U.S. President
Barack Obama says
natural gas can be a bridge from coal to a cleaner energy
future.
Investors are showing it’s more likely a bridge to nowhere.
The country’s embrace of natural gas means less love for
wind and solar. New investments in renewable energy sources
declined 5 percent in North America last year to $56 billion,
the lowest since 2010, according to Bloomberg New Energy
Finance. By comparison, North American oil and gas companies
spent $168.2 billion on exploration and production last year,
more than double 2009, data compiled by Bloomberg show.
Fracking -- the process of blasting water, sand and
chemicals into miles-deep shale rock to extract fuels -- has
helped push U.S.
natural gas production to new highs in each of
the past seven years, according to the Energy Information
Administration. It’s also more expensive than traditional
drilling and contributes to global warming, according to the
U.S. Environmental Protection Agency. Renewables, which are
getting cheaper, have lost support even as the
United Nations
warns that time is running out to stem
climate change and
China
forges ahead with sustainable power.
“Everyone in
Washington thinks gas is a savior, so
Washington has been oblivious to the renewables revolution, but
China hasn’t been oblivious,” said Hal Harvey, the chief
executive officer of San Francisco-based Energy Innovation:
Policy and Technology LLC who has been appointed to energy
panels by presidents
George H.W. Bush and
Bill Clinton.
Money Tap
The shale revolution has brought the country closer to
energy self-sufficiency than at any time in the last three
decades, according to the EIA. It’s also changed the way
Americans invest, said James McDermott, managing director of the
U.S. Renewables Group. He said his Los Angeles-based investment
firm, which manages more than $750 million, is currently raising
money only overseas.
Hydraulic fracturing, the technical name for fracking, has
helped open the money tap for gas and oil. Since 2012, investors
added more than $2.3 billion to the Energy Select Sector SPDR
Fund, which tracks oil and gas companies. In the same period,
investors withdrew $32.5 million from the Powershares Wilderhill
Clean Energy Portfolio, the biggest exchange-traded fund tied to
renewable-energy equities, according to data compiled by
Bloomberg.
“There’s absolutely no question that investors’ dollars
have moved from one to the other,” said Bruce Jenkyn-Jones, a
managing director at London-based Impax Asset Management Group
Plc, which oversees about $4.2 billion.
White House
Even as investors have embraced fracking, more Americans
tell pollsters they oppose the practice than support it,
according to a September survey by the Washington-based Pew
Research Center. It’s true that windmills as tall as 40-story
buildings are still sprouting in the Great Plains, and more
solar panels are appearing on Americans’ roofs, including at the
White House. The U.S. is generating more power from these
sources than ever before.
Yet the pace is slowing. Combined capacity for solar and
wind power expanded 9 percent to 76,326 megawatts in 2013, down
from a 30 percent increase in 2012, according to data compiled
by Bloomberg.
And the use of fossil fuels still dwarfs that of
renewables. Half of new power-plant capacity in the U.S. last
year was natural gas -- 6,861 megawatts, according to the Energy
Department. That’s enough to provide electricity to the state of
Massachusetts. It’s also 25 percent more than the combined
capacity additions for solar, wind, biomass and water power.
Solar Capacity
In China, it’s a different story. Though the country burns
more coal than any other, darkening the sky over its biggest
cities, wind capacity expanded 21 percent to 91,412.9 megawatts
in 2013, on top of 21 percent growth the year before, according
to the Global
Wind Energy Council. The country’s solar capacity
more than doubled in each of the past five years, according to
Bloomberg New Energy Finance. Its capacity overtook the U.S. in
2013 and is now second in the world only to
Germany, data show.
China is also turning to shale gas to lessen its dependency
on coal. The country holds the world’s largest potential
reserves yet its technology is a decade behind the U.S., BNEF
said in a report today. So China is spending as much as four
times more than the U.S. to develop shale gas fields, according
to the report.
Clean Energy
Chinese clean-energy companies already raised $1 billion in
equity so far this year, 46 percent more than last year and 2
percent more than their U.S. rivals, data compiled by Bloomberg
show.
U.S. clean-energy companies did raise an unprecedented $2.9
billion in equity last year. Yet fossil-fuels companies sold
shares valued at more than 14 times as much, also a record, data
compiled by Bloomberg show.
