Natural Gas: Cheap and Chic In Climate Talks

Natural gas power plant in Portland, Oregon

As countries gather in Cancun, Mexico to figure out a coherent plan to reduce greenhouse gas emissions, you can bet that natural gas will get plenty of attention. That’s because natural gas production has boomed – to the point of oversupply by some estimates — and it’s less polluting than coal, the devil in the climate change fight.

The U.S. could see 21 percent of its electricity in 2011 coming from power plants running on natural gas, and that stake will likely grow to 40 percent by 2035, according to a study released Monday by the engineering and construction firm Black & Veatch in Kansas. At 40 percent, natural gas will become the dominant source of electricity for the country. At the same time, renewable electricity such as wind and solar could account for 4 percent in 2011 and 11 percent in 2035. Hydroelectricity will add another 7 percent to the pie in 2011 and 6 percent by 2035.

The projection is much more bullish about natural gas’s role in the country’s electricity supply than the U.S. Energy Information Administration’s outlook, which was published in May this year and is set for an update later this month. The EIA said natural gas accounted for 21 percent of the sources in 2008 and, depending on the pace of renewable energy generation, policies and pricing, it could still account for 21 percent in 2035. The EIA sees renewable electricity taking up 17 percent of the supply in 2035 (including hydro).

Natural gas has won fans in recent years as the U.S. struggles to figure out its short- and long-term energy policies, particularly in the context of reducing greenhouse gas emissions. Successes by natural gas producers to extract the fossil fuel from shale formations in North America have positioned natural gas as a reliable, long-term source of energy. That makes it appealing to lawmakers who like to use “energy independence” as a rallying cry for their causes, even though the term really should refer only to oil, which has no direct impact on electricity generation.

So much natural gas has been flowing through distribution pipelines that T. Boone Pickens, a natural gas evangelist and investor, told Bloomberg last month that he was in no hurry to invest in natural gas because no good profit can be made from it.

“Natural gas is oversupplied and you’re looking at a $4 to $4.50 natural gas next year. 2011, you have to shut down some of these rigs because they are not making money. You’ll have to have $6 gas to make money off of a lot of the wells being drilled,” Pickens said.

The glowing profile of natural gas is sometimes seen as a threat to renewable electricity development. The rational is that utilities will favor investing in natural gas-fed power plants to help them meet goals to reduce carbon emissions and do so at the expense of investing in renewable energy. Coal-fired power plants generate twice as much emissions as the natural gas variety, an MIT report said.

Black & Veatch’s Mark Griffith doesn’t believe natural gas will have that big of an impact on renewable electricity development. He pointed out that utilities are building solar and wind farms – or signing contracts to buy those sources of electricity from power producers – because they have to comply with state mandates. Over half of the states in the country have policies (renewable portfolio standards) that require their utilities to buy and sell certain amount of renewable electricity.

However, natural gas prices do have an impact on prices for renewable electricity. California, for example, has used the wholesale prices for natural gas-based electricity to calculate some of the incentives for solar energy. “If you are talking about (renewable portfolio standards), then natural gas price is a factor, but it’s not a driving factor of how many megawatts will get built,” said Griffith, a managing director at Black & Veatch. But lower natural gas pricing could lower the amount of profits made by renewable energy developers, he added.

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Photo courtesy of Portland General Electric

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