Gas Is A Risky Bet
Oil and gas companies have raked in record profits after global energy markets were upended by Russia's war in Ukraine, but their short-term gains mask an industry facing serious trouble. Renewable energy was already poised to outcompete gas on price here and abroad, calling into question investments in new pipelines and other infrastructure to export gas. A new era of expensive fossil fuel prices only heightens the risk, as utilities and nations across the world race to deploy cheaper, less volatile and more secure alternatives.
Gas Demand in the U.S. is Faltering
Wind and solar are getting so cheap that new renewable generation is undercutting the marginal cost of running existing fossil fueled plants everywhere. Gas demand in the U.S. power sector was already nearing its peak, and new incentives included in the Inflation Reduction Act (IRA) are further turbocharging clean energy deployment. Given this long-term trend, there is enormous financial risk in continuing to invest in gas.
Even before passage of the IRA, one analysis found that 90% of all planned U.S. gas-fired power plants (representing $70 billion in investments) are at risk of becoming financially obsolete by the mid-2020s, well before they reach the end of their assumed economic lives. The financial carnage arrived first for the gas turbine suppliers, like GE and Siemens, whose businesses endured deep slumps as the energy industry shifts to renewables and the market for gas turbines crumbles.
Exports Won’t Save the Gas Industry
Oil and gas producers have been counting on exports of liquefied natural gas (LNG) to prop up demand and justify massive new fossil fuel infrastructure investments. It is an increasingly dubious assumption.
Europe’s demand for gas imports surged in 2022 after Russia shut off its pipelines, sending prices for LNG cargoes to record highs. Despite generating massive short-term profits for the gas industry, the extreme cost and price volatility risks have undermined the fuel’s future. The unaffordability of LNG has led to blackouts in Bangladesh and Pakistan and created permanent demand destruction in both Asia and Europe. As a consequence, even conservative estimates now expect that global gas demand will peak in the 2020s.
Pipelines Face an Equally Perilous Future
Pipeline owners face similar financial risks. As clean energy increasingly dominates power generation, utilization of new gas pipelines could be cut by between 20% and 60% by 2035, potentially producing a “death spiral” for their owners.
Significant transition risks also confront gas distribution utilities. According to one estimate, as much as $180 billion in distribution infrastructure could be stranded as electrification continues to displace gas use in buildings.
Plastics Won’t Save the Industry Either
The surge in gas production from U.S. fracking has expanded the market for ethane, a component of gas sold as a petrochemical feedstock and used for producing plastics.
The gas industry was counting on continued growth in this market, but instead, demand for plastics is being threatened by both the coronavirus pandemic and recent actions by governments around the world, including local governments in the United States, to reduce plastic consumption. Further restrictions on plastics are expected too, as the world mobilizes to address climate change and ocean health.
Plastics production and incineration produce significant levels of greenhouse gas emissions (which, if left unchecked, could consume more than 10% of the remaining carbon budget scientists have set to stay under 1.5°C of warming). And the ocean is polluted with about 8 million metric tons of plastic every year, the weight of nearly 90 aircraft carriers, according to the National Oceanic and Atmospheric Administration.
Petrochemical demand won't save the oil and gas industry. Instead, it has emerged as an increasingly serious shareholder investment risk.
Jobs in the Oil and Gas Sector are Disappearing from the Economy
The current upswing in oil and gas profits has not brought back jobs in the industry, which peaked in September 2014.
We are likely already in the midst of the sector’s terminal decline. Government policy, planning, and investment are needed to protect oil and gas workers: A just transition would combine comprehensive social support for impacted workers, a major initiative to remediate the nation’s 3 million abandoned oil and gas wells that would employ impacted workers, bold investments in clean energy careers of tomorrow, and unionization of clean energy workforces.
