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By Andrew Holland on Jun 24, 2013 with 6 responses

Why a Global Shale Gas Boom is Key to Combating Climate Change

Reduction in Energy-Related CO2 Emissions

The United States has seen a remarkable run in reducing its greenhouse gas emissions over the last five years, reducing energy-related CO2 emissions from 2007 to 2012 by 12%, from six billion tons to 5.29 billion tons. While part of this reduction in emissions is attributable to a reduction in energy demand due to the economic downturn, another reason for this huge reduction is an increase in the use of natural gas for electricity.

In a story that is now familiar to most readers, the shale gas revolution in the United States has dramatically reduced the cost of natural gas. From a peak of $10.54 per million btu (mbtu) in July 2008, the spot price of gas at the well-head had fallen to less than $2/mbtu by April 2012.

Because utilities respond to price incentives, this caused fuel-switching of baseload electricity production from coal to natural gas, leading to a time in April 2012 when natural gas equaled coal as an energy source for the first time. This switch has partially been undone, with coal now producing 40% of electricity and natural gas 26% as gas prices have bounced back to $3.85/mbtu. Because burning natural gas for electricity produces half as much carbon emissions as coal, fuel switching is one of the main causes in the U.S. reduction in emissions.

Coal Export Boom

These reductions have some claiming that the United States, with just a few tweaks in policy, could reduce its emissions to the point of meeting the commitments that President Obama made in 2009 at the Copenhagen conference – a 17% reduction (from 2005 levels) by 2020.

While utilities respond to prices signals, so too do coal mining companies. The reduction in domestic use of coal for electricity has reduced the production of coal (as you would expect), but it has also led coal producers to seek markets overseas.

The data shows that, over the last 5 years, the U.S. is both producing less coal and exporting more, due to competition from low-priced natural gas. In 2012, the U.S. produced just over 1 billion short tons of coal, 7% less than 2011 and 11% less than the 1.15 billion short tons produced in 2007, before the shale boom really took off.  In 2012, the U.S. exported a record 126 million short tons of coal (12% of total production), compared with 59 million short tons in 2007 (5% of production).

Outsourcing U.S. Emissions Abroad

So, while the U.S. has reduced its emissions, by exporting coal that is mined here, we are essentially outsourcing part of the emissions that would otherwise have been burned here. The atmosphere does not care where greenhouse gas emissions come from. New Energy Secretary Moniz recently praised the U.S. as “the only major industrial economy with lowering C02 emissions over the last few years” – but if we continue to export this much coal, the world will not see any actual environmental benefit.

Environmental campaigners like the Sierra Club realize that coal exports simply mean an exporting of American emissions abroad, hence the serious fight in the Pacific Northwest over licensing new coal export terminals. In the New York Times, they report on the fight over coal exports from the American West Coast, saying ”Coal Industry Pins Hopes on Exports as U.S. Market Shrinks.”

However, on the East and Gulf Coast, a rapid growth in coal exports from Baltimore, Norfolk, and New Orleans shows that the coal is getting out; the largest export terminal for coal to Asia is Baltimore!

Without the release valve that exports provide, many coal producers would no longer be economical and coal mining would cease due to domestic market pressures. However, no one is proposing to close already existing export terminals on the East Coast – they are growing rapidly.

How to Reduce Global Emissions

The way, then, to actually reduce global emissions is for the rest of the world to replicate the gains we have seen on U.S. emissions by using market forces – gas should replace coal in electricity production. The way to do that is to ‘globalize’ the shale gas revolution. That means two things. First, the United States and other major natural gas producers must build and permit more liquefied natural gas (LNG) terminals. Instead of exporting dirty coal, the policy of the United States should be to export cleaner-burning natural gas.

However, LNG exports can only bring us so far, because liquefying natural gas for export is costly – adding between $5 and $8/mbtu. In order to truly reap the benefits of a globalized shale gas boom, we should also export American technology and expertise to other countries with shale gas resources.

