Whether coming from politicians, ESG insiders, or competing industries, the assertion that natural gas demand is somehow going away, and investments in new supply are thus unwarranted, is demonstrably false.
JP Morgan, for instance, just reported that the “energy transition” is likely to take much longer than many want to admit – hugely important because the investment bank itself, at least to me, faces tremendous climate pressure to ensure us something different.
While wind and solar power are surely growing in importance, their ability to displace, not just supplement, more reliable natural gas power is proving to be more rhetorical than actual.
Given that gas is integral to power and industrial sectors, high prices are weighing on the world’s economic recovery from Covid-19, even for the world’s most developed nations that promised to “get off gas” a long time ago.
Germany and Europe
Germany’s ongoing energy transition (Energiewende) seeks to spend as much as $4 trillion to install as much wind and solar capacity as possible, and to drastically curtail or “hopefully” eliminate the need for gas, coal, and nuclear.
This Energy Unrealism that has left Germany with the highest electricity prices in the world.
The failures of Germany are extremely telling because the fully developed nation has it much easier than most.
Germany has perhaps the top engineering expertise in the world, low population growth, few incremental energy needs, and seemingly unlimited financial resources – all huge advantages for “getting off gas” and the exact opposite of what the still developing world confronts, an energy-deprived bloc of some 160 nations that comprise 85% of the global population.
To illustrate, Germany is still being forced to build a major, and infamously controversial, gas pipeline to Russia: the Nord Stream 2 link that is expected to start up next month.
Not to mention that Germany is also looking to build liquefied natural gas (LNG) terminals to import more gas, hopefully from the U.S.
The German Federal Ministry for Economic Affairs and Energy confirms that “gas will continue to make a major contribution to Germany’s energy supply in the coming decades.”
Around Germany, gas prices in Europe have more than quadrupled over the past year to around $18 per MMBtu because of a frigid winter and, somehow surprisingly, demand that continues to rebound.
In fact, experts at ICIS report that the combination of “expensive gas, unstable renewables” are booming Europe’s reliance on high-emission coal power, a shocking affront to the most climate-conscious continent on the planet.
For years now, one could argue since the Kyoto Protocol was adopted in 1997, we’ve been told it would all be so different: the wind and solar build-out would stop the need for coal and gas.
California and the U.S.
When it comes to electricity and using more renewables to “get off gas” no U.S. state has it easier than California.
That’s because mild weather and more people living under one roof give The Golden State a leg up on “going green.”
For example, the typical American uses over 60% more electricity than the typical Californian.
So despite having electricity prices 50-55% higher than the national average, Californians have somewhat manageable utility bills: “Why California Can Afford Green Energy More Than Your State.”
Still, after almost two decades of heavy mandates and spending tens of billions of dollars to force more wind and solar onto the grid at all costs, natural gas remains California’s main source of power, generating 45% this year.
With the retirements of San Onofre (SoCal) and Diablo Canyon (NorCal) nuclear stations, and more drought limiting the availability of hydropower, California’s gas demand might be becoming more inelastic, especially when solar can’t deliver.
In short, there were precious few “alternatives” to fill-in for expensive gas, right when the country’s most green-tinted state needed them most.
But now, Californian officials approved the building of five new gas-fired power plants to keep the lights on, an essential to help avoid flex alerts and rolling blackouts.
This is so very telling because California’s proposed solution to such issues almost always goes blindly something like this: “our electricity problems are because of climate change, so we actually need to build MORE, not less, wind and solar to combat climate change” (never mind that climate change is a global issue, and California accounts for just 1% of all CO2 emissions).
Just a few days ago, California was forced to ask the U.S. Department of Energy to declare “an electric reliability emergency” exists in the state for an “initial period” of 60 days.
All of this, of course, is the exact opposite of what we keep hearing happens as the wind and solar build-out marches on.
A real shocker, I know: even as “the solar capital,” California still can’t figure how to keep the solar-powered lights on at night when there’s no sunshine.
In other parts of the U.S., when gas isn’t available or too high priced, coal, not intermittent renewables, is still the general fill-in for fuel switching.
This is precisely why so many “environmental groups” must join us here on planet Earth as “practical energy-climate groups” and support low-carbon and dependable natural gas – at the very least to help avoid the public backlash that is already starting against intermittent, higher cost renewables.
Indeed, it’s a discussion that so many want us to ignore, but over the past year, both Texas and California have clearly shown “greenouts” as the possible new norm as huge amounts of naturally intermittent sources come onto the system to push baseload sources out, namely coal, nuclear, and gas.
Coal is claimed as the “low-hanging fruit” for President Biden’s energy-climate plans.
Increasingly so then, as coal plants get retired, and with the U.S. Department of Energy’s most recent forecast having our nuclear generation declining 25% by 2040, there will be less of an ability to switch away from gas when its price becomes too high.
Because of much higher capacity factors and hence reliability, the U.S. Department of Energy classifies coal, gas, and nuclear as “dispatchable” energy resources, whereas renewables are “non-dispatchable” and not able to displace these conventional energy resources as much as many want you to believe.
This explains why the “green energy” business (contrary to their typical acceptance as altruistic, please know that environmental groups and the renewable energy industry are every bit as much a business as oil and gas companies) loves to promote renewable “capacity additions,” far more so than “actual generation” and power portfolio penetration.
This ultimately means that as our climate goal for electrification takes root (e.g., electric cars, electrifying buildings), and rising power needs collide with the fact that renewables are naturally intermittent, gas’ role could be much larger than some today like to claim.
Even having natural advantages for it to be otherwise, Germany and California are proving that natural gas doesn’t just magically “go away,” even with unlimited money and policy support for renewables to make gas do so – in reality, gas has been proven to actually become more important.
In the energy-climate discussion, too many want us to “put the cart before the horse.”
Don’t fall for it.
The push to not invest in new gas supply is already starting to devastate as demand can only continue to rise.
Climate pressure has forced many of our International Oil Companies to answer the question of “what are you doing about climate change and net-zero” with “we’re going to be producing less.”
It’s Economics 101 and a cycle, you see: not investing in supplying a commodity doesn’t lower the demand for that commodity but only makes obtaining that commodity more expensive and environmentally-risky (e.g., even after blocking Keystone XL, President Biden’s own Energy Secretary Granholm admitted that pipelines are “the best way to go”).
Gas price spikes because of such Energy Unrealism have already been as high as 1,000%.
And in terms of wind and solar, the reality of a changing climate, and more extreme weather, brings rather uncomfortable questions about the dependability of their weather-dependent electricity – as we are already seeing with the decline of hydropower.
But seeing the world as it is, not as we want it to be, might just be the most courageous climate position of them all.