to the Bee Gees?

6. Oh, can you throw in an iPad mini for Tiny Tim, with a few tunes? Thanks Santa. When you finish this list, we’ll have a new one waiting.

Happy Holidays and best wishes everyone.

For a Triple Play, add a carbon tax on imports

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If you could spur the U.S. economy, reduce the budget deficit, and help climate change, all with one action, wouldn’t you jump on it?

U.S. carbon emissions are at a twenty year low, thanks to natural gas fired electricity plants, efficiency gains and conservation. Meanwhile, by the end of this year, China will be emitting twice as much as the U.S., according to Richard Muller, a faculty senior scientist at the Lawrence Berkeley National Laboratory. This is largely due to China’s dependence on coal for electricity generation.

Thanks to the shale oil boom, the International Energy Agency predicts the U.S. will overtake Russia and Saudia Arabia as the leading oil producer by 2020.

In effect, our public policy, technology, and the recession have combined to give the U.S. an effective energy strategy that also may improve the environment.

 

How to cement these gains on a global level? The U.S. should add a carbon tax to imported oil and imported goods. These tax revenues will accelerate deficit reduction, strengthening the economy. And, they will provide incentives for foreign countries to move more aggressively away from coal, and utilize natural gas, oil, and renewable energies, all areas of current and emerging strength for the U.S. and making energy a potential export product for the first time in decades.

A carbon tax on imports delivers a triple benefit of economic development, deficit reduction, and incentives for lower carbon usage. It’s a public policy triple play!

New Federal gas fracking rules are coming

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The Obama administration has been circulating new environmental-safety rules for hydraulic fracturing on federal land, setting a new standard that natural-gas wells on all lands eventually could follow.  Expect the Interior Department to release them within a few days. These rules will help create more public confidence in this new technology and help the industry move forward.

The new rules address concerns that the method of extracting natural gas known as “fracking” can contaminate groundwater. Among other things, they create new guidelines for constructing wells and treating waste water, according to a draft of the proposed rules reviewed by The Wall Street Journal.

Any chemicals used in the fracking process would have to be disclosed, but not until after they have already been used in the drilling.

The fracking rules apply to natural-gas drilling on federal and tribal lands, where about one-fourth of fracked wells are drilled. The new rules could serve as a template for state regulation in the future.

5 reasons natural gas will rebound to $4.50 in 2013

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The most optimistic prediction for gas prices by 2014 is $4.75/mbtu, with the median analyst forecast about $4.30, according to Bloomberg.  I believe the glut of gas will end much earlier, by late 2013. Here is why.

1. The large U.S. gas producers, like Chesapeake and ExxonMobil have already drastically cut drilling and new well development.

2. Many convertible factories, businesses, and commercial facilities that can switch fuels have switched to natural gas in the past two years. This will increase demand in 2013.

3. U.S. Electric utilities are consuming record volumes of gas. Consumption will climb again in 2013.

4. Its statistically unlikely the northeast U.S. will have another winter as mild as 2011/2012.

5. Global economy improvements, while modest, will still make 2013 the best year for growth since 2008.

Leaky wells are not good business

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Oil and Gas executives are claiming that well water contamination by the new horizontal, deep frac wells are due to faulty well construction, not the technology itself. Mark Boling, executive vice president and general counsel of Southwestern Energy Co., a major natural-gas producer, said he has examined several incidents in Colorado and Pennsylvania where gas drilling appears to have caused gas to get into drinking water. “Every one we identified was caused by a failure of the integrity of the well, and almost always it was the cement job,” he said.

The Wall Street Journal has an excellent article on the situation. Since cement failures occur at a regular rate, and because the new horizontal wells have more complicated installation and setting processes, it is no relief to the industry to place the blame on well construction. This head-in-the-sand approach will only make repercussions larger down the road. For its own sake, the industry needs to get ahead of this problem, with documented best practices and standards for construction, comprehensive ground water testing, and transparency of information to all concerned. Only then will they gain the confidence of the public, political leaders, and interested parties. Landholder royalty payments are not enough.