Last week, the EIA came out with a new report showing that shale gas resources are globally abundant, with shale gas increasing the total amount of technically recoverable global gas reserves by 32%. There are huge reserves around the world – with China, Argentina, and Algeria each having more shale gas resources than the United States’ huge reserves. Today, very little of that shale gas is being extracted. In the United States, technologies like horizontal drilling, computerized seismic analysis, and fracking have combined with a permissive regulatory environment and strong private property rights to allow for the exploitation of shale gas. So far, this combination has been difficult to replicate abroad.

Conclusion: For Natural Gas to be a Bridge Fuel, Shale Gas Boom Must be Globalized

In the short and medium terms, only natural gas will have the capacity to reduce the growing demand for coal in Europe and (especially) Asia. In the longer term, renewables like solar and wind combined with other new clean technologies can fully decarbonize energy production. But, in order for natural gas to truly be a bridge fuel to an actual clean economy, the shale gas revolution cannot be localized to the United States – it has to be globalized.

As recent IEA and World Bank reports have shown, the world is on a path toward dangerous levels of warming. We need immediate action to reduce emissions – and natural gas is ready to step in now. A global boom in both production and trade of shale gas would bring down prices and encourage rapid fuel switching from coal to natural gas. In time, zero-carbon and renewable energy would have to fill the gap, but they are not growing fast enough today to supplant coal. Ironically for many environmentalists, the only realistic way to effectively reduce emissions today is to promote and embrace a global natural gas boom.

  1. By Shiggity on June 24, 2013 at 6:41 pm

    EVs, Solar PV, and Wind are already ahead of you I’m afraid. Too often people advocating more natural gas completely gloss over the amount of water resources required for the operations. Water is significantly more expensive in some countries and their water infrastructure is usually deficient.

    I suppose you didn’t know there is a drought in Texas currently going on that is classified as a state-wide disaster.

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    • By Lance Sjogren on June 25, 2013 at 12:16 pm

      Solar PV and wind are incapable of replacing fossil fuels, because of their intermittency. The one exception is that by using them in conjunction with natural gas peaking plants.

      The water consumption of fracking is a tiny fraction of that consumed by other human activities such as agriculture.

      Please get your facts correct before opining.

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      • By Andrew Holland on June 26, 2013 at 2:03 pm

        Lance, Shiggity – thanks for commenting.

        I would say that of course solar PV and wind can work without peaker plants – you need either some sort of stored energy back-up (battery, flywheel, pumped hydro, etc) or very good grid interconnections. At this time, its probably cheaper to run it with natgas, but that doesn’t mean that they’re incapable of replacing gas.

        With regards to water consumption: it is a big, but not insurmountable problem for fracking. It is neither a tiny fraction, nor is a dealbreaker. The EPA estimates that the 35,000 fracked wells use between 70 and 140 billion gallons of water – that’s a lot! It about the requirement of one 2.5-5 million person city. In some areas, that extra water simply doesn’t exist, but in others, its easily available. There are ways to mitigate this problem: you can use wastewater as fracking water, or you can even use propane.

        Finally – I would say that gas has a great advantage over other forms of fossil fueled electricity generation in that it doesn’t require water for cooling, as coal or nuclear plants do – so gas is better suited for electricity generation in dry areas.

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  2. By discus_thrower on June 26, 2013 at 3:29 pm

    You raise some interesting points. But my question is, have we completely missed the lessons of the ‘food vs. fuel’ conflict that blew up when policy-makers flung open the gates to “drill-baby-drill” for ethanol in the corn formation? As I’m sure you know (but did not mention in your analysis), in order for hydraulic fracturing of shale gas formations to blast the gas or oil out of rock, you need massive amounts of water.

    Almost every credible forecaster out there is projecting water scarcity as the trajectory of temperatures and population numbers rise.

    According to the EPA 35,000 fracking operations annually consume between 70 billion and 140 billion gallons — the equivalent of supplying water to 40 to 80 cities with populations of 50,000 people.

    For those who are betting that there will be a rich and plentiful supply of fresh water, take a look at http://www.global-warming-forecasts.com/water-supply-shortage-water-scarcity-climate.php ) and then overlay those maps with maps of shale oil and shale gas production and forecasts for heat waves, droughts, wildfires and ocean acidification impacts on fresh water supplies.

