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Game changer 6: Will shale gas save the climate bill?

The NY Times — and U.S. Senate — have caught up to Climate Progress with this piece last week, “Is Shale Gas the Climate Bill’s New Bargaining Chip?”:

Natural gas from shale formations is the new magic phrase in the oil and gas industry, as new technologies have led to stunning increases in potential resources and anticipated profits.

Now some want to see if it carries any political magic.

With new discoveries of the fossil fuel in massive but difficult to drill shale deposits, advocates claim that climate legislation means a job boom for gas engineers and drillers, and revenue for producers. They say a cap on greenhouse gas emissions could lead power plants to switch to gas from coal, which emits about double the carbon dioxide of gas.

Some experts — but not all — say that a strong mandate to expand wind power and other alternative energy generation could be a boon for natural gas generators, which are a likely future source of backup power for renewables.

At the same time, some politicians on Capitol Hill are pushing for new natural gas incentives in climate legislation moving through Congress. They note that the fuel resource sits in many states, like Michigan and Pennsylvania, whose lawmakers are needed for passage of a bill.

“If you took a map of swing-state senators and look at where these new gas finds are, they match,” said Sen. Mark Udall (D-Colo.). “It’s more than ironic.”

This echoes many key points of my series on gas. There appears to be a lot more natural gas than previously thought (Part 1) and therefore unconventional gas makes the 2020 Waxman-Markey target so damn easy and cheap to meet (Part 2), which is great for low-cost climate action, bad for coal (Part 3). As Part 3 discusses, natural gas is the critical low-carbon “firming” resource that can enable deep penetration of both windpower and concentrated solar thermal power.

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Last month I noted that many of the key fence-sitting Senators come from states with major unconventional gas reserves, including Arkansas, Louisiana, and the Dakotas and that “If a serious climate bill passes the Senate in the next several months “” and I believe it will “” then activism by the natural gas industry may prove decisive.” [see Tim Wirth to natural gas execs: “You don’t have the right to sit back and do nothing” about climate change. “We are in very deep trouble, the edge of catastrophe, and you can help.” (Part 4)].

Here are more excerpts from the NYT piece on this very subject:

He said he and his colleague Sen. Michael Bennet (D-Colo.) are working with other senators on provisions to promote natural gas in global warming legislation.

New benefits for gas are “going to be an essential part of my support for a bill,” Bennet said yesterday. The first-term senator is himself a possible swing vote on a climate and energy package.

Another potential swing voter, Sen. Kent Conrad (D-N.D.), also said yesterday that he would like to see more legislative text favoring natural gas. Such a plan could be one of many bargaining chips that get lawmakers behind a climate and energy bill in the Senate, he said.

‘Bigger than nuclear’

A former U.S. Senate aide who has been in close contact with Capitol Hill offices said natural gas “could be much bigger than nuclear” in getting politicians on board.

Legislation sponsored by Reps. Henry Waxman (D-Calif.) and Edward Markey (D-Mass.) passed the House last month establishing a mandatory cap on greenhouse gases, but the fate of the measure remains uncertain in the Senate. A bill draft has yet to be released in that chamber, and Democratic leaders are searching for 60 votes to block a filibuster.

Many natural-gas advocates believe that a carbon cap will benefit natural gas by default, but the industry also is pushing for things such as fewer carbon offsets in a climate bill. Offsets allow emitters — such as big coal-dependent utilities — to meet carbon caps by paying for projects outside their own factories, like forestation projects overseas. That offsetting allows them to avoid switching to gas as an alternative fuel.

Rod Lowman, president and CEO of the newly formed America’s Natural Gas Alliance, said in a recent interview that he was “concerned” about the number of offsets allowed in the Waxman-Markey proposal.

The shale discoveries brought natural gas to the political forefront.

In recent years, the oil industry developed technologies to drill horizontally into gas-bearing shale seams and fracture the rock with high-pressure water injections, called hydrofracturing. These techniques make it possible to recover shale gas reserves that were separated in many tiny pockets that could not be tapped economically before, said John Curtis, a Colorado School of Mines professor.

According to a 2008 report from the Potential Gas Committee, estimates of gas resources surged from more than 1,300 trillion cubic feet (tcf) in 2006 to more than 1,800 tcf last year. Much of that jump came from shale gas, which made up 616 tcf of the 2008 total.

Some politically convenient geology

The geographic locations of these new shale gas resources overlap with the home states of many Senate lawmakers, like Sens. Arlen Specter (D-Pa.) and Blanche Lincoln (D-Ark.), who could make or break the outcome of global warming legislation.

During the House vote, majorities of delegations in Arkansas, Kentucky, Oklahoma, Ohio, Louisiana, Pennsylvania and Texas — sites of major shale gas resources — opposed the Waxman-Markey bill. House majorities from New York and Michigan, where shale gas is also found, backed the bill, and West Virginia’s delegation split evenly.

Reid Detchon, executive director of the Energy Future Coalition, finds it puzzling that the natural gas industry hasn’t lined up more forcefully behind the climate legislation moving in the Senate. Gas figures to be a big winner if climate policy mandates an ambitious renewable energy standard and restraints on power plant carbon dioxide emissions, he said.

In addition to being a potential coal replacement, gas generation is the obvious backup for the fivefold to tenfold increase in wind and solar generation that may be mandated in a climate bill. Gas-fired power plants can ramp up quickly when clouds block the sun or the wind stops blowing.

“Natural gas is best” for that role, said Jeffrey Eshelman, vice president of public affairs of the Independent Petroleum Association of America. “It’s abundant. It’s a natural backstop for renewable energy. It makes all the sense in the world to bring all of it online.”

The Energy Information Administration last year analyzed how energy use would change if the nation were getting 20 percent of its electric power from wind in 2030, and predicted that gas turbine generation would increase significantly to back up wind power, but that more expensive combined-cycle gas generation from coal would be displaced by wind.

True, but with a moderate and rising carbon price — as the climate bill would drive — combined-cycle gas would replace coal.

It’s possible that the shale gas phenomenon is so new that it hasn’t reached its full political weight with Congress.

For example, two of the biggest shale gas plays are the Haynesville Shale in Louisiana and Texas and the Marcellus Shale, extending from New York’s Southern Tier through western Pennsylvania and into Ohio and West Virginia. “Only in the last 18 months have Haynesville and Marcellus proven themselves productive,” said Curtis, who oversees the Potential Gas Supply report.

Norway’s national company StatoilHydro, the world’s largest offshore oil producer, paid $3.4 billion last year for a one-third interest in 1.8 million acres in the Marcellus region. The company said it believes it may recover up to 3 billion barrels equivalent of shale gas, according to OilandGasInvestor.com.

A new Pennsylvania State University report that was requested by state legislators predicts that the Marcellus Shale could add $14 billion to the state’s economy in 2010, create more than 98,000 jobs and generate $800 million in state and local tax revenues. Yet the economic benefits may not come for a while, making shale gas a potential tough sell for lawmakers looking for immediate results.

Actually, passage of the bill would immediately benefit the gas industry, since it would create sufficient long-term price certainty (because of the price floor) for the industry to start signing the kind of longer term contracts needed to replace a large fraction of coal in the electric sectory by 2020 — and even more by 2030.

Note: The NYT piece was a reprint of a piece by Climate Wire.

For even more, see Game changer 5: RFK, Jr. on “How to end America’s deadly coal addiction “¦ practically overnight” thanks to “a revolution in natural gas production.”