LIEBREICH ON SYNTHESIS: “THE QUESTION IS WHETHER WE MOVE STRAIGHT TO A POWER SYSTEM BASED ON RENEWABLES ... OR ‘BRIDGE’ VIA A SYSTEM BASED MAINLY ON NATURAL GAS.”

MAY 2013 AMERICAN GAS 33

BNEF Chief Executive MICHAEL LIEBREICH

explores the future of energy

and as I started to read more about climate change, that certainly became one more reason I was convinced the world would move to clean energy.

AGA: You’ve stated that we’re in the midst of a Hegelian dialectic, moving from a thesis that only fossil fuels can meet our needs, to an antithesis that we should use only renewables, and finally to a synthesis in which our energy system combines a range of sources and uses all wisely. Where are we in that journey?Liebreich: What we will eventually see is an energy system that is based mainly around renewable energy and natural gas. There will be biofuels, but mainly using nonfood feedstocks—waste, algae, exhaust CO

2, and the like. There will be

some nuclear, where the public accepts it; the West will focus on life extension; new build will be in China, India, the Gulf, and a few other countries. On the demand side we’ll see a truly dramatic improve-ment in energy efficiency. And threading it all together, a smart grid, pervasive thermal and electrical storage, plenty of electric vehicles, and smart cities.

So that is what synthesis looks like. The question is really whether we get there in 20 or 70 years. And whether we move straight to a power system based on renewables, with natural gas just to meet peak demand, or whether we “bridge” via a system based mainly on natural gas, with renewables taking over later. The answer is probably somewhere between the two.

AGA: Investments in cleantech dropped significantly in 2012. What’s the future of sustainable energy over the next five years? Over the next 10?Liebreich: Investment in clean energy dropped by 11 percent in 2012. But note that solar was the biggest investment sector, and prices of PV panels dropped by 20 percent during the year. In fact, the price of wind turbines, electric vehicle batteries, and all the other key clean energy technologies dropped during the year. So one of the reasons investment dropped was because the equipment got cheaper.

On the bright side, 2012 saw clean energy becoming fully competitive with … fossil fuels in a number of countries and sectors, without subsidy. Rooftop solar is now competitive with daytime retail electricity cost in most sunny mar-kets, particularly where electricity costs are high or the grid is unreliable. Onshore wind farms are competitive with new coal capacity in large parts of the U.S. and even in Australia, two countries not exactly short of coal.

So yes, 2012 was a tough year, with equipment providers suffering from a sig-nificant supply overhang. But the demand side had a much better year, and it is hard not to be optimistic about the future, because the cost reductions will keep on coming as clean energy continues to scale.

AGA: Where will we see the most activity in renewable energy in North America?

Michael Liebreich is the founder and chief executive of Bloomberg New Energy Finance, a provider of research and analysis for the energy and power markets. Before founding the company, he was a consultant at McKinsey & Co. He has also worked as a venture capitalist with Groupe Arnault and was founding director of Sports News Television. Liebreich is a member of the World Economic Forum’s Global Agenda Council on the New Energy Architecture, the United Nations Secretary General’s High-Level Advisory Group on Energy and Climate Change, and other industry groups. In January BNEF collaborated with the Business Council for Sustainable Energy to produce the Sustainable Energy in America 2013 Factbook, which includes contribu-tions from the American Gas Association.

AGA: You competed in skiing in the 1992 Olympics in Albertville, France. Did your interest in sustainable energy grow out of concerns about global warming?Michael Liebreich: Back in 2003, when I was thinking of starting New Energy Finance … I was actually quite skepti-cal about climate change. I was more interested in the depletion of fossil fuels driving us to ever more extreme sources; in the geopolitics of oil, which had us embroiled in the second Gulf War; and in the promise of new technologies like biotech, nanotech, composites, and really cheap Internet-based IT.

As a skier and climber you can’t help but be interested in environmental issues,

WHAT SYNTHESIS LOOKS LIKE

P R O F I L E

PHOTOGRAPHY COURTESY OF BLOOMBERG

AMERICAN GAS MAY 201334

Liebreich: We are seeing a broadening of the geographic locus of clean energy investment, with significant new mar-kets in Mexico, South Africa, and Saudi Arabia. Japan, post-Fukushima, is also one of the fastest-moving markets right now. In terms of sector, the big ones are rooftop solar—which is really exploding as it be-comes competitive without subsidy—and wind. Offshore wind is picking up speed. Though it is currently quite a bit more expensive than onshore, it does offer the promise of large-scale energy provision, assuming there is plenty of gas to help deal with the intermittency question, which looks like a fairly safe bet.

AGA: Where does natural gas fit into the North American energy mix? Is natural gas complementary or competi-tive to renewable energy?Liebreich: Natural gas and renewable energy are natural bedfellows. One is zero carbon, the other is fully dispatchable. Between them—given that we will have a smart grid and electric vehicles in pretty much any version of the future—they can form the backbone of North America’s energy system.

AGA: How will shale gas continue to affect the energy industry?Liebreich: The very low costs of natural gas in North America right now are hold-ing back the development of renewable energy. We all know that at $2 and $3 per MMBtu, producers of dry shale gas are losing money. Even so, these super-low natural gas prices have sort of mesmerized a lot of people, including policymakers, and made them scared to continue to sup-

port clean energy. We all know gas prices have to rise, and indeed are rising. So in the medium term everything will get back into balance, and the U.S. will continue its historic shift to natural gas and renew-able energy.

