When people started getting concerned about climate change, it was easy to point the finger at coal. CO2 from coal-burning electrical generation was the source of a huge share of global warming.
To some people, natural gas looked like the immediate solution. True, it also produced CO2, but far less of it than coal did for the same amount of electricity. On top of that, electrical generation by gas turbines could be powered up and down rapidly, making gas a good companion to renewables: whenever the sun stopped shining or the wind stopped blowing, gas turbines could pick up the slack.
That’s been working pretty well, and natural gas has indeed dramatically reduced the use of coal for generating electricity. Retiring coal plants are not being replaced with coal, and some coal plants with many years of expected life are being retired, thanks to less expensive and more flexible gas. Fracking has produced abundant and cheap gas. For a while, it looked like gas was coming into its own.
But natural gas can’t compete with the combination of renewables and batteries. In some recent auctions to supply electricity to various grids, solar and wind have come in significantly cheaper than gas generation (which is already cheaper than coal and nuclear). Even though natural gas prices are very low, they may not be low enough to make gas generation competitive.
Still, gas advocates have argued that gas generation is more valuable than solar or wind because it does not vary in an uncontrollable manner and can be ramped up and down in response to power demands. That’s true as far as it goes, and it might justify paying more for gas-powered generation; but as batteries become cheaper that argument is losing its force. Batteries can collect excess generation from solar and wind (when available), and then can fill in as needed for lulls in the wind and for the evening peak in domestic electrical usage. In California, for example, the utility commission recently rejected a proposal for a new gas-fired generation plant, requiring the utility to show why gas is a better investment for customers than renewables-plus-batteries. The utility probably won’t be able to do so.
Battery prices are dropping fast, just as solar panel prices did a few years ago. Manufacturing is scaling up and becoming more automated. Battery technology is improving and becoming more efficient.
All this is happing more quickly than most analysts predicted, catching the natural gas industry by surprise. Gas prices are low, and markets aren’t growing as expected, resulting in a glut. For the first time in years, the number of active gas-drilling rigs is declining, not increasing.
Reflecting these trends, the biggest share of new electrical generation is now solar.
Siemens and GE are considering exiting the gas turbine market. If you want a strong indicator of what these shifts mean in the longer term, look at what Siemens and GE are doing. Greentech Media recently published an excellent summary of the situation. They report that Siemens has begun looking for a buyer for its division that makes turbines for natural gas generation. GE, the dominant US manufacturer of gas turbines, recently cut 12,000 jobs in this business sector and is apparently looking for a buyer as well.
Old natural gas plants are being retired more quickly than new ones are being built, and that is reducing the requirement for natural gas supplies.
In short, the future for the natural gas industry is a slow, steady decline. This is a problem for the drillers and pipeline builders, who are counting on rapid expansion of the market. They have taken on huge amounts of debt in anticipation of a huge payoff in a few years. That might turn out to have been a mistake.
In May, Rex Energy, a driller whose focus has been the Marcellus shale in Pennsylvania and Ohio, filed for bankruptcy, having failed to make payment on its debts. It is the sixth driller to have gone bankrupt so far in 2018. The company blamed low gas prices.
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