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Natural gas bridge now looks 'shorter and narrower'

The natural gas revolution that has led to a power plant building boom and kept electricity prices low may be nearing its end, as the coronavirus pandemic has reduced demand for the fuel and competition from renewable sources of energy intensifies, said Dan Klein, head of scenario planning at S&P Global Platts.

This spring, as the coronavirus shut down the economy, analysts projected that the renewable energy industry would emerge from the crisis in a stronger position as falling electricity demand hit fossil-fuel plants particularly hard. Adding to the pain for the natural gas industry, the health and economic crisis came at a time when the financial outlook for some plant owners was already deteriorating.

"Gas was viewed as a bridge fuel between coal and renewables, and that bridge just got shorter and narrower," Klein said Oct. 6 on a webinar hosted by S&P Global Inc. "[We] still expect gas to grow strongly over the long term. ... But COVID took a good chunk out of that growth."

Meanwhile, the country's wind and solar markets are expected to grow significantly this year, there is increasing momentum behind a push for net-zero emissions in corporate America and Europe's oil and gas majors are turning more of their attention — and capital spending — toward renewables.

"Some companies are signaling that an increasing proportion of their investment budget will be going into renewables rather than oil and gas, even if, of course, the majority of the capex will actually continue going to oil and gas for the time being," Simon Redmond, a senior director at S&P Global Ratings, said on the Oct. 6 webinar. "We do expect increased investment across renewables businesses from the European majors, in particular."

Road not taken

However, those trends are not yet delivering the kinds of results climate experts insist are needed to avoid more dire impacts from rising temperatures. While the EU has made climate change a priority in its financial response to the coronavirus, "that example is not being followed in many other parts of the world," Jason Bordoff, director of the Center on Global Energy Policy at The School of International and Public Affairs at Columbia University, said at Climate Week in September.

"2020 was supposed to be an opportunity for countries to increase their [Paris Agreement on climate change] objectives, but in practice very few actually did," Roman Kramarchuk, head of energy scenarios, policy and technology analytics at S&P Global Platts, said Oct. 6.

One bright spot for climate activists in recent weeks was China's announcement that it aims to be carbon-neutral by 2060. But there are still big unanswered questions, including how, exactly, the country plans to zero out its emissions.

Raising concerns for many analysts, Beijing lifted restrictions on building new coal-fired power plants, leading local government officials in China to approve approximately 20,000 MW of new coal capacity during the first half of 2020, the highest rate in recent years, according to Kramarchuk.

Across Asia, coal demand is "sticky," said Klein. That continued reliance on coal coupled with declining costs and policy support for renewables is squeezing out opportunities for natural gas globally, he said.

S&P Global Market Intelligence and S&P Global Platts are owned by S&P Global Inc.