    What impact will the fracking gold rush have on water prices? What impact, in turn, will those rising water prices have on food prices?

    Reality bats last. Ignoring water supply realities will impale the unwary. Water is an unforgiving showstopper here. This is about increasing the likelihood of a fistfight between those who demand that water supplies be safeguarded for food production and safe drinking-water purposes vs. those who want to draw off large volumes of water for hydraulic fracturing to produce gas and oil — A problem that is hardly bothersome for those who solve the same problem with energy efficiency and other supply-side clean energy technologies.

    Another issue that is clearly not being adequately addressed is the impact of global shale production on ocean acidification. We have already dumped over 500 billion tons of carbon into the ocean. More methane into the atmosphere means even more carbon being dumped into the oceans . More carbon into the oceans means more carbonic acid in the oceans. More methane pumped into the atmosphere also means more methane with its near-term 20-year GWP heat trapping potential 72 times more potent than CO2.

    Before we jam the accelerator on shale gas, shouldn’t we first assess how this shale gas gold rush scenario will impact the acceleration of ocean acidification? How will it impact fisheries in an already over-fished world that is ratcheting itself up to 8 billion thirsty and hungry people in a dozen years?

    How will ocean acidification impact aquaculture, agriculture and freshwater drinking supplies? See http://www.order-salmon.com/salmon-global-warming-salmon-climate-change.php

    Will desalination of seawater really deliver a surefire backup solution? How will ocean acidification (and freshwater acidification) impact those desalination membranes that are the linchpin of water purification? How will the cost of removing salt and acid from ocean water desalination impact the cost of water and the cost of food? And in the end, wouldn’t it all have been cheaper just to find alternatives to burning carbon emissions in the first place?

    If I were an investor, I think I would feel safer investing in casinos.

    In any event, thank you for taking a deeper look at this issue,
    Burnet

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    • By Andrew Holland on June 26, 2013 at 3:40 pm

      Burnet – all good comments – and as Robert says in a column he’s got out today, every energy source has its ‘buts’ and shale gas has a lot.

      Basically, my point is that the world needs to rapidly start reducing carbon emissions. I don’t think that there’s enough government regulation around the world to do that, so that means we should use markets. All that means is that we need a source of energy that produces less emissions than coal or oil, is cheaper, and is at a scale big enough.

      Correct me if I’m wrong, but the only thing that can fit the bill over the next 5 years is a global shale gas revolution. What else can fit the bill? I’d love to hear it!

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      • By discus_thrower on July 1, 2013 at 8:55 pm

        Point well taken. But to your question “What else can fit the bill,” my response is this: Energy efficiency.
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        Energy efficiency is the largest untapped energy resource. McKinsey & Company describe the size of the energy efficiency opportunity as “massive.” The size of energy efficiency-related energy use reductions since 1997 (EIA data) amount to the equivalent of 14.5 million barrels per day which, as the ACEEE has pointed out, “dwarfs the increase in oil production and the amount of shale gas we currently produce.” Another ACEEE study found that energy efficiency was responsible for meeting 75 percent of the demand for energy services since 1970, while actual supply met only 25 percent.
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        Energy efficiency is much less risky. Unlike methane gas which has a whopping and frankly scary global warming potential (GWP) that is 72 times more potent at trapping heat than CO2 (IPCC), energy efficiency is an energy source with a GWP of ZERO.
        -
        And less costly. At $3.85/mmBtu the cost of gas may look cheap, but the numerator of that number omits including the very real cost of externalities (i.e., driving up water and food prices by adding to water supply scarcity, contributing to climate instability and the consequent rise in disaster insurance premiums) that are all part of the real methane invoice.
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        On the other hand, energy efficiency is an investor’s dream. Short lead times. Short payback periods. Less litigation. It has the most compelling economics of all energy sources. Moreover, it will never be blamed or sued for causing extreme weather events like hurricanes, tornados, wildfires and droughts.

        Have a great July 4th holiday,
        Burnet

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