From a natural gas industry conference to a major metropolitan area, more signs are emerging that natural gas is in a losing economic battle with renewables and battery storage. And considering recent news that existing fossil fuel projects are already enough to push the world past international climate goals, this emerging economic reality couldn’t come soon enough.
Take the dire warning about the U.S. fracked shale gas industry that came from a former fracking CEO.
“Now I tell you all this because I think it has long-term implications for the end users of natural gas. This situation cannot continue indefinitely,” Steve Schlotterbeck explained at a recent petrochemical and gas industry conference. “There will be a reckoning and the only question is whether it happens in a controlled manner or whether it comes as an unexpected shock to the system.”
As reported by DeSmog, these comments by the former CEO of drilling company EQT were part of a larger presentation in which he laid out the scale of financial failure associated with fracking for natural gas and oil. The implications Schlotterbeck mentioned are important and center on the fact that natural gas prices — and thus the costs for end users like natural gas power plants — can only go up, likely by a large amount.
Right now, natural gas prices are artificially low because fracking companies have been producing record amounts of natural gas at a loss. As Schlotterbeck points out, this is an unsustainable business model. But it has supplied natural gas consumers with artificially cheap energy, giving natural gas a competitive edge over the dying coal and nuclear power industries.
The simple reason why nuclear power is finished by Dr @Richard_Dixon
— Prof Peter Strachan (@ProfStrachan) July 2, 2019
Yet even with this advantage, natural gas is losing ground economically against renewables plus battery storage for power generation. The latest example is highlighted in a Forbes column this week that discusses the Los Angeles Department of Power and Water’s deal to build a new solar plus battery storage project expected to produce electricity at half the cost of a new natural gas power plant.
“This is the lowest solar-photovoltaic price in the United States,” said James Barner of the city agency that made the deal, “and it is the largest and lowest-cost solar and high-capacity battery-storage project in the U.S. and we believe in the world today. So this is, I believe, truly revolutionary in the industry.”
“Los Angeles Power and Water officials have struck a deal on the largest and cheapest solar + battery-storage project in the world, at prices that leave fossil fuels in the dust and may relegate nuclear power to the dustbin.” – Forbes https://t.co/wtOYymnG0G
— Anthony Leiserowitz (@ecotone2) July 2, 2019
To Meet Climate Goals, No New Fossil Fuel Power Plants Can Be Built
The news that gas prices can only go up while renewables and battery costs continue to drop (and already are easily beating natural gas for power generation in places like California) means that in a free market economy, no new natural gas power plants would be constructed. That scenario is welcome in light of a new study released this week, which concludes that the climate pollution from existing fossil fuel infrastructure is enough on its own to push the planet past 1.5°C (2.7°F) of warming by 2100.
We’ve already built too many power plants and cars to prevent 1.5 ˚C of warming – MIT Technology Review https://t.co/jMKWPC1uDC
— TurboKitty (@TurboKitty) July 2, 2019
With renewables and battery storage increasingly becoming the cheapest source of power, builidng new fossil fuel power plants isn’t required to supply the world’s electricity needs affordably.
Industry Pushing Natural Gas With False Narrative
With the oil and gas industry’s history of lying and working to mislead the public about about climate science, it should come as no surprise that the industry is using some of the same tactics to spin natural gas in a positive light.
The API’s most basic claim — that burning natural gas for electricity is somehow a climate solution — has been thoroughly debunked. The nation’s largest oil and gas lobby also claims that restrictive energy policies that prohibit natural gas and oil could drive up U.S. electricity prices “an average of over 50 percent.” However, with the falling costs of renewable power generation and battery storage and the unsustainable finances of the natural gas industry, natural gas’s expected-to-rise price tag is what could result in electricity prices increasing in the U.S.
Finally, the API claims that “[t]he United States’ world leadership in natural gas and oil production is accompanied by world leadership in cutting carbon dioxide emissions,” which is an odd statement to make when carbon dioxide emissions in the U.S. rose by 3.4 percent in 2018.
The oil and gas industry is betting big on locking in future demand for natural gas by constructing new power plants, pipelines, and export terminals and likely will be spending huge sums of money convincing the public that this path is the only one that makes sense.
Natural gas promotional video. Credit: American Petroleum Institute
Now, the coal industry tried the same approach, but the economic reality eventually became too much to overcome. This week, a U.S. insurance company announced it will no longer insure the coal industry. The writing is on the wall for coal.
If economics overcome the oil and gas industry’s attempt to lock in expensive and climate-killing natural gas power production, then expect no new natural gas power plant construction. Just as no one is buildng new coal plants in the U.S.
Chubb became the first of the big U.S. insurers to announce a ban on coverage for coal companies. “Chubb recognises the reality of climate change and the substantial impact of human activity on our planet.” #insurance #climatechange https://t.co/1pQb1tQJk3
— Suzanne Meraz (@suzmeraz) July 2, 2019
U.S. Natural Gas Production Is a Failing Business Model
While the entire U.S. fracking industry has been on an epic money-losing streak — just like the Canadian tar sands industry — the natural gas portion of that industry has been a special case. In the past year, natural gas prices in Texas have gone negative. Paying people to take away a product sure sounds like a broken business model.
Additionally, a significant portion of the natural gas being produced via fracking is either being vented into the atmosphere as the potent greenhouse gas methane or burned (aka flared), releasing globe-warming carbon dioxide. Drillers are producing too much natural gas for the market to absorb it, and the problem is getting worse. As the best oil-producing spots are depleted in areas like North Dakota and Texas, the remaining oil production is resulting in higher amounts of gas being co-produced with the oil (known as associated gas).
In North Dakota’s Bakken region, natural gas production is rising 70 percent faster than oil production and in the prolific Permian Basin in Texas and New Mexico, during a recent three-month decline in oil production, gas production increased. This reality means that the Permian is flaring at least 5 percent of the gas it produces and the Bakken is flaring 19 percent.
On a basic economic level there is ample evidence to back up Steve Schlotterbeck’s claim that this “situation cannot continue indefinitely.” And when this situation ends, natural gas prices will have to go up, making renewables the clear choice for the climate as well as investors and electricity consumers.