Gas underpins lower power prices in the USA

August 9th, 2017

Power prices are at the centre of political debate this week, with retail practices coming under scrutiny.

But there is a bigger picture which many in office in the State Governments – particularly Victoria – are reluctant to examine: the ability of gas-fired electricity to deliver reliability and bring prices down – as confirmed this week by Forbes magazine.

Much to the chagrin of the anti-gas activist movement, this phenomenon has been clearly evident in the USA for the past several years. The US shale gas boom there has driven down gas and electricity prices, reignited the manufacturing sector and brought about a major reduction in carbon emissions.

Manufacturing has been reinvigorated because energy cost is such a critical factor in most forms of manufacturing. In some, natural gas is an irreplaceable production input – including glass and fertiliser production for example.

In the USA a decade ago, manufacturing was on the slide, with operations leaving the country to lower cost destinations such as Mexico and other countries. The shale boom in natural gas has reversed this trend.

Gas-fired electricity also means lower carbon emissions because it is about half as carbon intensive as coal-fired power. So the US has enjoyed an economic renaissance and a simultaneous reduction in carbon emissions (its first sustained reduction since national records have been kept) – without the need for Government incentives or regulations, as has been the case with renewable energy.

The latest issue of Forbes magazine paints the picture very clearly.

The magazine predicts that by 2020, more than 150 new natural gas power plants will come into service in the US, concentrated in or around the country’s handful of shale basins.

“There’s at least 90,000 MW of new gas generation currently in development, 70% of which is located in the Texas and Pennsylvania-New Jersey-Maryland wholesale electricity markets.

“This represents nearly a 20% expansion of US gas capacity,” it said.

“Gas is surging toward being 50% of all U.S. power capacity – given coal and nuclear retirements and the requirement to back up wind and solar.”

This situation is the direct result of gas industry investment and innovation in the past decade.

It is a dramatic turnaround. The shale boom kicked off about 10 years ago, in Pennsylvania. Despite the dire predictions of ecological devastation by activists, the industry has gone from strength to strength since then – and there has been no environmental disaster.

According to the US Energy Information Administration, coal-energy was the predominant source for electricity prior to that time.

After gas production started to ramp up, the balance began to change. But by the start of 2011, coal still produced more than twice as much electricity as natural gas.

Within four and a bit years that differential was gone.

“Natural gas-fired electricity generation first surpassed coal generation on a monthly basis in April 2015,” the USEIA said last year.

Electricity prices in most parts of the USA are now around $30 per megawatt hour, or below. In Victoria the price is over $100. In South Australia, which has prided itself on the highest penetration of renewable energy in the country (about 40%) the price has been around $150 per megawatt hour.

Australia used to enjoy some of the cheapest energy in the world – and natural gas was a big part of the mix. We still have abundant supplies at our disposal, but political expedience is currently trumping science and rational thinking with the result that useful, safe and valuable resources are literally being left in the ground.

Supply is now tight and prices for gas and electricity have been rising as State Governments have introduced subsidised wind and solar power, cut down coal-fired electricity capacity and closed off exploration for onshore natural gas – particularly in Victoria.

The result is rising power prices and the threat of manufacturing job losses in the thousands caused by gas shortages.

The Greens have a solution: Turn the clock back to the days of Government ownership and control. Control the market, cap prices, close down fossil fuel development and provide more subsidies for renewables. Anyone thinking this is a recipe for improved standard of living has definitely left their rational thinking at the door.

What is needed is for natural gas development blockages to be lifted. We need only look to the USA example to see why.

+ Leave a Comment

We encourage you to join the conversation. By commenting on this post, you agree to our comment guidelines.