Harald Thaler, Industry Director, Energy & Power, Frost & Sullivan
Shale gas has so far only been a game- changer in the US. And there is no indication that it has been detrimental to any fuel mix diversification efforts there.
To the contrary, shale gas has helped the country to move away from an over-reliance on coal to a more diversified thermal power mix. According to the EIA, the share of natural gas in US power generation increased from 23.3 per cent in 2009 to 30.4 per cent in 2012.
Over the same period, the share of coal – the dominant fuel – declined from 44.4 per cent to 37.4 per cent. So, far from the country chasing a single winner, shale gas is helping the US attain a better fuel mix, where eventually gas will indeed overtake coal (though this is not expected before 2020) but the thermal mix will be much cleaner than before and the power system more flexible to load shifts as a result of more gas-based units in the system.
And shale gas is clearly contributing to lower generation costs in the country, with all the additional benefits of attracting more manufacturing and other energy-intensive industries to the country.
As for other countries, it is far too early to talk about any game changer. Natural gas is clearly the thermal fuel of the future but it is not necessarily shale gas that is prompting greater takeup of the fuel.
Various forces are at play that drives the global ‘gasification’ of the fuel mix in the interest of a cleaner and lower-carbon power industry. It is true that, indirectly, future exports of US-produced shale gas onto world markets from 2016 onwards will benefit gas on world markets as prices – in particular in high-priced Asian markets – are bound to fall as a result of this new supply source.
However, other factors such as growing LNG trade, the emergence of new conventional gas-producing regions such as East Africa and the Eastern Mediterranean and the growth in countries establishing LNG import infrastructure (including more flexible floating LNG plants) are arguably at least as important in accelerating the fortunes of gas.
A much more integrated global gas market of the future, characterised by more flexible LNG supply from a growing number of sources, combined with growing gas production from both conventional and unconventional sources, will ensure that security of supply concerns for gas will be very much reduced, thus setting the stage for gas to challenge coal not only in selected countries but eventually more globally.
In this context, future shale gas production in China – the world’s largest power generating nation – can help to make a small but useful contribution to reduce the world’s reliance on coal-fired generation, which currently stands at 41 per cent.
Matti Rautkivi, General Manager, Liaison Office, Power Plants, Wärtsilä
The emergence of shale gas is a game-changing force for good for the power industry, and especially for electricity consumers.
In the US, the shale gas boom has shifted investments from coal to gas (sustainability), decreased the price of electricity for consumers (affordability), and incentivised investments in flexible generation (reliability, especially in systems with a high level of renewables).
The shale gas boom has not fully started outside of the US yet, but it has definitely raised interest regarding gas investments, even in developing countries, and European utilities are able to re-negotiate their long term take-or-pay gas contracts.
I don’t see that gas generation will be a single winner on the global level, but we will see increasing interest towards gas. Actually, the whole question about the “risk or danger” of shale gas to future energy mixes is absurd.
For instance, the IEA published its South-East Asia Energy Outlook in October, which showed coal generation will be the region’s fastest growing energy generation form in the future. What if the shale gas boom would lower global gas prices and investments are shifted partly from coal to gas? Is this a dangerous development? People would get affordable energy with lower emissions. From my point of view, the development is not so dangerous, especially when the generation mixes will be diversified anyway.
In Europe (and also outside it) the diversification of the energy mix is related to the increasing share of renewable generation. This development should be encouraged since we have already seen close to grid parity prices for solar PV, and even for wind.
However, the deployment of intermittent renewable generation has raised a need for flexibility in the power systems, since there is an increasing need for balancing actions in the high RES power systems. Gas generation is today, and will be in the future, the best alternative for flexibility.
Consequently, the power mix diversification actually increases the need for flexible gas generation. I don’t see that investments in gas generation would jeopardise investments in renewables, but flexible gas generation is a prerequisite for their efficient integration.
The shale gas boom does not create “dangers” or “risks” for the future power system development, but it can enable a faster transition to better power systems.
Richard Myers, Vice-President of Policy Development, US Nuclear Energy Institute
The American electricity industry is in the midst of wrenching disruption and sustained stress.
Fuel and technology diversity serves as a hedge against supply disruption. That diversity is at serious risk.
There are several reasons to be cautious about an over-dependence on natural gas.
First, volatility. Last year’s low natural gas prices were not sustainable, and prices are already increasing. So far this year the average price of natural gas delivered to electric generators is 44 per cent higher than in the first six months of 2012. For the first six months of 2013, spot gas prices at major trading hubs are up significantly on the same period last year, by 50 per cent or more in most of the nation to over 100 per cent in the northeast.
Second, gas demand is increasing in other sectors besides electricity. By 2020, new demand from the electric power sector, the industrial sector and for LNG exports represents a 20–30 per cent increase from today’s consumption. Can the US natural gas resource base support this production level?
Absolutely. Of course it can – the resource base is huge. The question is whether the necessary infrastructure – pipelines, gathering systems, gas processing facilities and so forth – will be built precisely at the right time and in the right place to match growing demand. The answer is probably not.
Several major markets in the US have had nasty warnings about what can happen when states or regions find themselves over-dependant on natural gas. New England this year was the most recent example.
