This week’s economic news has been hard to swallow to say the least. Japan’s quarterly GDP plunge was followed by today’s news that home and apartment construction in January hit the lowest level ever recorded at an annual rate of only 466,000 units. These and other sobering reports sent natural gas prices down to their lowest intra-day level in six years to below $4.10 per million Btus (MMBtu).
With demand so subdued by lower industrial production my earlier prediction about natural gas in 2009 needs to be revised downward to a floor around $4 per MMBtu instead of $5. This low price should depress natural gas production within a few months as the marginal cost of production at many potential and current fields is higher than this low price.
On the Climate Front
While natural gas is a greenhouse gas-polluting fossil fuel, it emits ~45% less than the more carbon-intense coal. So, prices ~$4 or lower, while currently higher than coal at ~$2, begin to become competitive once you figure in sulfur dioxide permits, etc. This price drop opens the potential for emissions reduction through the substitution of coal with natural gas. A switch is possible immediately as natural gas plants have the capacity to provide a larger share of our national electricity. In fact, the most recent comprehensive data from the end of 2007 show that natural gas summer generating capacity was 25% larger than coal at 393 GW vs. 313 GW. And unlike oil, the US is largely self-sufficient in natural gas – with only a small percentage of the fuel coming from Canada and elsewhere.
A switch to natural gas is not viable long-term as the fuel will probably see production constraints similar to oil within another decade or so. But natural gas can help in the transition to wind, solar, and other largely carbon-free energy sources in the short-to-medium-term.
Bottom Line: The current economic dive is sending natural gas demand so low that prices are moving toward being competitive with coal again at least for a few months. A switch from coal to natural gas can help us lower US greenhouse gas emissions a great deal as we ramp up renewable energy technologies to switch from both fossil fuels in the decades ahead.
Onwards in the sustainable energy transition-
Tags: climate change, Coal, energy prices, Natural Gas