Big oil and coal jump on the natural gas bandwagon

But continue to oppose clean energy future — and diss natural gas!

The natural gas lobby is fighting coal, whose lobbyists “continue to stress the economic advantages of the fossil fuel.”  And the coal companies are trashing natural gas in advertisements as having “higher and more volatile prices” (click here).

But even as they lobby hard to prevent passage of comprehensive clean energy jobs and climate legislation, some oil and coal companies are making investments to prepare themselves for a coming clean energy, low carbon future.  Purchasing natural gas, they think, may be the way out.  Guest blogger, Sarah Collins, an intern with CAP’s Energy Opportunity team, has the story:

Several big energy companies, notably Exelon Corporation and Shell, have joined the United States Climate Action Partnership: “a group of businesses and leading environmental organizations that have come together to call on the federal government to quickly enact strong national legislation to require significant reductions of greenhouse gas emissions.”  In February, BP America, a founding partner of the group, and ConocoPhillips left the group because pending climate legislation reduced incentives to switch over from coal to natural gasE&E News reports:

Both BP and ConocoPhillips wrestled with how they fit in a group that is promoting itself as a solution to U.S. energy independence by using less oil for transportation fuel. “How does an oil company engage and contribute to reducing the use of oil?” Corneli said. “It’s a little bit of a challenge for an oil company.”

Underpinning the oil companies’ exodus, several sources said, is the growing dispute between coal and natural gas, the latter of which is seeing a sharp boost in production due to the use of hydraulic fracture drilling techniques in mid-Atlantic and Northeastern states. U.S. EPA models show that the House-passed climate bill would give large benefits to coal but would lead to flat demand for natural gas, a trend the oil and gas companies would like to see flipped.

On Monday, Consol Energy Inc., the fourth-largest coal producer in the U.S., announced its planned $3.48 billion purchase of natural gas resources from Dominion Resources Inc., making it the latest coal or oil company to make such an investment.  The company hopes to close the deal by the end of April.

“Gas is a perfect hedge against draconian moves on coal in the short term,” Consol Chief Executive J. Brett Harvey admitted.

The Wall Street Journal observes that Consol is just one of several companies to jump on the natural gas bandwagon in recent months:

In December, Exxon Mobil Corp. agreed to pay about $30 billion for XTO Energy Inc., a big gas producer. France’s Total SA and Britain’s BP PLC both bought stakes in Texas gas fields earlier this year. On Monday, Petrohawk Energy Corp. said it had sold its interest in a Louisiana gas field for $320 million to an undisclosed buyer.

While this is partially due to the recently declining price of natural gas, which has encouraged coal and oil companies to burn this cheaper fuel instead, that is not the whole story.  These companies are becoming increasingly aware of the very possible future of a low-carbon economy and are building up their cleaner energy resource stockpiles in response.  This means that tougher standards on greenhouse gas emissions would be less likely to impact the bottom line.  WSJ reports:

Consol’s move into natural gas comes even as the gas industry increasingly tries to play up its advantages over coal. Gas producers have argued that switching from to gas from coal to generate power could help reduce carbon-dioxide emissions. The coal industry has fought back, arguing that gas is prone to price spikes. But Mr. Harvey said such battles are short-sighted. “I think there’s a lot of wasted effort fighting with each other,” Mr. Harvey said.

Coal and oil companies are placing their bets on natural gas as the bridge fuel to a lower-carbon future.  Horizontal drilling combined with hydraulic fracturing, a technique of extracting natural gas from deep shale sources previously considered unreachable, is also on the rise, making natural gas more readily accessible and available on the market.  Natural gas currently is responsible for only about a quarter of electricity generation in the U.S., but this may soon change.

Demand for U.S. gas shale is on the rise on the global market as well, most markedly noted by India’s Reliance Industries, which hopes to partner with Atlas Energy, an independent oil and gas company, to develop the Marcellus shale, which spans from eastern Tennessee to upstate New York.  Reuters reports:

U.S. shale looks even more precious as so many other countries lock up their domestic energy reserves.  Further, because shale wells typically produce several times more gas than conventional ones, the cost of production falls.  Add to the mix that gas shale generates half the carbon emissions of coal.  That provides a hedge against tougher climate change rules for the likes of U.S. coal producer Consol.

The demand has driven up prices.  The average cost of an acre in the Marcellus shale, for example, doubled in 2009 to $4,000, according to research firm IHS Herold. Mitsui & Co acquired Anadarko’s drilling expertise as part of its deal there, but also stumped up $14,000 per acre. The inflation has come despite the fact that gas prices are still less than half their 2008 peak. Before the economic recovery revives them, globetrotting U.S. oil majors would be well advised to book their tickets home.

