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Another Record Year For Low-Cost U.S. Natural Gas – And Why That’s Good News

First, please read my colleague’s critically important article that you might have missed: “How These Relatively Unknown COVID-19 Workers Affect Millions In A Crisis.” Stay safe.

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Natural gas is one of the mainstays of global energy…it improves air quality and limits emissions of carbon dioxide,” Dr. Fatih Birol, Executive Director, International Energy Agency, 2019

I knew I was right. U.S. Department of Energy data is out and 2019 was another record year for U.S. natural gas demand and marketed production, respectively at ~86 Bcf/d and ~100 Bcf/d. For this post, let me focus on gas-based electricity, a sector that leads by accounting for 35-37% of our total gas use.

At 31 Bcf/d, gas “power burn” set another record in 2019, a 40% leap from 2014. At 1,600 TWh, gas now provides ~40% of U.S. electricity. What makes the rise of gas in the power sector even more amazing is the fact that our electricity demand has remained flat for a decade, at ~4,050 TWh. Even in green California, the renewable leader that has long done all that it can to “get off gas,” gas supplied 42% of the state’s generation in 2019 (85 TWh of 205 TWh) – extremely telling given how much money and policy has been deployed to force wind and solar.

Now, COVID-19 has combined with a very mild winter that has kept U.S. gas prices below $2.00/MMBtu since mid-January. Along with gas being a low-emission and cleaner fuel, such low prices obviously incentivize more use. The U.S. Department of Energy just reported our reality: “Low natural gas prices and capacity additions drive 2020 power burn growth in the first quarter.”

With some 14,000 MW of coal retirements in 2019, and since hotter temperatures often drive down the availability of wind power, I am calling summer again: Nonstop Records For U.S. Natural-Gas-Based Electricity”- just like I did early last year.

Looking forward, the lower greenhouse gas emissions and higher flexibility that gas brings to will remain integral to the U.S. electric power system. After all, how did “Climate Week Completely Missed The Boat On Natural Gas.”

Yet, it is such a low-cost portfolio that is probably natural gas’ biggest advantage – unsurprisingly going underreported. Low energy costs must be stressed at all points by all of our leaders. That is because as much as 83% of U.S. economic growth can be attributed to disposable income – our GDP driver that higher electricity costs erode because electricity is the ultimate indispensable good (“it cannot not be used”).

Even more vital for our leaders to understand, higher energy costs are dangerously regressive, hurting the most vulnerable the most. Low-income Americans spend three to seven times more of their incomes on heating, electricity, and transportation than do high-income Americans. This is particularly devastating for our African-American and Hispanic communities, where poverty rates are substantially higher (Figure).

Cheap energy from natural gas (and oil) has been perhaps our country’s greatest competitive edge for business. In fact, just last year the U.S. Department of Energy credited the shale gas boom as saving America from a recession. The Henry Hub gas benchmark price has been below $1.80, and all monthly contracts though 2030 below ~$2.80 per MMBtu. These are insanely low long-term prices that will swamp out all competition including renewables. And the reality is that “Low U.S. Natural Gas Prices Lock In More Demand.” For comparison, in the pre-shale era 2000-2008, gas prices averaged above $6.00.

Low gas prices over the long-term surely comes as no surprise: the U.S. Department of Energy has consistently forecast our new gas production outpacing our new gas demand by about a 2-1 margin for decades to come. Thankfully, low-cost gas has directly handed us low-cost electricity. As explained by the U.S. Department of Energy just a few weeks ago:

  • “Wholesale electricity prices are closely tied to wholesale natural gas prices…one can often explain current wholesale electricity prices by looking at what is happening with natural gas prices.”

Finally, the truth is that the U.S. Department of Energy classifies wind and solar as “non-dispatchable technologies.” This means that they are typically unavailable for deployment, thereby making cost comparisons between them and dispatchable systems like natural gas fundamentally flawed. And unfortunately, such as the real-life needs for renewables to have more long distance, high-voltage transmission lines built, along with their need for a backup generating source that usually comes from gas, certain short-comings for renewables are almost never factored into these analyses.

Simply put, we are installing a gas and renewables only power system but gas will clearly lead the way. Our mobilization to the COVID-19 crisis is showing just how invaluable very reliable and affordable energy like natural gas really is.

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