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Renewable Accounts: Disruptive Gas

Natural gas is among the biggest issues in renewables because its low cost has disrupted global energy and manufacturing, including biofuels and bioproducts.

By David Ripplinger, Bioproducts and Bioenergy Economist and Assistant Professor

NDSU Department of Agribusiness and Applied Economics

Today, natural gas is among the biggest issues in renewables because its low cost has disrupted global energy and manufacturing, including biofuels and bioproducts. While its price has made it a desirable fuel for heat and power generation and a feedstock to produce other chemicals and fuels, the impacts on biofuels and bioproducts have been good and bad.

Let’s start with the bad. The relatively low cost of natural gas has obliterated the business plans of many renewable projects. Five years ago, many developers looked forward to commercializing renewable fuels that could compete with natural gas. Within a year, the price of natural gas fell by two-thirds, which changed the black ink on the bottom line of many financial pro formas to red. Low prices have persisted, resulting in many projects being delayed or permanently tabled.

But low-priced natural gas also brings good news for renewables.

First, many biofuel refiners use large amounts of natural gas for heat and power. Lower-priced gas means decreased costs and increased profits. Second, natural gas can make products greener when used to displace feedstocks with bigger environmental footprints.

A good example of this is the carbon intensity of corn-based ethanol that utilizes natural gas as opposed to coal (carbon intensity is the amount of carbon dioxide emitted per unit of energy produced and is a common measure of a product’s “greenness”). Natural gas releases just more than half the carbon dioxide per BTU (British thermal unit) than coal. The California Air Resources Board estimates that a Midwest wet-mill ethanol refinery’s direct emissions are 25 percent less when using natural gas as opposed to coal.

This is important economically because ethanol, with low carbon intensity, may command a premium when marketed to states and provinces with low carbon fuel standards such as California and British Columbia.

Another benefit to renewables is the complementary nature of natural gas and wind electricity generation because natural gas-fired power plants can be used intermittently to meet fluctuating demand and supply, such as when the wind doesn’t blow (a foreign concept to North Dakotans).

The case of natural gas illustrates the general issues of price volatility and risk management, which are nothing new to agriculture or energy.

Back in 2006, rising natural gas prices had ethanol refineries that used natural gas considering retrofits to take advantage of relatively inexpensive coal. In 2007, a new Midwest ethanol refinery proudly announced the multimillion dollar cost savings it would realize from having installed a coal-fired boiler.

There is an interesting side story related to natural gas and renewables. A bill in the U.S. House of Representatives seeks to classify fuels produced using natural gas as renewable under the Renewable Fuel Standard (RFS). This would allow natural gas-based fuels to help meet annually mandated levels of use. I had a bit of a headache on first reading because natural gas doesn’t meet my definition of renewable. However, the sponsors of the bill note that domestic natural gas production improves the nation’s energy security and that a new “domestic alternative fuel” category would be added to the RFS.

NDSU Agriculture Communication – Aug. 15, 2013

Source:David Ripplinger, (701) 231-5265, david.ripplinger@ndsu.edu
Editor:Rich Mattern, (701) 231-6136, richard.mattern@ndsu.edu
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