Natural Gas Under Pressure From Clean Energy

Improved cost efficiencies have prompted power providers to walk away from abundant natural gas for other clean energy sources.

Fremont, CA: While oil prices have rebounded, natural gas and related exchange-traded funds (ETFs) remained mired. The United States Natural Gas Fund (UNG), a futures-focussed product, is down 3.2%. Natural gas stocks are much worse offenders. The FCG(First Trust ISE-Revere Natural Gas Index Fund) is down 6.2%.

Natural gas, a cheap, clean-burning alternative to coal, is the top fuel source in the U.S. and some other major developed economies.

However, improved cost efficiencies have prompted power providers to walk away from abundant natural gas for other clean energy sources. Year-to-date, clean energy investments have exceeded their natural gas counterparts.

The Invesco PBW(WilderHill Clean Energy Portfolio) and the First Trust NASDAQ Clean Edge Green Energy Index Fund (QCLN) are down an average of 1.8% year-to-date.

The trend regarding cleaner power may be most evident regarding solar. Solar installations globally will reach 104 gigawatts this year and will probably continue to top 100 gigawatts for many years.

The Invesco Solar ETF (TAN) is down little year-to-date but has reverted more than 41% over the past 12 months, dispelling the notion that solar stocks are vulnerable to a Donald Trump White House administration.

Some utility companies have junked plans for new natural-gas plants for wind and solar sources that have become cheaper and easier to install. "Present gas plants are being shut because their economics are no longer attractive. And regulators are more and more challenging the plans of companies decided to move forward with new natural-gas plants."

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Favorable Costs

Alternative energy providers' capacity to drive down costs is helping to promote their standing in the global energy landscape.

"Global costs of producing electricity from alternative energy technologies continue to decline. For instance, the Levelized cost of energy for both utility-scale solar photovoltaic (PV) and onshore wind technologies are down approximately 6% from last year," according to a Lazard note published in November 2017.

Lazard data suggest the price per kilowatt hour of solar power is about 4 cents, even with that of natural gas, while wind power is less costly at 3 cents per kilowatt hour. Even power providers view solar and wind as complements to, not replacements, for conventional fuel sources.

Although alternative energy is gradually cost-competitive and storage technology holds great promise, alternative energy systems alone will not be able to meet the base-load generation needs of a developed economy for the foreseeable future. Hence, the optimal solution for many regions of the world is to use complementary conventional and alternative energy resources in a diversified generation fleet.