U.S. Natural Gas Can Support a Low-Emission Economic Recovery
Posted May 11, 2020
With the global economy reeling, affordable natural gas is more important than ever.
U.S. emergence as a major energy producer means the natural gas market has never been more flexible, more reliable or more adaptable to changing conditions – including a global pandemic. Millions benefit daily from the use of natural gas in power generation and home heating, and when the world begins to safely return to normal, U.S. natural gas is positioned to balance our economic recovery with environmental progress.
In the global marketplace, benchmark prices for Asia and Europe have dropped by around 60%, but Henry Hub, the benchmark for U.S. natural gas, has shown more stability. Since January, Asia’s Japan Korea Marker has fallen from $5.39/million British thermal units (MMBtu) to around $2.00/MMBtu, and the Dutch TTF has fallen from $4.19/MMBtu to $1.89/MMBtu. On the other hand, Henry Hub has largely stayed within the $2.00-$1.50/MMBtu during this period.
Global natural gas prices had already been hovering near historic lows before the coronavirus due to a steadily increasing supply (especially from the U.S.) and lower-than-normal demand as a result of mild winter weather in Northeast Asia and Europe.
Based on the U.S. Energy Information’s Short-Term Energy Outlook for April, the global spread of the coronavirus is already affecting near-term natural gas demand, and is expected to impact demand through 2021. However, longer-term outlooks project robust growth for natural gas once the pandemic is behind us, partly due to the COVID-19-caused delay in liquefaction capacity buildout that is likely to see LNG demand outpace supply by the mid-2020s. For natural gas, we need only look back to last year for evidence of expected trends when economic recovery takes hold.
Natural Gas Can Meet Rising Demand, While Reducing Emissions
Last year, U.S. electricity generation from natural gas increased nearly 8%, reaching a record high of 37% of overall electricity generation. Natural gas was the leading driver of a 15% year-on-year reduction in coal-fired power generation, which fell to its lowest levels since 1975.
This trend has been developing for more than a decade, as consistently low natural gas prices have shifted power generation from coal to natural gas. And this is good news for both consumers’ personal utility bills and nationwide emissions reductions. In fact, according to the International Energy Agency (IEA), the U.S. once again led the world in reducing energy-related CO2 emissions in 2019, largely due to fuel switching to natural gas. Coal-to-natural gas switching in the U.S. has led to almost 1 Gigatonne of emissions reductions since 2000.
The EPA notes a similar trend. While natural gas generation increased from roughly 310 billion kWh to around 1,365 billion kWh from 1990 to 2018 – a remarkable 340% increase – total GHG emissions from the power sector actually decreased 3.4%, and the carbon intensity of the sector dropped 13%.
As we’ve discussed before, surging exports of U.S. LNG mean that cleaner-burning fuels are increasingly available around the world. In Europe, LNG imports approached record highs in 2019, with the continent importing almost 40% of all U.S. LNG cargoes. European natural gas prices fell markedly in response, which resulted in a 15% increase in natural gas-fired power generation. As in the U.S., natural gas use has offset coal generation, which fell nearly 20% on the year, and experts project approximately half of that decline was driven by natural gas.
With the U.S. now exporting LNG to more than 35 countries, similar stories are appearing around the globe as natural gas becomes essential to meeting energy needs and advancing environmental progress. In China, natural gas demand is skyrocketing due to fuel switching in the residential sector – a trend that has produced a 78% improvement in Beijing’s winter air quality during the past five years. In South Korea, 80% of coal-fired power generators scheduled to go offline will soon be replaced by LNG facilities. In Mexico, natural gas is displacing energy generation from fuel oil in the power sector. And competitive prices have made LNG a valuable energy resource in emerging Asian markets, like Pakistan and Bangladesh, both of which suffer from acute energy shortages.
Historically low natural gas prices give countries more compelling options for their energy future, in terms of building new electricity generation capacity. At current prices, natural gas looks particularly attractive compared to coal, especially given its lower emissions profile.
In fact, according to the IEA’s recent Global Energy Review 2020, one result of the lockdown measures in response to the coronavirus pandemic has been a 4% increase in natural gas-fired power generation. The IEA credits low natural gas prices in markets around the world for this uptick, noting that the affordability has made coal-to-natural gas switching feasible in some countries for the first time.
In contrast, global coal demand has taken the biggest hit, dropping nearly 8% from the first quarter of last year, in a trend that can be seen in many parts of the world, including the U.S., China and Europe.
With production and exports both at record levels, U.S. natural gas will help to refuel the world’s economy and continue to play a critical role in meeting long-term demand while reducing global emissions.
About The Author
Dustin Meyer is director of API’s Market Development group, which focuses on sustaining and growing demand for U.S. natural gas, both domestically and around the world. Previously, as a policy advisor, he served as a subject matter expert on global natural gas and liquefied natural gas. Dustin has a master’s degree in energy policy and economics from Yale University and a bachelor’s from Princeton University. He lives in Washington, D.C., with his wife, Tess, and dog, Mabel.
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