Tag 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.

 

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.

Time to Rethink Solar Subsidies

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Solar prices have dropped by more than half in the last five years. Solar purchase or feed-in subisidies over the past decade were created by the governments of Japan, Germany, Spain, and other countries. America’s combination of state subsidies, especially California, combined with the U.S. tax credit for solar, have also contributed to accelerating the solar learning curve. In the latest Solarbuzz survey, 34% of solar module purchases are below $2.00 per watt, with the lowest retail prices about $1.06-1.10 per watt for silicon modules and $0.84 per watt for thin film modules. The long sought $1 per watt price point has been reached.

Unfortunately for the solar industry, record low natural gas prices have moved the ‘grid parity’ target lower again. And, the global recession has pinched all of the economies that were funding fast solar growth, resulting in greatly reduced or eliminated solar subsidies and reduced demand growth.

Where to go from here? Dieter Helm’s new book The Carbon Crunch: How We’re Getting Climate Change Wrong- and How to Fix It offers some interesting alternatives. He argues for a carbon tax on all energy sources (not a cap and trade system). A carbon tax would favor solar but also encourage natural gas as a medium term solution over coal and oil. It would be a new source of revenues for struggling government budgets. And it would generate a source of money to fund a broad range of new technology to help solar, such as better energy storage, and reduced solar installation costs.

Green activists won’t like his proposals. Neither will proponents of a expanding a regulatory approach to limiting fossil fuels. So it just might be the right approach for the next policy phase in evolving the world’s electricity fuel sources. And help restimulate the solar market in a time of economic slowdown.

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.