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Cheap coal, giant batteries may keep gas waiting for its golden age

In 2011 the International Energy Agency (IEA) saw potential for a “golden age of gas”. Four years on, cheap coal still stands in the way, and new power storage technology is making renewables a real threat. Gas may need a new plan.

The U.S. shale gas boom has displaced American coal supplies to Europe, where growth in wind and solar, and weak industrial demand have pushed the price of CO2 emissions low enough to make dirtier coal still cheaper.

German power producers burning coal earn a 4.12 euro a megawatt hour margin. Burning gas delivers a loss of 14.64 euros.

In Asia, gas comes largely in the form of pricey Liquefied Natural Gas (LNG) and has to compete with locally-produced coal.

Oil company forecasts for gas demand growth in the period up to 2030-35 are already low, at around 2 percent. On Thursday, the head of Italian utility Snam said demand would be flat until 2030. The IEA also weighed in with a cut to its five-year forecast to 2 percent a year from 2.3.

“The experience of the past two years has opened the gas industry’s eyes to a harsh reality,” said IEA Executive Director Maria van der Hoeven.

The possibility gas consumption could level out or worse worries the world’s gas producers, mainly big oil companies, which have bet tens of billions on the “golden age” scenario.

Their frustration over the longevity of coal was expressed in an open letter this week demanding an intergovernmental effort to favour gas, citing environmental reasons.

Longer term though, the possibility that even cleaner renewables can compete more fiercely worries the industry.

While electricity remains hard to store, solar and wind capacity is useless in the dark and when the weather is still.

That is about to change.

“We can’t deny there are people spending a lot of time and money today to solve this particular challenge,” Woodside Petroleum chief executive Peter Coleman said.

Coleman’s fears were manifest at the end of April as U.S.-based Tesla Motors Inc unveiled new household-scale batteries for homes with solar panels.

Tesla already has bigger batteries deployed on the grid in California. French power utility EDF last month launched a fund for similar technologies.

Solar photovoltaic (PV) technology has also moved on.

“The cost of solar PV has been divided by eight in only four years, and it’s not the end,” said Isabelle Kocher, Deputy Chief Executive of Engie, formerly GDF Suez, a top global utility with gas assets worldwide.

TRANSPORT OPTION?

Energy analyst Michael Stoppard of IHS says the “surprises” in energy supply trends of the past 35 years have come from “distributed technologies” such as solar PV and the drilling techniques that spawned the U.S. shale boom.

Both gas and coal have won an extra 5 percent of the primary energy market since 1980, mainly from oil, to stand at 22 percent and 33 percent respectively, IHS figures show.

“That’s evolution, not a revolution,” he said. “If there’s going to be a revolution (for gas), I think it is going to come from short-life assets such as vehicles, and most likely from trucking.”

Transport fuel supply is dominated by oil products with natural gas cars seen a long way off. However, shipping, aviation and road freight will account for about a quarter of a 60 million barrels a day transport demand pot by 2030, according to IEA figures.

An IHS report released this week estimates that thanks to new engine technologies in trucks and ships, gas could capture 10 percent of that quarter – some 1.5 million barrels a day.

Last year in China, 7 percent of new trucks coming onto the market were gas powered, Stoppard said.

“That slowed this year because of the collapsing oil price, but imagine if it didn’t?” he asked.

Either way, gas may need to find a new market.

Post-Fukushima disaster demand in Japan rescued LNG producers when it dried up from the shale-rich United States. Now Japan is set to restart its first nuclear reactor in August.

Meanwhile the IEA’s latest report notes a number of Asian countries moving ahead with plans to expand coal-fired power generation.

source: http://www.hellenicshippingnews.com