Content for this post was contributed by Alexis Karolides, Lena Hansen, Dan Seif, and Lisa Huber.
Recent articles have posited that natural gas is so cheap and plentiful that it not only challenges coal as our dominant source of electricity in the short term, but will also threaten the development of renewables in the long-term.
Have we really shifted to a “new normal” of low, stable gas prices? It seems bit naïve to think so. Natural gas promises an immediate economic boost, and is a near-term solution to reduction carbon emissions compared to coal.
To be sure, there are positive near-term wins, as evidenced by the recent report from the U.S. Energy Information Agency that U.S. emissions have fallen to the lowest levels in 20 years. Existing natural gas turbines provide 40 percent of U.S. power generation capacity but traditionally have only been utilized to produce 23 percent of power generation because of the lower relative fuel cost of coal. With current low natural gas fuel prices, utilities can maximize their gas-fired generation, reducing emissions compared to coal by at least 35 percent.
But, in spite of these benefits, rushing straight to natural gas as the principal solution to our energy problems over the long-term is imprudent. Here’s why:
1. Natural Gas is Not as “Cheap” as It Seems
Natural gas is one of the riskiest commodities around, historically bearing twice the volatility price risk of oil. While this is common knowledge among industry professionals and commodity traders, the long-term risk often goes ignored, despite previous attempts to put a price tag on volatility. Learn more
2. Renewables ARE Competitive
Even against the current natural gas futures pricing curve—much lower than just a few months ago—utility-scale renewables can compete unsubsidized within a few years. In good wind locations, wind power can already compete unsubsidized with natural gas selling for more than $6 per million BTU. According to Bloomberg New Energy Finance, wind turbine pricing has averaged 14 percent per-year declines since the mid-1980s. If that continues, by 2016 wind power should compete head-on in a growing number of locations with wholesale natural gas, which by then is expected to sell above the mid-$4s per million BTU. Learn more
3. Natural Gas Offers Flexible Options
Natural gas will be most valuable when recalibrated to serve as a transition fuel and as a source of electricity system flexibility. Experts both inside and outside the industry increasingly agree that energy efficiency has the potential to cost-effectively eliminate growth in electricity demand. Extensive modeling suggests that we can capture and integrate the renewable energy needed to meet 80 percent or more of our electricity demand by 2050, after efficiency. With these strategies in place, the U.S. can transition off oil and coal, all while cutting natural gas consumption by 25 percent. Learn more
4. Natural Gas Cuts Carbon, But Not Enough to Mitigate Climate Change
While gas can dramatically reduce carbon emissions (compared to coal) and help transition the country to an electric system based on renewables, its ability to reduce emissions does not meet the target set by the of International Panel on Climate Change for 80 percent greenhouse gas reduction by 2050. Natural gas is primarily methane, which has a global warming potential up to 18 times more potent than carbon dioxide.
That’s not to say that natural gas doesn’t have a critical role in the transition to a low fossil fuel energy system—it does. But that role is pretty different from making a bet on natural gas being a dominant primary source of energy.
What role do you think natural gas should play in our future electricity system?