The attractions of natural gas, particularly in the US market, have been gaining a lot of attention in recent months. Prices might be low just now but there are vast supplies; natural gas emits less carbon dioxide than coal; and gas-fired plants are relatively easy to bring online.
And as anyone with an interest in renewables will have already heard at least a dozen times: where’s the electricity going to come from when the sun isn’t shining or the wind isn’t blowing? Small wonder natural gas has already become something of a cause celebre in parts of the environmental movement.
However, analysts at Barclays Capital are not quite so convinced.
Natural gas has enjoyed a boom in the past 10 years, with an additional 249,000MW of capacity more than doubling the existing installations. But the combination of lower demand and sharp growth in renewable capacity will actually constrain the growth in natural gas output, say James Crandell, Biliana Pehlivanova and Michael Zenker at BarCap.
They point to analysis by the EIA which models both of these factors. Demand growth for gas-fired power comes mostly from power, and while demand for industrial power is clearly falling in this recession, residential and commercial demand is also falling – in contrast to previous recessions.
At the same time, renewable capacity is set to continue growing rapidly, even without the Waxman-Markey legislation. Incentives in the economic stimulus package and the introduction of renewable portfolio standards in 32 states will achieve much of the increase outlined in Waxman-Markey, according to the IEA.
From the note:
The EIA analysis highlights one important result—the wave of renewables that is being pushed by existing programs is sufficient to generate enough power to back-out existing gas-fired generation, as shown in Figures 10 and 11. This is a startling result. But it highlights the fact that the scale of renewables build-out is large enough to overwhelm EIA’s forecast demand growth. Note also that this is a national result, with large expected regional variation.
Combined with lower forecasts for electricity demand growth – just 0.8 per cent per year until 2020, compared with 1.4 per cent in the previous decade – and BarCap says natural gas power generation growth could actually go into decline:
But it might not be so bad for natural gas (or good for renewables).
Firstly, demand might be higher than the EIA’s latest assumptions. If electricity demand grew at 1 per cent rather than 0.8 per cent, that would take natural gas production growth into positive territory.
Meanwhile, renewables – particularly wind – faces its own problems: particularly, transmission. Developers are rushing to build windfarms in the mid-West ahead of stimulus package tax credit deadlines, but how will that power get to where it’s most needed?
West Texas, a region with a peak load of about 2,000 MW, already has about 6,000 MW of wind capacity, creating transmission congestion and other operational challenges as generators attempt to export power to the ERCOT North and ERCOT South zones. That West Texas is glutted with wind has been illustrated by negative prices at times in West Texas and congestion on transmission lines out of West Texas to
The experience in ERCOT West also highlights the fact that transmission bottlenecks will
limit the ability of wind capacity concentrated in one region from displacing gas-fired
capacity in another.
However, they say, regardless of the demand growth scenarios or the transmission problems, gas-fired output is likely to grow more slowly than it has in the past decade. Only big retirements of coal-fired plants, or a surge in demand – perhaps from electric vehicles – will turn that around.
Electricity: Yes, we have a demand fall (FT Energy Source, )