Natural gas has long been pitched as a “bridge” to a cleaner, less-fossil fuel-reliant energy economy.
The idea is that while solar and wind continue to gain market share, natural gas provides necessary baseload power that is no longer being supplied by coal. At least not to the degree it once was. And there is much truth to this.
While renewable energy in the U.S. is growing faster than coal, nuclear and natural gas, both solar and wind (the primary forms of renewable energy we use today), are still intermittent resources. They can’t run “24-7” the way natural gas power plants do.
It is the combination of renewable energy and natural gas that has served us well over the past ten years or so, as solar and wind capacity has risen dramatically.
But our necessary reliance on natural gas serving as baseload power is starting to wane.
Change is Upon Us
Last week, we learned that for 149 consecutive hours in November, Portugal ran entirely on renewable energy. It was a mix of solar, wind and hydro that actually generated more power than the country needed.
This is a very big deal, but also a bit of an outlier.
In other words, this news from Portugal confirms that it is possible to exist without fossil fuel-generated electricity, but one also has to bear in mind that what Portugal has done cannot be replicated everywhere.
Some regions don’t have hydro resources, others don’t have strong wind resources. And others just have such high consumption rates, there’s just not enough dispatchable renewable energy capacity on hand to power everything.
And while running solely on renewables for more than six days straight is nothing to sneeze at, eventually the grid did need a dose of natural gas.
Still, I don’t want to take away from this accomplishment. Especially when you consider that we’re now seeing evidence that natural gas could be losing some of its swagger as a result of increased deployments in utility-scale battery storage projects.
Bullish on Batteries
As reported in Reuters, giant batteries that ensure stable power supply by offsetting intermittent renewable supplies are becoming cheap enough to make developers abandon new natural gas projects across the globe.
The long-term economics of gas-fired plants, used in Europe and some parts of the United States primarily to compensate for the intermittent nature of wind and solar power, are changing quickly, according to Reuters’ interviews with more than a dozen power plant developers, project finance bankers, analysts and consultants.
They said some battery operators are already supplying back-up power to grids at a price competitive with gas power plants, meaning gas will be used less.
The shift challenges assumptions about long-term gas demand and could mean natural gas has a smaller role in the energy transition than posited by the biggest, listed energy majors.
In the first half of the year, 68 gas power plant projects were put on hold or canceled globally, according to data provided exclusively to Reuters by U.S.-based non-profit Global Energy Monitor.
According to CEO Keith Clarke of UK-based Carlton Power, in the early 1990s, they were running gas plants as baseload power. Today they are shifting to about 40% of the time, and that’s expected to fall to as low as 11% in the next eight to ten years.
Now a few months ago, while sifting through Bloomberg’s latest “New Energy Outlook” report for the U.S., I discovered something pretty interesting.
From 2010-2020, natural gas consumption in the U.S. grew nearly 30%. But the latest data from Bloomberg and the Energy Information Administration show that natural gas growth will plateau in 2030 as a result of natural gas in the electric power sector becoming “increasingly complex due to economic and policy trends that favor renewable energy.”
Policy trends aside (which are favoring renewable energy), economic trends seem to be changing in a way that makes natural gas less integral to the stability of the U.S. energy economy thanks to rapidly declining costs in utility-scale battery storage projects.
This isn’t to say natural gas will go gently into that good night. It will not. And to be sure, while natural gas consumption in the U.S. will plateau by 2030, there will not likely be any meaningful reduction until around 2040. At least that’s what we know based on historical trends that, up to this point, have not considered the rapid proliferation of battery backup projects.
Assuming production costs for battery backup continue to fall and costs for construction and operation of natural gas power plants increase, or even somehow manage to remain static, then it only makes sense that the long-term outlook on natural gas consumption in the U.S. should be updated to reflect this. I suspect we’ll see some solid data on this next year.
In the meantime, while I would never dismiss the vital role natural gas plays in our energy economy, it’s becoming increasingly clear that monitoring utility-scale battery storage developments across the globe will be integral to any strategies we employ to profit from the global energy transition – which is clearly well underway.
