Solar player emerges as natural gas export’s unlikely champion

  •   Mergers and acquisitions market for shale assets.
    Mergers and acquisitions market for shale assets exploded in the prior two years directly in sync with the downward descent of natural gas prices, says Deborah Rogers.

Blogger

Felicity Carus
Felicity Carus
Felicity Carus is the only UK journalist to be regularly reporting on clean energy policy and finance from California for a global audience. Before arriving in San Francisco in 2010, Felicity was on the Guardian's environment desk in London after stints at the Sydney Morning Herald in Australia and Interfax in Russia. She first "broke" into the renewables industry with a commission in the mid-90s to write a book on how to install a solar water heating system with a rusty old radiator. The industry has come a long way since then, thankfully…

Solar industry leaders and natural gas companies might not be a match made in heaven under ordinary circumstances. But as the US shale gale has demonstrated, we live in extraordinary times, particularly in the energy industry.

Despite the shale gas boom in America, which could quite possibly be the only thing that has spared the economy the deeper recession experienced by Europe, producers are struggling with record low prices.

In 2008, natural gas fetched US$8 per MMBtu in the domestic market. Prices reached a record low of $2 in 2012 and have this year stabilised at around $3.40 per MMBtu. But that's still short of covering costs by $0.60 per MMBtu for many producers.

Stocks for leading producers such as Chesapeake Energy, Devon Energy and Southwestern Energy have taken a battering. Chesapeake has resorted to selling assets to raise $ 7 billion, The Economist reported earlier this month.

Pressure is mounting now to convert the Gulf coast LNG import hubs into export hubs. These hubs were built only a few years ago when projections predicted a shortfall of natural gas but producers want to sell into different markets. You can see why with prices in Asia at $16 per MMBtu and Europe at $15 per MMBtu. Sabine Pass in Louisiana could be one of the first to start sending gas overseas from 2015.

Debate rages in Washington over this American resource. The Department of Energy commissioned a report from NERA Economic Consulting, which concluded that LNG export has net benefits to the US economy.

Oil and gas companies appear to be lobbying for it. Even companies in associated industries are pressuring the administration to switch the terminals. General Electric has invested hundreds of millions in the development of a new generation of gas-fired power plants and would love the American fuel supply to follow its engineering to countries such as Japan.

But now an unlikely champion has entered the natural gas export debate: Arno Harris, chief executive of Recurrent Energy, a utility-scale solar developer.

Harris argued in recent piece on CNN that: "If gas prices were still at the levels they were three years ago, wind and solar would be solidly competitive with fossil-fired power, and the utility-scale renewable industry wouldn't be fighting the headwinds it is today."

Separately he told PV-Tech: "I wanted to shed some light on the fact that there are a lot of interests especially within the electricity sector and within the renewable industry.

"There is a strong degree of support for gas export both within the administration and within the oil and gas industry. We don't always find ourselves on the same side of an issue as the oil and gas industry but producers are really in a challenging position. They've had this tremendous success in unlocking this gas, prices have collapsed and they're unable to capture that gas at a profit. There's clearly a huge economic imperative on the part of producers to be able to connect to that global market to be able to deliver that gas and be able to realise a better price."

Naturally, Harris isn't in this for the natural gas producers. In Recurrent Energy's market segment, solar power contracts out at utility scale at 6c or 7c per kilowatt hour wholesale. That would be competitive with natural gas prices at $6-$7 per MMBtu, still well below the price in Asia or Europe.

"But at the suppressed price as a result of the glut, it's widened the apparent difference between fossils and renewables and that creates challenges," he said.

"It's going to be very difficult to prevent the gas coming out of the ground. We need to enable that gas to reach export markets so we're not stuck with an artificially low price in the US and we can restore some balance to the power markets. That gas is a tremendous boon and bounty to the world in terms of our energy needs."

So far, Harris is a lone voice in the industry – but perhaps the first or just the boldest to stick his head above the parapet.

However, he does sit on the board of the Solar Energy Industries Association, but insists that the association has not taken a position on natural gas exports regardless of the benefit to solar.

Rhone Resch, chief executive and president of SEIA, said: "We don't have a position on natural gas exports. Arno was speaking on behalf of himself, certainly not for SEIA, we're focused purely on policy that affects the solar industry.

"One would think this is going to be an interesting political and economic discussion and if we get invited into those debates, we'll develop a position at that time but certainly it behooves us to focus more on solar."

Resch might be well positioned to participate in the debate. Before joining SEIA he was senior vice president at the Natural Gas Supply Association, which represents major and independent producers of domestic natural gas.

Other studies also suggest Harris might well get his way on exports. Last year, Michael Levi proposed a framework for exports in a Hamilton Project paper that found the benefits of allowing exports outweighs the cost of constraint.

But for some, it might just be a waiting game as price balance is restored to natural gas over time.

Danny Kennedy, founder and chief executive of Sungevity, focused on the residential market, said:

"His view is from someone serving the wholesale market – solar's advantage is in the retail rates. But I don't buy the premise that natural gas is cheap for an extended period of time. 

"Gas prices are going up and evidence points to it going in that direction. Just wait till Chesapeake or someone else in the industry implodes on the back of the fact that fracking is not the panacea that has been promised."

Kennedy warned there may be worse to come if the US locks in its dependence on natural gas only to find that dependence is based on an unsustainable shale bubble.

"We've been here before with gas companies – Enron just gouging the system and manipulating our energy policy and planning with the promise of short-term crackerjack staff and not really delivering."

Price shock from shipping out domestic supplies to bulk up domestic prices isn't too far fetched.

Kennedy pointed to the work of Deborah Rogers who has said that the shale bonanza may come to an abrupt halt.

In a report Shale and Wall Street, Rogers suggests that the natural gas price decline might have been orchestrated by financial institutions looking for the next fast buck.

In 2011, shale mergers and acquisitions accounted for $46.5 billion in deals and became one of the largest profit centres for some Wall Street investment banks, she said.

"Wall Street promoted the shale gas drilling frenzy, which resulted in prices lower than the cost of production and thereby profited [enormously] from mergers & acquisitions and other transactional fees," she wrote.

"Exportation is now being pursued for the arbitrage between the domestic and international prices in an effort to shore up ailing balance sheets invested in shale assets."

If she's right, the future could look brighter yet for solar with or without large-scale shale gas exports. But in the meantime, solar and natural gas could be a marriage of convenience, even if they never learn to love each other.

PV-Tech Storage Promo

Newsletter

Preview Latest
Subscribe
We won't share your details - promise!

Publications

  • Photovoltaics International 25th Edition

    In this issue we offer some insights into what the next wave of photovoltaic technologies may look like as that upturn gathers pace. Industry observers have been in broad agreement that the major next-gen PV technology innovations won’t happen straight away. But there’s also little doubt that the search is now on in earnest for the breakthroughs that will come to define the state of the art in the industry in the years to come.

  • Manufacturing The Solar Future: The 2014 Production Annual

    Although the past few years have proved extremely testing for PV equipment manufacturers, falling module prices have driven solar end-market demand to previously unseen levels. That demand is now starting to be felt by manufacturers, to the extent that leading companies are starting to talk about serious capacity expansions later this year and into 2015. This means that the next 12 months will be a critical period if companies throughout the supply chain are to take full advantage of the PV industry’s next growth phase.

Partners

Acknowledgements

Solar Media