The Siren Song of Cheap Natural Gas

The Wall Street Journal ran a good article last week on the "shale gale," a reference to the sweeping impact that newly discovered shale-gas reserves are having on energy policy. New cheap shale gas has created a tempting diversion for policymakers. They struggle to balance the low cost of natural gas against important but hard to value principles like energy security and environment. Because they make the choices that will shape our future energy infrastructure, how they respond will determine an awful lot about the future of energy.

The story of the shale-gas find is dramatic. Three years ago, the conventional view was the US was running out of natural gas. Then a few innovative developers, using drilling methods that fracture underground rock formations, discovered a way to release trapped natural gas. Their efforts unlocked massive new reserves literally beneath our feet. In a stunning reversal, conventional wisdom was turned upside down. Estimates vary, but the bottom line is that there now appears to be anywhere from 40 to 100 years or more of natural gas reserves that can be tapped at low cost to meet US demand (assuming current usage rates).

This puts the energy industry and policymakers in a pickle--something I saw firsthand recently at conference in Vail where a number of federal and state regulators spoke frankly about the issue. On the one hand they want to deliver the best cost enegy to ratepayers. On the other hand, they have a responsibility to make long term strategic decisions that ensure our energy supply is diverse, secure, and clean.

The easy choice is to let the siren song of cheap natural gas lead us into a massive build-out of new gas-fired power plants. It's politically easy to make decisions that result in abundant low cost electricity. And on the surface it seems more environmentally responsible too. If we replace coal with gas we'll end up a lot cleaner too, because efficient gas turbines create roughly half the amount of carbon emissions of a typical coal-burning plant.

But switching everything over to gas is not the responsible choice. It would make us overly dependent on a single fuel source. It would raise the pace at which we use gas, and thereby reduce the lifetime of a strategically valuable supply. And while it's cleaner than coal, gas is still a source of carbon emissions and much less clean than renewable sources like wind and solar.

The truth is we need a diversified energy supply that balances cost against other benefits like energy security, stability, and environmental benefits. The most compelling vision of what we could accomplish over time sounds like this: we leave the old nukes in place, retire the old coal plants, build as much renewables as we can take, and fill the rest with natural gas. This approach would result in a grid that is robust, diverse, clean, and affordable for generations to come.

Our role in all of this? We need to support our policymakers in making the right choices so they're not tempted to go with the cheap payoff of a big gas frenzy. It's the right thing do to for energy and for generations of energy users who will inherit the result of the choices we make today.

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PS: As I've blogged before, natural gas and renewables play very well together. Natural gas fired turbines can be ramped up and down quickly, answering the increasing need for dispatchable resources to balance rising intermittent renewable sources. It's very important to note that renewables and gas are not mutually exclusive . The choice is between an all-gas world vs. a symbiotic world which gas a renewables are integrated in a robust, diverse generating system.

 

Comments

[ShaleGasExpert]

Arno, firstly let me say that I agree with much of what you say. I also say that as far as I'm concerned, the scientific consensus for global warming is undeniable. But the scientific consensus is equally strong that shale doesn't pollute water as a matter of course today, and certainly not with the various movements towards 100% recycling and disclosure.

The battle right now is when various ultra Greens such as Gasland's Josh Fox, say absolutely no fracking anywhere on earth under any conditions now and forever, meet up with the rational wing of the Green movement.

They see coal as the enemy, but appear to be worried about gas as not a bridge fuel but a destination one. I can see their point, but realistically, replacing coal with renewable's is not going to happen physically or financially under today's technology.
Again, I sympathise: Just when solar and wind and nuclear were looking good based on a world where natgas was insecure and expensive, shale comes out of left field to have a real inflection point after which everything has changed.

Replace coal with gas. Perhaps have a modest carbon tax directed towards advanced solar or algae fuels, or thorium reactors or energy storage, or whatever. We will immediately cut emissions much further and much cheaper than using today's technology.

Three things I think that you might not have gotten yet are:

1. The resource, in and outside the US, is massive. We aren't looking at stringing out gas for another 40 years, we are looking at over 200 years in Europe, China and India according to the EIA's recent Global shale gas report.
2. That makes fears about putting our eggs in one gas basket out of date. We never had any problem with running cars only on oil instead of backing them up with steam or electricity. Same thing here.
3. There will be such an abundance of gas that it is now a matter of creating demand instead of worry over supply. One obvious place is for natural gas vehicles, first in freight and marine uses and longer term as CNG powered personal transportation.

Finally, what's wrong with a cheap gas payoff? Unless you built a business model like solar, wind, nuclear, Coal CCS, or are a country like Russia, the idea of a cheap, clean, scalable and massive resource like gas ticks almost every box. Not every single one, but there are no ideal alternatives anywhere.

I'm a shale fan, but I hope a rational one with a global perspective at www.nohotair.co.uk

[Arno Harris]

SGE, thanks for your comment. I agree that the energy debate is frustrating for those of us who want to have a constructive, fact-based dialog. The screeds from the left and the right are so polarizing that they get in the way of any nuanced understanding of such a complicated topic.

I agree with you that we should see shale gas as a sort of divine bounty. Like the impoverished family that wakes up one day to find a massive inheritance from an unknown relative, we are suddenly and suprisingly wealthy beyond our comprehension. The wise reaction is to move carefully and to weigh the appropriate use of our new riches rather than just going on a massive splurge. We owe future generations a careful consideration of how we use this resource in the best way possible.

Gas is certainly preferable to coal, but it is nonetheless a significant carbon emitter. And the jury is still out on how much cleaner gas actually is when you look at the entire chain from wellhead to burner.

Per your questions:

1. The length of time the resource lasts depends on your assumptions about use and cost of extraction. If you rapidly expand consumption and export or if permitting begins to impose significant costs, the resource is unlikely to last 200 years.

2. I'm fairly conservative when it comes to commodity risks. I think diversification is the only reasonable answer. Natural gas is a commodity and we can't reliably predict pricing long term and therefore it would be unwise to paint ourselves into a corner by creating a single-fuel dependency. I'm troubled by your assessment of our history with autos--the major strategic flaw in our current energy infrastructure is massive fuel dependency on oil produced in unstable regions of the world. Our history with autos should teach exactly the opposite lesson.

3. I like the idea of shifting transport fuels to natural gas. It's cleaner and reduces dependency of oil as our sole transportation energy source. I'm not sure however that we should just rush to create lots of demand. Let's spend our new resource wisely on the areas where it's a good fit and lines up with our long-term security and climate goals.

What's wrong with a cheap gas payoff? Nothing as long as we keep our other objectives in mind and don't let cheap gas tempt us into losing sight of broader energy strategy. We need to balance cost, resource preservation, security, and climate in whatever answer we come up with.

Best, Arno Harris

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