Trends Energy Managers Should Pay Attention to in 2020
Battery storage and liquefied natural gas are just a couple of the buzzwords that continue to dominate the headlines regarding the energy industry. Constellation market analysts regularly monitor energy trends and provide customers with this intel to give them opportunity to manage their energy purchasing strategy.
We highlight four energy trends that are changing the energy landscape and that could have an impact on energy prices, if not already. They include:
1. Storage, solar and wind are gaining momentum.
In 2020, the U.S. will see continued growth in wind, solar and battery storage as a result of state initiatives passed in 2019 and improving economics for renewable energy sources. Renewable energy has become more affordable with hydroelectric power, the cheapest source of renewable power and competitive in price when compared with fossil fuels like oil and gas.1
This growth trend is apparent in the Northeast, where there are 19 gigawatts of new solar, on/offshore wind and battery storage projects listed within the PJM, NYISO & ISO-NE regions, although not all projects are expected to be built. ERCOT is expected to expand its coastal wind, solar and battery storage capacity as will CAISO, where battery storage as a source of backup generation has taken on new significance in scenarios where a utility may shut power off during weather conditions that could lead to fire risk. Battery storage allows renewable energy to be stored for use at a later time, such as when sun and wind diminish or if there is a power outage.
2. LNG exports from the U.S. continue to grow.2
Total gas exports at the six major U.S. liquefied natural gas (LNG) export facilities reached a record 8.5 Bcf/day on Dec. 16, which is about 9% of the gas currently being produced in the United States. This new high is the result of the Elba Liquefaction terminal located in Georgia that came online in October 2019 and shipped its first cargo in December. The growth in U.S. exports have gone from a minimal amount a couple of years ago to 8+ Bcf/day today, with expectations of another 6.5 or so Bcf/day of exports coming online by 2025. In the near term, the Corpus Christi and Freeport facilities are leading in total number of exports in 2020 when compared with the four other facilities, about 3 Bcf/day. However, even with the increase in exports, production has exceeded demand to date, which has kept gas prices pressured.
3. Oil and gas producers are suffering financially due to consistently low prices
On Dec. 10, Chevron Corp., the second largest U.S. oil company, incurred a $10 billion charge against earnings, writing down the value of its assets, notably its U.S. shale holdings. Producers and investors are putting the brakes on investment in shale as indicated by -6% decrease in spending this year and is expected to decline an additional -14% in 2020, according to the Wall Street Journal.3 The natural-gas directed drilling rig count has fallen 35% this year, according to Baker Hughes, reflecting a sharp slowdown in capital expenditures in the oil- and gas-producing space. The question for market analysts continues to be: Will this pull-back in drilling and investment affect production? When? And by how much? And what affect would a reduction in natural gas production have on prices of natural gas and electric power in 2020? We will cover this topic and share our analysis in our monthly Energy Market Intel Webinars. Register here.
4. Electrification is still very topical as many cities ban new gas connections.
A growing number of cities in the United States have banned new natural gas connections, such as in new buildings in cities like San Jose, Calif., and Brookline, Mass.4,5 In lieu of natural gas, policymakers are encouraging consumers to purchase electric-powered appliances and to heat homes and buildings with electricity. The reason? Electricity can be generated in various ways, including nuclear and renewable energy such as solar, wind and hydropower, reducing carbon emissions.
In addition to electrifying appliances, business owners can look to electric or hybrid vehicles to power their fleets. EVs, for example, emit zero carbon emissions and reduce dependency on fossil fuels. Both EVs and plug-in hybrid EVs may also have the ability to connect to the electric grid and participate in markets managed by grid system operators, according to an MIT Study. 6 This is referred to as the vehicle-to-grid (V2G) phenomenon and could allow electric or hybrid vehicle owners to power their own buildings and potentially avoid blackouts or brownouts, especially during times of high demand. Constellation Technology Ventures portfolio companies XL, ChargePoint and Proterra are exploring V2G.
To stay apprised of trends and market intel, be sure to sign up for our regular email communications, such as our biweekly blog updates and Energy Market Intel Webinars. Visit www.constellation.com/subscribe and self-select what communications most appeal to you and your business needs.