Natural Gas Investment Doesn’t Make Financial Sense
There’s little economic justification for opening new natural gas extraction sites, and even less for investing billions for additional refinery capacity. The combination of federal investment in the form of rebates and grants, plus the project timeline of new developments, make electrification the smart move.
In the past several, the US has seen a decline in natural gas production in terms of capacity. Demand volatility has also caused high profile project cancellations, with new refineries being called off by investors.
Related: 2023 Electricity Market Forecast
The Inflation Reduction Act’s Impact
The IRA’s tax credits have pushed renewable energy costs below those of fossil fuels. One model found that clean energy generation is cheaper than 99% of natural gas plants. The switch to renewables will benefit residential rate payers and commercial enterprises, especially when local utilities follow up on energy promises.
One of the critical tools toward more affordable energy costs is all-source procurement. This process allows utilities to solicit bids from all types of resources and increasing competition. In Michigan, DTE Energy filed its Energy Resource Plan to access IRA incentives. The compani’s executives expect the IRA to lower energy costs over the next 20 years by roughly $500 million.
US Natural Gas Consumption on the Rise
A decline in total capacity is not a decline in consumption. Through 2023, the EIA expects natural gas consumption to increase by more than 3.6 billion cubic feet per day. It’s not just commercial energy consumption, either. Electricity consumption from all sources is expected to rise 4%, the largest annual increase since 2020.
Natural Gas Prices in 2023
Natural gas prices hit a 30-month low in April despite domestic production cuts. Since the start of the year, rising output (not total capacity, however) and demand fluctuations have caused natural gas futures to decline nearly 50%. It’s the largest quarter-over-quarter drop on record and the result of mild winter weather in most of the US.
Some of the nation’s biggest natural gas producers have slowed drilling, including both Chesapeake Energy Corp and Comstock Resources, Inc. But natural gas is also a byproduct of oil drilling, and oil activity hasn’t declined. According to one research firm, roughly a third of all US natural gas production is from oil wells. Associated gas, as it’s called in the industry, will continue to increase total supply as long as oil companies ramp up production.
Shale oil output in the Permian basin is setting monthly highs, with associated gas from the basin also hitting record levels every month in 2023. Even as natural gas prices fall, associated gas supply is on the rise.
Renewables Just Make Sense
The combination of capped refinery capacity, federal rebates for renewables and record-low natural gas prices bodes well for an accelerated push toward clean energy. Making the switch to wind, solar and hydrothermal makes sense for both residential and commercial ratepayers, especially for companies with a sincere commitment to operate sustainably. Start your energy efficiency journey today!