Renewable Problem: Why Natural Gas, LNG Remain Key To Energy Transition

Last month, in London, U.K., an LNG event was organized on behalf of the Government of Alberta by Glacier Media (the parent company of the Daily Oil Bulletin) and the Canadian Society for Unconventional Resources (CSUR) to provide a special briefing to around 140 European energy investors and stakeholders. The DOB over the next few days is providing LNG-themed editorial coverage based on this event.

The payback on renewables currently is not very enticing, says Ryan Pereira, with it taking 10 to 20 years for investors to make back their money on wind turbines and solar panels in many regions of the world — a timeframe approaching the lifecycle for many of these renewable energy assets.

“I do support the onset of renewables and the role that they have to play in the future,” Pereira, the global directorGas & LNG, Gaffney Cline & Associates, told a recent event in London, U.K. (hosted on behalf of the Alberta government) to discuss the scope of Canadian LNG growth. “But I’ve looked quite carefully and actually I’ve been seeing some misrepresentations out there about the cost competitiveness of renewables and reliability of renewables.”

He added: “What I have seen is that the full-cycle costs and the full-cycle economics of renewables aren’t actually cheaper than gas and LNG in any parts of the world today once you factor in the efficiencies, the load factors and the fact that in many parts of the world you have backup from typically gas-fired power generation, or actually coal-fired or other sources of generation.”

According Pereira, for renewables to be successful it requires a functioning global price on carbon, which simply does not exist. He told Glacier Media (the DOB’s parent company) and Canadian Society for Unconventional Resources (CSUR)-hosted U.K. event the financing community must feel comfortable with financing the energy transition, and energy diversity is also important.

“We need a system balancing when the sun does not shine and when the wind does not blow in many parts of the world,” Pereira said, adding that when factoring in all the full-cost cycles, natural gas and LNG remain fundamentally more competitive in many worldwide markets than are renewable sources of energy.

“Look at the payback periods. Look at the full-cycle costs. Let’s try and redress this balance about gas today and in the medium and future term of being a cost-competitive source of energy going forward.”

Another issue with renewable energy is that the materials for necessary components can come from within fairly specific political boundaries, he noted. For example, when it comes to battery technology, mining lithium is important and the bulk of that natural resource resides within the control of the Chinese.

“Thinking about geopolitics, is any country around the world, apart from China, willing to place their reliance on that resource in one jurisdiction in one area? We need diversification, and that’s where gas and LNG come in.”

Natural gas and LNG have a fundamental role to play in the energy transition, said Pereira, and unless people are prepared to accept a “flickering lights” concept of the future, the environmentally-minded culture should reposition its thinking away from “a race to renewables” and more towards “a race to de-carbonization,” and that includes within the fossil fuel industry, and along every part of the hydrocarbon value chain.

“We’ve heard a number of LNG suppliers we’re working with also looking at what they’re calling ‘carbon neutral’ LNG cargos, and what they’re looking to do is offset … carbon emissions, to do that with production of an LNG cargo and actually have payment for that in some kind. Buyers are becoming increasingly interested in that aspect.”

The Alberta advantage

Natural gas can provide “quick wins” for global emissions reductions and cleaner air quality, said Grant Sprague, deputy minister, energy, Government of Alberta, and his province supports any Canadian LNG project for what it can offer economically and environmentally. “We know that global demand for LNG, and particular, for clean, secure and reliable energy, continues to grow, and LNG from Canada can make a substantial difference.”

Recognizing the importance of environmental, social and governance matters, he added, the province has programs and policies that drive continued ‘green’ improvements and innovations, including within the Technology, Innovation and Emissions Reduction (TIER) program, as well as Emissions Reduction Alberta’s $50 million natural gas challenge.

“We have the technology — and it’s an ever-evolving set of technologies — to ensure we’re at the cutting edge of appropriate technology for production and development of those natural gas resources.”

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