Calculations of the cost of different generation technologies show that gas, in the USA, is the third cheapest technology after wind and solar, and certainly much cheaper than coal generation. However, it is much more expensive in Europe, so there, gas has not replaced coal. Both have been replaced by renewables.
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| US & European gas prices, US$ per million BTU Source: Statista |
The reason gas is cheaper in the USA than, say, Europe, is because gas used not to exported from the USA as liquefied natural gas (LNG), but since 2016, LNG exports have grown dramatically. So the decoupling of US and global gas prices is disappearing. But a second factor is also playing out. US gas prices had been driven lower by fracking. Yet fracking never made that much financial sense. Ostensibly, frackers were profitable, but in practice they could only pay dividends by raising new capital. Wall Street has got more and more skeptical of frackers' cash flows and new money has started to dry up. On the other hand, if the natural gas price doubles again, fracking might restart.
The chart below shows the gap between European and US gas prices even more clearly. Note that it is a log scale, which shows just how much gas prices have risen recently.
Some points.
- US gas prices are going to keep on rising to closer to European levels, making gas for generation uneconomic in the US.
- At these prices, the switch to renewables will happen even faster, in Europe and the US. Not only is gas very pricey, its volatility must be playing havoc with profits. Renewables are fixed price. Utilities like that.
- Synthetic natural gas is likely now cheaper than natural gas in Europe. Making synthetic natural gas involves a 50% energy loss, but as renewables fall in price and natural gas prices rise ....
- Gas is very clearly a most unsatisfactory bridge fuel. Much touted by the oil & gas industry as a "bridge" between the old fossil fuel to a new clean and green one, that little conceit looks implausible now.
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