Will renewables leave new LNG exports in the dark?

Oil and gas prices aren't the only things that have fallen — renewable energy costs have, too.

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The North American shale gas revolution brought with it the hopes of potentially limitless LNG exports. The math is simple: current market conditions and average industry LNG costs could place North American LNG into an overseas natural gas market at around US$8.50/MMbtu. At such prices with a new combined cycle power plant (CCGT) with a heat rate of roughly 6,500 Btu/kWh, power could be generated at a variable (dispatch) cost ranging from US$55 to US$60/MWh.

To many countries whose power grids still rely on some level of oil-fired generation, the prospects for clean, relatively low-cost natural gas and resulting power remains tremendously appealing. As such, LNG-to-power projects are being considered in multiple countries across the Caribbean and Central and South America.

LNG supply markets are similarly bullish regarding this sector's attractiveness. Led by activity in Australia and the US, the next decade will have unprecedented growth in global LNG supply. However, over a third of US LNG under construction (post-FID) is still being actively marketed and most key potential sources outside of the US face some major development issues and are struggling to find firm buyers.

Potential global LNG supply by region

Still, while LNG costs have fallen, so too have the costs of certain power generation technologies (particularly wind and solar).

While much of the energy world remains consumed by sharply lower hydrocarbon commodity costs, renewable power technologies have improved tremendously. As renewable installations multiplied, costs declined sharply. Estimates have placed the learning rate effects at around 14% for wind and 18% for solar technologies.

In addition to other factors, the full cost of renewable power sources in many locations range from US$35 to US$60/MWh (excluding subsidies). Effectively, renewable technologies can today compete head-to-head with the variable costs of dispatching North American LNG via CCGTs (or other gas-fired generation technologies) in overseas markets.

The sun obviously doesn't always shine and the wind doesn't always blow, so there are natural limitations to the use of renewable power. Regardless, the continued advances in renewable performance suggest that natural gas-fired power generation technologies will rarely operate in base load configuration when priced off imported LNG.

With power storage technology being the next big development target, it's certainly easy to envision the world's power grid in 2030 looking very different than it does today.