AGA: Where do you see natural gas prices heading over the next five to 10 years? If prices rise, will that make gas less competitive against coal?Liebreich: We see natural gas prices in the U.S. rising to around $4.50 per MMBtu by 2015 or so. But, as the saying goes, he who forecasts learns to eat ground glass. Natural gas prices are notoriously volatile, and prices could easily stay depressed for longer if there are no cold winters, or

spike much higher. As gas prices rise, the collapse of coal use in the U.S. might slow.

But we are not going to see a return to the days of King Coal. There are too many plants being shut for environmental, rather than economic, reasons, and it’s too hard to build new coal plants. The wild card is carbon capture and storage, and we’ll see some of that driven by enhanced oil recovery, but not enough to shift the power mix back toward coal.

AGA: BNEF is focused on energy finance. Who’s investing in natural gas, where are they investing, and how will those investments drive the market?Liebreich: Producers have gobbled up enough acres to sit on their hands for a while, though international acquisitions of North American unconventional plays continue, especially from China. A huge reason for the current glut of gas was pro-ducers drilling just to hold their acreage, not for economic reasons. Now that most of that acreage is held, upstream invest-ment dollars will continue to flow out of all but the sweetest of the sweet-spot gas plays and into oil. A lot of investments are being made in the midstream, in process-ing and fractionation facilities and in new pipelines to find a home for increased flows from the Appalachian Basin. Prob-ably most interesting is where some of these dollars are coming from. We’re seeing big-time co-investments from funds that traditionally have steered shy of risky upstream oil and gas investments. Shale isn’t just a game changer in terms of vol-umes; it’s also a game changer in terms of risk. These wells are smaller, onshore, and with increasingly well-understood geology.

P R O F I L E

LIEBREICH ON THE ENERGY MIX: “NATURAL GAS AND RENEWABLE ENERGY ARE NATURAL BEDFELLOWS. BETWEEN THEM...THEY CAN FORM THE BACKBONE OF NORTH AMERICA’S ENERGY SYSTEM.”

MAY 2013 AMERICAN GAS 35

We think that as cheaper capital creeps into the sector, the days of supercharged returns in the U.S. onshore are quickly coming to an end.

AGA: Other than as a source for power generation, where will we see natural gas being used in North America? Fuel cells? Vehicles?Liebreich: It will take a long time and a lot of investment to see natural gas make really meaningful inroads into transporta-tion, though we are very positive on its long-term prospects as a transportation fuel. Simply put, that market is starting from close to zero, so even triple-digit growth means the overall volumes will be limited. The main boom market, outside power generation, will be in petrochemi-cals, where we are seeing the first new plants for decades in some cases, and in energy-intensive industries like metals, methanol, and fertilizer production. This ignores the very substantial volumes that are likely to be exported outside North America as LNG, which we think will add up to perhaps 6 billion cubic feet per day by 2020.

AGA: What do you predict for the natu-ral gas industry in 10, 20, and 30 years?Liebreich: We just had several gold-rush years, and producers are now in the early stages of the hangover. It will be several years before we start drilling gas for gas’ sake again. But once we do, there will be a long period of relative price stability. Drilling technologies and well-mapped geology mean there is almost infinite acre-age for the next decade or two. After that, who is to know? In 20 years we will have a lot more data on the trajectory of climate change, and what measures mankind is prepared to take to address it. We will also have much cheaper renewable energy, much cheaper power storage, and a grid that can easily deal with intermittency. All that might stop natural gas in its tracks. Or it might not! u

PAST PERFORMANCE, FUTURE RESULTS:NATURAL GAS MAKES BIG GAINS While a soft economy and better efficiency have curbed energy demand, the proportion of energy from natural gas has increased. Power generation is the primary demand driver, as gas-fired plants now generate 50 percent more electricity than five years ago. At the same time, the boom in supply has sparked investment, setting the stage for dramatic rise in LNG exports over the next seven years.

U.S. Primary Energy Consumption vs GDP

quad

rillio

n BTU

0

2

4

6

8

10

12

14

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

2012

Other

Hydro

Naturalgas

Nuclear

Petroleum

Coal

GDP

105

0

15

30

45

60

75

90

GDP (

$bn)

U.S. Electricity Generation by Fuel Type

Other

Renewables(including hydro) Natural gas

Nuclear

Oil

Coal

0%

20%

40%

60%

80%

100%

2007 2008 2009 2010 2011 2012

U.S. Natural Gas Demand by End-use(Industrial, Commercial, Residential)

2008 2009 2010 2011 2012

Commercial

Residential

Industrial

Power

0

10

20

30

40

50

60

70

BCFD

18.3

18.3

13.4

8.6

58.6

18.8

16.9

13.1

8.5

57.4

20.2

17.9

13.1

8.5

59.7

20.8

18.4

13.0

8.7

60.8

25.0

18.9

11.1

62.97.8

U.S. LNG Export Contracts by Year and Project

1.2 1.2 2.2 2.2 2.2 2.2

0.5 1.1 1.6 1.6 0.7 0.7

0.7 0.7 0.6 0.6 0.6 0.3

1.1 1.1

1.2 1.2

3.4

4.9

6.2 6.2

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

2015 2016 2017 2018 2019 2020

Uncontracted

Freeport

Cove Point

Cameron

Sabine Pass

BCFD

U.S. Utility Construction Expenditures Natural Gas

6.39 5.383.52

7.42

5.434.95

5.67

6.990.87

0.560.51

0.701.23

1.141.15

1.65

14.09

12.1511.04

17.10General

Production and storage

Underground storage

Distribution

Transmission

0

2

4

6

8

10

12

14

16

18

2008 2009 2010 2011

billio

ns

Source: Sustainable Energy in American 2013 Factbook, Bloomberg Finance LPand the Business Council for Sustainable Energy, January 2013.