The country’s oil and gas output are rebounding after
decades of decline. Hydraulic fracturing and horizontal drilling
helped the U.S. overtake Russia and Saudi Arabia to become the
world’s biggest combined producer of oil and gas last year,
according to the Energy Department.
“Today, America is closer to energy independence than
we’ve been in decades,” Obama said in his
State of the Union
address in January. “One of the reasons why is natural gas --
if extracted safely, it’s the bridge fuel that can power our
economy with less of the carbon pollution that causes climate
change.”
Shale Supporters
Shale has its enthusiastic supporters in the oil patch, on
Wall Street and in Washington.
The shale revolution is part of the never-ending American
revolution, according to James Volker, the chairman and chief
executive officer of Denver-based Whiting Petroleum Corp. That
revolution is “here to stay,”
Ed Morse, Citigroup Inc.’s head
of commodities research, wrote in the May issue of
Foreign
Affairs. And Senator
Mary Landrieu, a Democrat from
Louisiana,
home of the Tuscaloosa Marine Shale formation, said at a March
hearing that new discoveries in oil and gas, such as the one in
the state where she faces a re-election battle this fall,
rescued the country from an even deeper economic downturn and
“fortified our national economy.”
‘Incredibly Competitive’
Renewables had their own, less widely celebrated
breakthrough. The cost of photovoltaic solar energy dropped 56
percent in the past four years, according to calculations by
Bloomberg New Energy Finance.
“Renewables got incredibly competitive,” said Ted Brandt,
chief executive officer of Marathon Capital LLC, a Chicago-based
energy and infrastructure investment bank. “What the oil and
gas business has done is pretty spectacular. It’s not a well-told story but the renewables business is pretty amazing as
well.”
The success of shale drilling undermined political support
for tax credits for renewable energy, Brandt said. Federal
incentives expired in 2013, and wind farm construction plunged
92 percent, according to data from the Global Wind Energy
Council.
Dwindling investment isn’t the only obstacle to wind and
solar power. The Audubon Society wants stronger rules to reduce
wind farms’ dangers to birds. States such as
California regulate
large-scale solar parks’ effects on wildlife habitats.
And even as the gap narrows, wind and solar are still more
expensive than natural gas. A megawatt-hour of solar power cost
$139.25 last quarter, compared with $84.81 for wind energy and
$84.21 for gas, according to Bloomberg New Energy Finance.
More Expensive
Cheap gas blunted the appeal of renewable energy, yet shale
resources haven’t stayed as inexpensive as they were. Natural
gas fell to a 10-year low in 2012 because drillers looking for
oil came up with gas, too, and created a glut. Since then, gas
futures have risen 140 percent to $4.588 per million British
thermal units; traders anticipate even higher prices next
winter. In January, frigid weather and a temporary shortage
caused spot prices in
New York to spike as high as $99.66 per
million British thermal units, data compiled by Bloomberg show.
Fracking is more expensive than traditional extraction
methods. Shale gas costs between $3 and $10 per million British
thermal units to get out of the ground, compared with as little
as 20 cents to extract some conventional supplies outside the
U.S., according to the
International Energy Agency. One shale
well, which bores horizontally through rock, can cost as much as
$13 million, compared with as little as $1.5 million for
traditional vertical drilling, according to data from Goodrich
Petroleum Corp. and Hart Energy LLC.
Declines Faster
Shale production also declines faster than conventional
supplies. When new drilling stops, gas output drops by about 50
percent in about three years, according to the IEA. That means
production only grows by constantly drilling new wells.
There have been “several cases” of water contamination
from faulty wells or improper disposal, the National Ground
Water Association said in April. And leaks of methane, which
traps 21 times more heat in the atmosphere than carbon dioxide,
while extracting and transporting gas are as much as 75 percent
higher than the U.S. Environmental Protection Agency estimates,
according to a February study in the journal Science.
“There’s a not very appealing scenario where we in the
next decade feel very content with what is happening with shale
gas in
North America, while other countries, particularly the
Chinese, are building up leading technology in renewables,”
said Wal van Lierop, CEO of Chrysalix Energy Venture Capital in
Vancouver. “And suddenly, in the early 2020s, we in North
America may realize that they own the technologies of the
future.”
To contact the reporter on this story:
Isaac Arnsdorf in New York at
iarnsdorf@bloomberg.net
To contact the editors responsible for this story:
Bob Ivry at
bivry@bloomberg.net
Bill Banker