New England depends on natural gas for over 50 per cent of its electricity supply, almost double its dependence in 2000.
New England found itself skating on thin ice several times in January and February with reliability of electric service at risk and spot prices for natural gas and electric power spiking dramatically.
Gas prices in the region soared above US$30/Mbtu in January and February – electricity prices reached $250–260/MWh in a market that typically trades in the low $40 range. The total value of New England’s wholesale energy markets in January and February totalled about $2 billion. In comparison, the value of those markets all of last year was only $5 billion. So this has a huge impact on consumers. The condition we face is unsustainable.
Richard Myers was speaking at the World Nuclear Association Annual Symposium in London
Laszlo Varro, Head of Gas, Coal and Power Division, International Energy Agency
2012 was a bad year for coal. In the US, cheap gas had a punishing effect on coal-fired power generation that fell by 12.5 per cent.
China, due to improving energy efficiency and renewable deployment, had the slowest demand growth for a decade.
The astonishing fact is that even in this headwind, coal succeeded to increase its share in the global energy mix, pushing global carbon emissions to a record level.
Coal is a forgotten fuel – it is easy to overlook how important it is in both electricity supply as well as in climate change. Despite the weak recovery after the financial crisis, power generation globally is growing at a rate of a Japan every two years, and around half of that growth is supplied with coal.
Diversification of electricity is diversification from coal.
Coal’s environmental impact is serious, but many governments are prepared to overlook that in order to power development as it ticks many boxes of energy policy desires: it is abundant, cheap, reliable and geopolitically well distributed.
Consequently, in order to reduce that environmental impact, a candidate is needed that is also cheap, abundant, reliable and geopolitically well distributed.
Welcome on stage, shale gas. At the International Energy Agency, we first highlighted the revolutionary impact of shale gas in 2009, so our 2008 projections reflected the expectations of the pre-shale world.
Our latest projection for 2030 is 445 GW less coal fired power generation capacity burning a billion tonnes less coal than what we expected before shale. Of course this would not matter if carbon capture and storage was widely deployed, but one needs a degree of optimism to assume that. Energy efficiency and renewables do play a role, but around half of the difference is due to two contributors: gas in the US and gas in China.
In the United States gas was transformed from an expensive imported resource to a cheap domestic resource, and corporate finance is now a more effective barrier to new coal investment than any EPA regulations. China does remain a net gas importer, but it benefits from shale: it has a potential to be a major shale gas producer itself and it also benefits from North American shale indirectly, as the availability and security of gas supplies will be incomparably better. The usual concern is that cheap gas might crowd out renewables and lead to a ‘lock in’.
An interesting concept, but the real-life evidence is that, during the shale gas revolution, US wind and solar production doubled, and some of the key shale states such as Texas and Colorado are also success stories for renewable deployment. US energy policy remained resolutely pro-nuclear, shale gas or not.
There are very powerful synergies between flexible gas and low carbon sources. Together they form the foundations of a secure, cost efficient and low carbon energy system.
Mark Morey, Director Fuel Intelligence, Alstom Power
First, it is important to put the emergence of shale gas into context, as today it is only a game-changing force in North America.
While substantial shale gas resources exist elsewhere, they have yet to be developed to the extent where they will make a difference.
In fact, substantial production of shale gas in Europe, China and other regions is likely at least five years away. While governments in those countries are looking to the future with regard to this resource, a considerable amount of work lies ahead to make it a reality, both for industry and policy makers.
Growth in shale gas production has been a positive for the US electric power industry, as it has made a domestically produced fuel available at low costs.
In particular, it has allowed many power producers to ramp up to capacity many of the gas-fired, combined-cycle generating plants that were built ten years ago, and which had been running at very low levels previously.
With the low fuel costs, these plants have been able to provide very competitive power to the grid, and have helped keep electricity rates low for many years in the country.
Now that this existing capacity has been absorbed, power companies are beginning to build more combined-cycle plants to take advantage of what is being viewed as a low and flat forward curve for natural gas. Therefore, there is a potential danger that the US power industry could become too reliant upon this one source.
At the same time, over-dependence seems unlikely. There are other sources of power in the US that are cost-competitive with gas. First, the US still has a significant amount of coal-fired generation in place, which will continue to be a major supplier. While a large number of coal plants are being retired, most of those are smaller, old, less efficient and higher cost.
The part of the coal fleet remaining in operation will have costs that are competitive with gas-fired plants. Nuclear power too represents a solid option for US power companies when meeting baseload requirements. Also, there is rising amounts of wind, solar and hydroelectric power, which will have competitive costs as well.
Alstom believes that power companies in the US, and throughout the world, will continue to commit to a balanced approach when planning future generating portfolios. Power plants using gas certainly will have a larger share of generation in the future than they had in the past, and that is good, given its clean-burning characteristics and efficiency when used in state-of-the-art combined-cycle plants.
However, our view is that the use of gas will be balanced against other sources of clean, low-cost and reliable sources of electric power. Both power producers and their regulatory agencies are well aware of the value of a diverse generation portfolio to manage fuel supply and cost risks.
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