Change already appears underway.  In 2007, coal generated 49 percent of U.S. electricity, and dipped to 48 percent in 2008.  In 2009, coal produced only 45 percent of electricity – a nine percent drop in two years.  Meanwhile, generation by natural gas and renewable (broadly defined) increased by 1 percent each from 2007-09, which is a one-third increase for renewables.

According to a Pew poll released Monday, the public overwhelmingly supports a transition to a clean-energy economy, with 52-35 in favor.  Big oil and coal, the major contributors to greenhouse gas emissions, know that they will have to clean up their act in the future, so are fastening their seatbelts now.  If only they would stop spending millions of dollars to defeat clean energy legislation, which would delay the inevitable clean energy future that they are preparing to meet.

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8 Responses to Big oil and coal jump on the natural gas bandwagon

  1. mike roddy says:

    I don’t believe that switching to a fuel that uses half the emissions of coal should be viewed as an important change. If population and electricity demand go up as predicted, this emissions reduction will soon shrink.

    It’s like an alcoholic switching from bourbon to beer. We have a chance to drink fruit juice instead, in the form of solar and wind energy.

  2. Chris Dudley says:

    Mike (#1),

    It seems to me that California has pretty much stopped using coal and now is in a position to replace natural gas use with renewable energy. But, where coal is still used, making the swap for natural gas does cut emissions and may reduce total emissions integrated over time (which is what is most important) compared with waiting for renewables to scale up enough to replace coal. Additionally, it may be worthwhile to use renewably produced methane in natural gas infrastructure as a convenient backup for more immediately produced renewable electricity. Thus, developing the infrastructure may have long term benefits even when we stop drilling for gas.

  3. LucAstro says:

    I like the alcholic comparison of the above first comment. It is a sign of time that these companies now appear to bet on natural gas but our main priority as citizen should be to get our governments to agree on a price for carbon (emission) and to also agree on measurable targets in CO2 (emission) reductions.

  4. prokaryote says:

    Think tanks, oil money and black ops

    When do we put oil firm chiefs on trial, for crimes against humanity?

  5. Leif says:

    prokaryote, #4: .. “oil firm chiefs on trial, for crimes against humanity?” The sooner the better. I would love to see a 21’t century “Scopes” trial. The evidence is clear in my eyes that capitalism and corporations pursue goals that are at cross purposes to humanities long-term survivability. You would think that such action would even be loved by the print media. Perhaps even make the media relevant again although that might even be more difficult than turning EXXON green.

  6. James Newberry says:

    Do not discount the fact that investing in the limited resource of mined gas hydrocarbon materials will involve many hundreds of billions of dollars for such equipment as giant gas combustion turbines, industrial scale pipelines and drilling rigs on the farms of rural America. This is just the manipulations of the bankers and fossil investors to maintain the status quo. They are also poisoning water tables.

    We already have an economy with too much (global heating) gas, get the picture? Burning it or indirectly releasing it is one of the main causes of climate change. Ninety percent of what this fossil fuel industry projects is hubris. Besides, shipping this stuff in LNG tankers is like sending a weapon of mass destruction into major seaports (like Boston). It is just the same ($ multi-trillion) fossil actors positioning to benefit from failures of public policy, and represents a lack of transition to truly sustainable energy strategies which are cost effective as life-cycle investments now, yes now.

  7. Lou Grinzo says:

    Given [1] the long lifetime of power plants, [2] the latency of switching them from coal to NG, and [3] the CO2 savings from such a switch, it makes no sense to convert coal to NG plants unless we’re willing to replace those new plants or convert them to something else (like burning biomass) long before their normal lifespan is up.

    I recently did a “magic wand” analysis of what would happen if the US could instantly switch all coal and oil use (including transportation, which yields only a 20 to 25% savings in CO2/mile) to NG. The results are very disappointing, to say the least. Even adding a one-third reduction in both transportation and electricity consumption, plus a doubling of the generation from US nuclear power plants, you barely get halfway to an 80% cut (compared to 1990) in CO2 emissions. And that’s without assuming any growth in population–expected to be 420 million by the US Census Bureau.

    Climate change and the 80/2050 challenge:

  8. Ben Lieberman says:

    Why are we seeing ads from oil and natural gas producers? Why do the natural gas producers want to link themselves to oil at all? I understand that in a best case scenario no would only be a transitional fuel, but natural gas producers could seek to position themselves as a cleaner energy sector instead of stressing their loyalty to higher carbon emitters.