You Should Question U.S. Department Of Energy’s 'Falling Gas Demand'

Jun 26, 2023

WASHINGTON, DC - DECEMBER 13: Scientists from the Lawrence Livermore National Laboratories (L-R) ... [+] Principal Experimentalist Alex Zylstra, Principal Designer Annie Kritcher, Chief Engineer for National Ignition Facility Laser System Jean-Michel Di Nicola, Target Fabrications Program Manager Michael Stadermann, Stagnation Science Team Lead Arthur Pak and Tammy Ma, of the Inertial Fusion Energy Institutional Initiative, speak during a news conference at the Department of Energy headquarters to announce a breakthrough in fusion research on December 13, 2022 in Washington, DC. The officials announced that experiments at the National Ignition Facility at the LLNL achieved 'ignition,' where the fusion energy generated equals the laser energy that started the reaction for the first time ever, a major advancement that may produce bountiful clean energy in the future. (Photo by Chip Somodevilla/Getty Images)

To me, there's still decent upside to oil demand.

Probably not so much here in the U.S., but globally, I’d argue that "more oil" is a pretty safe bet.

Airplanes, heavy trucking, and petrochemicals will keep oil "in the game" for a lot longer than you’re being told.

Not to mention that when oil demand does peak, it will plateau and slowly decline, not plummet like some claim.

The global oil market today is about 101 million b/d, and I could see that topping out at 110 or 115 million b/d in the many years ahead.

But, the much brighter energy future belongs to oil's sister fuel: natural gas.

Today, gas is about 33% of U.S. energy and 40% of power generation.

The world's two "greenest" governments, Germany and California, are using much more gas than people realize – despite literally decades of trying to get off this, what has become, irreplaceable fuel.

As climate change makes droughts worse, California's ability to leverage hydropower (in and outside of the state) to "use less gas" is shrinking, exactly what we saw in 2022 when gas power soared.

And for years now, the U.S. Department of Energy has been pretty consistent when it comes to its Annual Energy Outlook projecting how much more natural gas the U.S. will be using.

Our growing gas story has generally been a 2-1 ratio estimate: U.S. gas production rising by 2% each year, with U.S. gas demand rising by 1% per year.

That extra 1% we have domestically each year – new production outpacing new demand – is what would allow our prices to remain low and also meet a rising LNG export complex that started in 2016 (from the continental U.S.) and could double by 2027 to ~28 Bcf per day (for reference, the current global LNG market is ~52 Bcf per day).

Seeing these consistent forecasts for well more than a decade, you’ll surely forgive me if I’m confused by the latest AEO that came out in March 2023.

So what changed?

Why is the U.S. Department of Energy's latest reference case now telling us that our gas power generation and gas demand will significantly drop, really starting this year?

Be careful though because even the 2021 prediction for 2022 gas demand was proven significantly lower than actual (Figure).

The latest Annual Energy Outlook somehow has U.S. gas demand dropping sharply in the decades ahead.

When you dig into the numbers of the AEO 2023, it all comes down to one main thing: a Herculean expectation that solar – not just in capacity – literally explodes in actual generation. Per year, the U.S. Department of Energy has: our solar generation booming by over 9%, wind rising by 3.5%, and, now, natural gas declining by 1.6% (Figure).

I simply don't get that because solar and wind generation projections are obviously fickle since one never knows when the sun will shine or when the wind will blow, especially when looking at years well into the future.

And climate change is clearly making our weather just that: far less predictable.

It's worth noting here that both the International Energy Agency (using the World Energy Model) and the U.S. Department of Energy (using the National Energy Modeling System) have taken heat for not being optimistic enough when it comes to forecasting wind and solar growth, both capacity and generation.

As it turns out, energy forecasting models don't have feelings.

Not to mention that too often forgotten "high grading" problem for renewables: good spots are finite, so each new solar plant and each new wind farm will, naturally, be in places that are less sunny and less windy.

For wind and solar, capacity additions are the easy part, actual generation and power portfolio penetration are far more difficult because they’re so dependent on the weather, again something that climate change is making less dependable.

Indeed, the problem for "huge amounts of more renewables" isn't about a "lack of investments" (ask Germany and California) but about physics.

Requiring giant swaths of land, wind and solar builds aren't quite as popular among the American public as the media and many of our politicians like to claim.

And it's not exactly just Fox News reporting the problems here.

Even the Sierra Club expresses the really big concern: "The NIMBY Threat to Renewable Energy."

My Forbes colleague Robert Bryce, probably the world's leading expert on this subject, has a growing list of nearly 525 solar and wind projects that have been rejected across our country since 2014 alone.

And since we keep hearing that solar will inevitably evolve from niche market to the mainstream, even the BBC is reporting on the environmental problems that solar panels are bound to create; CNN reports the same thing with wind.

California is used as the example for solar power but it's too unique for that to be even close to true because California is one of our sunniest states, and mild weather drastically lowers the need for electricity.

Ditto Texas and the other windy states in the Great Plains that have the upper hand in installing more wind farms that actually generate electricity, not just add wind capacity that hardly ever produces (which is commonplace in other less windy states).

To be sure, the electrification goal to fight climate change (e.g., electric cars) should give all three (solar, wind, and gas) especially a much brighter future.

But as easily our main source of power, gas is the cornerstone.

U.S. annual power demand has been flat at ~4,050 terawatt hours for 15 years, but even California is admitting that climate goals could double its need for electricity from 2020 to 2045, per a study commissioned by San Diego Gas & Electric.

And according to the Institute for Energy Economics and Financial Analysis, the U.S. coal fleet, a resource that generates 20% of our power, could be sliced in half by 2026.

I’ve never seen a single projection over the past 15 years of an uptick in nuclear generation. Have you?

Advantage natural gas, particularly as the backup resource ("spinning reserve") required for naturally intermittent wind and solar.

Better batteries for storage are adding some capacity but a major leap has eternally seemed "10 years away."

To demonstrate the explosion required, we have about 1,300,000 MW of total electricity generation capacity but just 20,000 MW of battery storage capacity nationwide.

Talk about a long way to go.

I think the Biden administration has reluctantly but steadily been realizing just how central natural gas will remain, explaining why Senator Joe Manchin (D-WV) just got his new gas pipeline (Mountain Valley) out of the debt ceiling deal.

So I must ask you, is all this political wishful thinking or do you really buy what the U.S. Department of Energy is suddenly saying?

I’m guessing that you already know my answer.

A rise in solar power generation is likely but an explosion might face more headwinds than people ... [+] realize, thus its ability do displace gas should be questioned.