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New Natural-Gas Technologies Could Boost Cleantech

Cheap, abundant natural gas is helping to drive down venture capital investment in wind power and other clean technology. But emerging natural-gas innovations may breathe new life into the cleantech sector with everything from chemical petroleum substitutes to renewable gas.

CLEAN TECHNOLOGY HASN'T BEEN RAKING IN the cash of late. Last year venture capital flows to the global cleantech sector plunged 33 percent, to $6.46 billion, San Francisco–based research and advisory firm Cleantech Group reports.

This slide may suggest that the skeptics are right about cleantech as an investment: It was a fad whose day has come and gone. But many experts contend that cleantech isn’t dying, it’s transforming. Helping to drive that change, and the current dip in funding, is the arrival of cheap, abundant natural gas on the U.S. energy scene.

Although the numbers frequently change, the U.S. Energy Information Administration recently estimated that there are 2,203 trillion cubic feet of recoverable natural gas in the U.S., enough to meet all of the country’s energy needs for 92 years at 2011 consumption levels. Through early February this year’s average contract settlement price was $3.35 per million BTU, the standard measurement unit for natural gas, compared with $9.04 in 2008. Natural gas thrills major energy companies with the promise that the U.S. could become a net exporter — in 2010 oil giant Exxon Mobil Corp. paid $35 billion for Houston-based producer XTO Energy — but it’s also helping to recast cleantech’s winners and losers.

Dallas Kachan, managing partner at Kachan & Co. 

“There are a series of technologies and business models that compete directly with natural gas,” says Sheeraz Haji, CEO of Cleantech Group. “For example, solar power plants have had a challenge because they get compared with natural-gas power plants.” Venture capital investment in renewable wind power has also fallen off, Haji adds. Like their solar and natural-gas counterparts, wind plants produce energy on a large scale, but they can’t compete with natural-gas prices.

“Biofuels as an investment thesis have also been hurt by low-cost natural gas,” says Richard Stuebi, founder and president of NextWave Energy, a Cleveland-based cleantech consulting firm. Excitement over emerging technologies that would allow vehicles to run on natural gas is supplanting the buzz around biofuels as a petroleum substitute, Stuebi explains.

But Haji notes that even though natural gas has turned some venture capitalists off cleantech, it could boost subsectors of this broad and diverse industry. Thanks to natural gas, he predicts, several cleantech chemicals makers will attract growing attention and investment capital.

Last summer Siluria  Technologies, a San Francisco outfit looking to commercialize its process of turning natural gas into chemicals that can serve as an alternative to petroleum, pulled in $30 million from big-name venture investors, including Moscow-based Bright Capital; Menlo Park, California–based Kleiner Perkins Caufield & Byers; and Seattle’s Vulcan Capital. Water treatment technologies are now getting a closer look because hydraulic fracturing, or fracking, — the process of extracting natural gas from rock formations — uses vast quantities of water.

When it comes to attracting investment, transportation and biofuels/biochemicals topped Cleantech’s list of cleantech subsectors in 2012. (Haji says biofuels and biochemicals have always been combined into a single category, but recently he’s seen a strong trend in favor of the latter.) Water/wastewater was one of the few subcategories that won more deals last year than in 2011.

Many analysts see natural gas as a bridge fuel that can help the economy shift from coal and other carbon-heavy fossil fuels toward renewable energy. Though that may seem an obvious role today, gas prices can’t stay this low for much longer, asserts Carter Bales, chairman and managing partner of NewWorld Capital Group, an environmentally focused private equity firm based in New York. Bales thinks regulators will put an end to cheap natural gas by forcing producers to account financially for the outsize resource consumption and pollution involved in fracking.

Natural gas is a finite energy source that releases greenhouse gases — about half as much as coal, but enough to contribute significantly to climate change. Cheap natural gas is only delaying the necessary shift to renewables, environmentalists say.

But Dallas Kachan, managing partner at Kachan & Co., a San Francisco–based consulting firm that provides cleantech analysis, believes that if technological innovations can create natural gas from renewable sources, the future might look very different.

“Yes, some clean-energy sectors are being uprooted by the low price of natural gas today, but we’re really bullish on what natural-gas innovation means for clean energy,” Kachan says. As he points out, companies are trying to derive natural gas from renewable sources such as landfill and agricultural waste; utilities could use this energy in their existing infrastructure, avoiding the need for expensive wind turbines or solar panels. “If we can, in fact, crack the code of making large volumes of natural gas cheaply from renewable sources, that is potentially hugely disruptive to the whole world of energy,” Kachan contends.

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