Last week the EIA reported that natural gas-fired power generation will increase by as much as 17% in 2012, while coal is expected to decrease 10%. This shift away from coal and toward natural gas is largely tied to gas’ low price, as well as projections of the impacts of increasingly strict federal regulation on power plants.
In March, natural gas spot prices averaged $2.18MMBtu, their lowest level since 1999. Then on April 11th, the NYMEX May gas futures contract settled at a 10-year low of $1.984/MMBtu [EIA].
Despite low gas prices, some utilities express hesitancy about over-committing to gas-generated power. Last week at The New York Times energy conference, Duke Energy President and CEO Jim Rogers said, “Our greatest challenge is to avoid all gas, all the time.” [The Barrel]
How is natural gas reshaping the power industry? Why might utilities such as Duke Power want to avoid “all gas, all the time”? What assurance is there that plentiful natural gas will be available at low cost?
Even before the EPA announced their new carbon dioxide emission standards, power plants were shifting towards natural gas, leaving coal by the wayside. Natural gas is a cheap alternative to coal and it is better on the environment.
Will natural gas prices stay low into the future? The Obama administration’s lax fracking regulations show that the government doesn’t want to impede companies from extracting from natural gas-rich shale reserves. Because the US is so rich in shale gas and the federal government/state governments are doing little stop their exploration, I forsee natural gas being available at a low cost for at least the next decade.
Perhaps when the US begins exporting natural gas prices will rise, but most analysts believe that natural gas exports will not affect domestic nat gas prices until at least 2020.
I would add a geological analogy to Stephen’s comments. If you have ever crossed the Atchafalaya Basin on Interstate-10 you will have seen how Henderson Swamp, an enormous back water for the eponymous river, extends for miles, the Interstate a causeway above it. The actual river course and the associated Pilot’s Channel are only a small percentage of the total width.
Conventional natural gas accumulations are found in high-permeability sandstones, laid down by continental river courses and deltas. Shale gas has accumulated in mudstones deposited in the stillest portions of the environment, the back swamps. Conventional natural gas, both that already produced and current reserves, can be represented by the river courses of the Atchafalaya. Shale gas is the size of Henderson Swamp in relative scale. Even after natural gas prices have fallen from $13/MMBTU mid-year 2008 to $2/MMBTU today, the magnitude of the potential reserves opened to development by shale gas is still under appreciated, even by many energy experts.
The physical chemistry of hydrocarbons is complex. “Natural gas” is a label that includes everything from near-pure methane to mixtures of hydrocarbons so “wet” that it interferes with flow in the rock. Today developers are focusing on the portions of the overall shale gas play that contain large amounts of liquids. The latter are priced with crude oil. Remaining shale deposits are being largely ignored. As the price of natural gas rises, those known-but-ignored deposits become economic. That will provide a price governor. The degree of oversupply will not always be this great, so prices will inevitably rise from the current $2/MMBTU. But they won’t go far.
Unless we export LNG. Commodity traders will tell you that the price difference between an important commodity in oversupply by 5% and one undersupplied by 5% is profound. Exporting natural gas will change the situation radically long before 2020. As a matter of policy, it’s a bad idea.
The discussion continues to confuse “either or” to the paradigm shift in how things will be done going forward. The arbitrage of feedstocks isn’t nearly as consequential as the ongoing installation of infrastructure (capacity) that is natural gas-supply driven, a road very expensive and, in my opinion, very good for all concerned with the opportunity to have a default national energy policy despite ourselves. The race to develop the supply of feedstock has outpaced the creation of assets to utilize same, and prices dropped. Sometime or other this will transition into a stable environment that both producer and consumer will thrive in. Will there be a completely green answer someday? Maybe, but the immediate answer is carbon-based and managing that realistically is all of our jobs.
“Sometime or other this will transition into a stable environment that both producer and consumer will thrive in. Will there be a completely green answer someday? Maybe, but the immediate answer is carbon-based and managing that realistically is all of our jobs.”
I agree. In the very long term, fossil fuel capacity will run out, but that obviously is not a factor in the short term or medium term or even perhaps ‘near-long term’. The immediate answer ‘has to’ involve carbon because at this moment there isn’t enough capacity elsewhere in the US to supply its present needs.
I think part of why this topic is so challenging is because there isn’t a sense of immediacy, and there is also a sense of awareness about the future – and neither one is particularly more dominant. So the hoopla and discussion and advocacy takes place, but in many ways it goes down to path of least resistance and what markets are most favorable — which again is still very carbon based.
With gasoline prices rising, unless consumers are particularly motivated to use non-carbon sources of energy, natural gas seems well positioned to become increasingly dominant in use at home and as an export commodity. On a broader scale, though, outside of wondering about a national energy policy – a related question is what about a national energy infrastructure policy? If the US wants to harness its resources most effectively, some type of coordination may be wise. But the line between under-coordination and over-regulation will be heavily debated, and even in an apolitical sense may be difficult to accurately map.
In support of Ron’s analysis, devising an energy policy is not the making of permanent choices from a set of options, it’s a process. That it must someday enable a transition from limited-supply hydrocarbons to some other, easily storable and transportable source is an inescapable reality. A workable energy policy will be an amendable plan to get us from our current Point A to some future technology Point B. Natural gas immediately presents us with a more benign transition fuel. Its current low price is economically stimulative just at a time when such a stimulus is most needed. We can’t allow that to divert us from the recognition that it must someday be displaced as well.