The press these days is filled with stories about renewable energy development and clean energy initiatives. One such announcement was in July 2016 Salt Lake City committed to 100% Renewable energy by 2032. Sorry fossil fuels, but wind and solar are coming to SLC.
In the current North American supply long environment for oil and natural gas, stories like these, albeit representing small pieces of demand, in aggregate are eroding long-term demand for fossil fuels. But is it true for natural gas? More specifically, do renewables help or hurt natural gas consumption? To this end, a friend in Houston brought a recent article in the Houston Chronicle to my attention a few weeks ago – “Natural Gas, Best Friend of Renewables?” This piece suggests over the long run in countries with high levels of natural gas generating capacity had high correlation with greater investment in renewable development. As my econometrics professor used to repeat over and over, ‘correlation and causality are two completely different things’.
This piece will look at natural gas consumption and renewable energy consumption, comparing 2005 vs. 2015 for select groups of countries. As the schematic shows, countries can fall into 3 categories depending on consumption patterns.
When comparing gas vs. renewable consumption for the World, OECD, Rest of World (ROW (World ex-OECD)), US and China, we see first – gains in renewables are off of a very small base, and second, the trajectory 2005 vs. 2015 for developed countries (OECD) is steeper (in favor of renewables) than that of the more flat trajectory of ROW (in favor of gas) as shown below (note: axis are not to equal scale so in fact the World added much more natural gas consumption than it did renewables 2005-2015). This makes sense as developing countries (ROW) are energy hungry and invest in more scalable and lower cost (assuming now renewable subsidies) fossil generation over renewables.
Select European countries exhibit a trend that shows heavy development of renewables (defined for this piece as solar and wind) while showing declining gas consumption which hardly is supportive of the thesis proposed by the Houston Chronicle piece (as shown below). This is concerning for long term fossil fuel demand globally as more countries seek an OECD standard of living. And one has to ask is this foreshadowing of Salt Lake City in 2032?
The two biggest global consumers of renewable energy are the US and China. Both of these countries show very strong natural gas growth. However, renewables have grown even more, albeit off of a small starting base as shown below.
Back to correlation and causality – this analysis shows in highly developed countries such as Spain, Germany and France, renewable development is potentially resulting in declining consumption of natural gas. Meanwhile, the opportunity still exists for natural gas to make large consumption gains in developing countries (ROW) alongside renewable development in those countries. The next step in this analysis will be to look at US states with heavy solar and wind development. Check out the BTU Analytics’ Blog Archive for more analysis.