The Future of Gas: Biogas fails while Natural Gas Prevails

 


INSIGHT


  • BIOGAS IS IN A DIFFICULT POSITION BECAUSE OTHER ENERGY FEEDSTOCKS COMPETE WITH IT VERY EFFECTIVELY.

  • NATURAL GAS APPEARS TO BE A STRONG COMPETITOR.  MANY COUNTRIES HAVE CHOSEN NATURAL GAS OVER BIOGAS BECAUSE OF ITS GLOBAL DISTRIBUTION, AVAILABILITY, HIGH CALORIFIC VALUE AND ENVIRONMENTAL FRIENDLINESS. 

  • BIOGAS COMPETES WITH AGRICULTURAL USE. THIS IS ESPECIALLY TRUE IN COUNTRIES THAT SUBSIDIZE BIOGAS. THIS ALSO APPLIES TO COUNTRIES THAT ALREADY HAVE THRIVING BIOGAS PRODUCTION.



1. The problem is that biogas competes with natural gas. Biogas can only lose this game.


Biogas has a much lower energy return on invested energy. It is unlikely that biogas can outperform natural gas. Why is that? Biogas still relies on subsidies and special feed-in tariffs to make it worthwhile to feed biogas into the pipeline network. Biogas also produces a large amount of sulfur, which can damage the pipeline network. Who pays for these costs? This is just one example that shows that there are many operational uncertainties in implementing biogas as part of the gas grid infrastructure.

Many countries have decided to expand their natural gas supply. This is because natural gas is considered relatively environmentally friendly compared to other fossil fuels. Although biogas is a renewable energy source, there have been some doubts about the impact of biogas on the environment and, in particular, soil depletion.


2. Biogas is struggling to compete with natural gas in the North American market.


Oil-importing regions benefit significantly more from biodiesel than from biogas, as diesel is often more difficult to replace. This is the case even if biodiesel accounts for only a small share of transport fuel and primary energy consumption.

The same is not true for biogas. Most industrialized countries have relatively easy access to natural gas. It depends on where they are, of course. But the general story remains the same. In the case of the United States, tight oil is often located in close proximity to natural gas deposits. Often, the natural gas cannot be used because the local infrastructure is not sufficiently developed.

So the problem in the United States is that the infrastructure is not developed enough to fully utilize natural gas. But the demand is there, especially in industry. In the United States, more and more production is being shifted from China back to the United States. This implies a growing demand for energy in manufacturing and industry.

This additional demand can be met to some extent by natural gas. Given the large quantities of natural gas that cannot currently be effectively utilized, it is unlikely that biogas can currently play a particularly important role in North American energy markets.

We would also need to consider agricultural use and, in a U.S. context, U.S. production of biofuels. Biogas would compete with the production of biodiesel from sugar cane. Of course, there are exceptions. Biogas can still play an important role in distributed energy systems at the local level. 


3. Biogas is struggling to compete with natural gas in the European market.


In the European market, things look rather different. But in the end, biogas also has a hard time. At present, biogas is subsidized generously by governments across the continent. Subsidies were particularly generous in countries like Germany. Germany favors biogas over other energy sources. This has led to a boom in the construction of new biogas plants in Germany, particularly in northern Germany. But without subsidies and better feed-in tariffs in the gas grid, it is unlikely that biogas will be able to compete effectively.

We need to see where the pain points are. The real problem for biogas in the European markets is twofold. One problem is that natural gas and nuclear power have been chosen for baseload power at the European level. France has chosen nuclear power, and nuclear power accounts for the majority of baseload power in the French power sector. In contrast, Germany has chosen natural gas to meet its baseload electricity needs. Germany sees natural gas as an environmentally friendly option and a fuel that can provide sufficient energy to supply its industry.

But unlike France, Germany has chosen to end decades of nuclear development and switch entirely to renewables. Whether this is possible is another question, but one example is that Germany is making natural gas the base load for electricity generation. A great many natural gas power plants have already been built in Germany, and many more are already being planned. 

Given the fact that prices go down the more you buy of a particular commodity, this will further reduce natural gas prices in Germany. This will make biogas much more expensive in the long term. At the same time, subsidies for new biogas plants are slowly being phased out and eliminated. So we see a possible shift of the American and European market towards natural gas.

Again, it must be said that biogas certainly has its place in the U.S. and European energy markets. However, it is more likely that biogas will be added to the existing fuel mix. Natural gas is likely to be the major player in electricity markets over time. At this point, we haven’t even talked about the construction and operation of Nord Stream 1 and Nord Stream 2, which will add even more weight to natural gas supplies. 


4. Biogas has a bright future in countries that need a decentralized energy infrastructure.


This should not be seen as meaning that biogas cannot contribute to the energy mix of the future. It simply means that many countries have other alternatives. They give preference to natural gas over biogas simply due to the fact that natural gas has a higher calorific value, can be used in a variety of environments, such as heating and powering industry. It allows for economies of scale and significantly reduced prices because it is also used by a wide range of customers.

Unlike biogas, natural gas does not come from a variety of sources. There is often one central supplier and you can sign long-term contracts at lower prices. This is because larger volumes allow for the reduced prices at the same infrastructure cost. In contrast, every biogas plant must first be connected to the gas grid. That in and of itself is an expensive undertaking.

In addition, there is a great demand for biogas in countries like India. In India, biogas plays a central role in the energy mix because the country is huge and agricultural in many places. It takes many years to build the gas grid infrastructure and so biogas can play a central role in the energy security of the regions. The idea that biogas plants can play a significant role in further decentralizing energy systems also applies to many African countries.

Biogas does have a future, but its future depends on local circumstances. In countries like Germany, we have most likely already exhausted the full potential of biogas production, where biogas now competes with agricultural land use. 


5. Conclusion


  • The use of biogas in the U.S. market will depend on the success of tight oil and tight gas exploration and the maintenance of current production capacity. Natural gas production in the U.S. market is often tied to oil exploration activities in nearby areas. Oil exploration related to tight oil production depends on the price of oil. In the U.S. market, biogas competes with sugarcane for production capacity and market share for biofuels.

  • In Europe, biogas competes with natural gas, which is much cheaper to produce and is supplied via pipeline gas networks from the Russian Federation. LNG will also be supplied to the German market in the coming years. This will increase the price pressure on any further expansion of biogas in the Central European market. In Germany, biogas production has already started to compete with agricultural production.

  • The growth of the biogas industry will mainly depend on new markets such as India and Indonesia. Biogas is well suited for countries and regions that require a more decentralized energy system. 


Many thanks for the shared interest in the energy world!



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