The Natural Gas Myth

From Slate

By Jamie Holmes

There’s a pernicious argument being made against energy efficiency, and it goes like this. Last winter was one of the warmest on record, so people had to spend less to heat their homes and businesses. That, combined with a “drilling binge ” in shale gas and new production, made for record low natural gas in prices in April, at less than $2 per million British thermal units (MMBtu). This phenomenon has boosted the U.S. economy to the tune of more than$ 100 billion annually, by one estimate.  With such low prices, the thinking goes, investments in alternative energy and energy efficiency don’t make sense.

“All bets are off for the future of energy in the United States and, indeed, the world, as the price of natural gas plummets to ever-lower values,” the University of Virginia’s S. Fred Singer wrote in the American Thinker last spring.  Singer even speculated that “cheap gas will completely remove the need for electricity generated by solar or wind.” In August, a Deloitte study found that current low prices were making many energy efficiency projects less attractive, since it would take too long to show a return on investment.

Indeed, in a “fact sheet” shared recently with Ohio state legislators, the utility FirstEnergy argued that the current energy efficiency mandates don’t make sense anymore. The landscape has “radically changed,” and with the discovery of shale gas resources and low energy prices, “the factors driving the mandates no longer exist.” In Nebraska, one of the worst states in the country for energy efficiency standards, the CEO of the Loup River Public Power District offered the same basic argument last month.

But these claims don’t hold up under scrutiny, as a September white paper by the American Council for an Energy-Efficient Economy makes abundantly clear. It’s true that in the short term, cheap natural gas makes investments in energy efficiency less profitable and slower to show a financial return. According to ACEEE, natural gas prices start to make energy efficiency infrastructure investments cost effective at about $3 per MMBtu, and really start to make sense economically at $5-$7 per MMBtu. With today’s price of about $3.50, energy companies’ current position appears to make some sense. But there are critical caveats attached to these numbers.

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