Header Ads Widget

Has Natural Gas Peaked? Demand is Falling Decades Ahead of Expectations

One of the largest utilities in the U.S. put $8 billion into a bet that natural gas would dominate American electricity much like coal had before. “We really consider this to be a growth play,” Tom Fanning, chief executive officer of Southern Co., said in an interview just five years ago, as his company set on its landmark acquisition: natural-gas distributor AGL Resources Inc.

Gas looked to be on the verge of generational dominance at the time. The American fracking boom had made the fuel superabundant and cheap, hastening coal’s rapid decline, while energy from wind and solar had higher costs and lower reliability. A giant utility like Southern would naturally see gas pipelines and storage as the key to a durable and lucrative future, meeting demand that would continue to grow.

Now those expansive time horizons are in deep doubt. In fact, there are flashing signs that the U.S. power sector is approaching peak gas, with demand topping out decades ahead of schedule. “The era of robust growth in the U.S. natural gas market is likely coming to a close,” says Devin McDermott, an analyst at Morgan Stanley. “It doesn’t mean the market falls apart. It doesn’t mean gas demand falls off of a cliff. It means that we need less new supply going forward.”

Several states including California and New York already have legal mandates to reach 100% renewable or carbon-free electricity by 2050 or sooner. This is just the start.
The others have established mandatory goals below 100% or voluntary targets. All told, more than half of U.S. states have established renewable-energy targets that will push utilities away from gas.
At the local level, more than 30 cities have put in place gas hook-up moratoriums on new construction in support of all-electric buildings.

Natural gas only fulfilled its destiny as the nation’s top power source in 2016, backed by hundreds of billions of dollars invested in the creation of a gas-based economy. Renewables could take over as the No. 1 power source on the grid as soon as 2028, according to projections by McDermott and Morgan Stanley analyst Stephen Byrd.

The American gas peak will mark a critical juncture—and it may have already been reached. McDermott expects overall U.S. gas demand growth in the U.S. slow to between 1% and 2% per year through 2030 as use by power generators shrinks by 2% to 3%. Overall demand could flatline or fall slightly if the Democrats win in November, a dramatic shift after years of record growth. “It’s a gradual trend, but it does add up over time,” he says.

Power Shift

Output from renewables is forecast to exceed natural gas by 2028

By the end of the decade, McDermott forecasts that gas will no longer be the largest producer of electricity in the U.S. And the pace of the gas decline could be accelerated if the presidential election goes to Joe Biden, who has campaigned on the goal to eliminate carbon emissions from America’s power grids by 2035.

Some in the industry are making moves that indicate the writing is on the wall. Dominion Energy Inc., one of America’s biggest power companies, this summer agreed to sell substantially all of its gas pipeline assets. “To state the obvious, permitting for investment in gas transmission and storage has become increasingly litigious, uncertain and costly,” said Tom Farrell, Dominion’s executive chairman, in July. “This trend, though deeply concerning for our country’s economic growth and energy security, is a new reality, which threatens the pace at which we intended to grow these assets.”

Natural gas emerged out of the 2008-2009 recession as the fuel best suited to reduce U.S. emissions from electricity. It’s cleaner and more efficient than coal, and fracking’s success ensured it would be cheap and plentiful. That helped unlock coal’s grip on electric grids and supercharged gas economies in Pennsylvania and on the Gulf Coast. The U.S. soon switched from being a gas importer to one of the world’s leading exporters.

Renewables, meanwhile, still carried the stigma of hippie-ish science experiments that depended on government support and couldn’t provide around-the-clock electricity as long as the sun set and the wind ebbed. But the arrival of big-storage batteries has meant that wind and solar power will slowly be less dependent on the whims of weather, calling into question assumptions that there would be plenty of need for new gas alongside renewables. Solar farms backed up by batteries are already beating out gas on costs in parts of the U.S. Southwest , thanks in part to sharply falling prices of lithium-ion systems.

That dynamic isn’t limited to the U.S. A new report from BloombergNEF found wind and solar power are the cheapest form of new electricity in most of the world today, including the U.S. In the next five years, it will be more expensive to operate an existing gas power plant than to build solar arrays and wind farms, according to the research group.

This shifting landscape is among the reasons why major gas-turbine makers, including Mitsubishi Power, are working with power-plant developers and utilities on billions of dollars in projects that will eventually burn hydrogen instead of gas. And a staggering 25 gigawatts could be available in the U.S. in 2029, research organization Wood Mackenzie said in June, up from “near-zero” mid-year.

Post a Comment