Natural Gas and Its Role

The boom in natural gas production has undeniable benefits for the United States. But two policy analysts argue that embracing a monolithic energy future dominated by gas will mean the loss of a golden opportunity: Leveraging cheap, abundant gas to create a sustainable future based on renewable power.

Kevin Doran and Adam Reed, Yale Environment 360, August 13, 2012

The United States has won the lottery on natural gas. According to the most recent estimates by the Energy Information Administration, the U.S. has some 2,214 trillion cubic feet cubic feet of technically recoverable natural gas — enough to satisfy all of our natural gas demands for the next century at current consumption levels. The extraction of shale gas, enabled by technological advances such as hydrofracturing and horizontal drilling, has led the way in creating this largely unforeseen cornucopia. Domestic natural gas is now a cheaper fuel for electricity generation than coal — long our go-to fuel for power around the clock — and emits roughly half the greenhouse gas emissions.

It appears that our energy problems are over — or are they?

A full-throttle shift to a gas-dominated electricity system, which now appears to be the ordained path forward in many parts of the country, will flash through our newfound abundance more quickly than we realize, and will not ultimately stave off catastrophic climate change, which by any reasonable measure of sanity is still the defining challenge of the 21st century — cheap gas or not. Within a decade or less, we could be facing high natural gas costs again, plus the added burden of a planet in an ever-deepening ecological crisis.

Amid the din of enthusiasm surrounding the rush to natural gas, we run the risk of losing the real prize: a U.S. energy future consistent with our economic, environmental, and lifestyle aspirations. Wise use of natural gas, in conjunction with policies to support continued growth in renewable energy, can serve as a catalyst to quicken the transition to a sustainable energy system.

The recent and staggering abundance of natural gas is, ostensibly, a very good thing. Provided that current low natural gas prices persist and that resource estimates hold true, natural gas combined cycle power plants will gradually replace our nation’s aging coal-fired generation fleet. Our electricity will become cleaner, cheaper, and more efficient, and the superior ability of natural gas combined cycle turbines to ramp up quickly will allow easier grid integration of variable energy sources like wind and solar power.

This shift is already happening. Cancellations of coal deliveries and advance coal contracts have become common as utilities switch to natural gas. The U.S. Environmental Protection Agency (EPA) recently promulgated carbon dioxide emissions thresholds for new power plants that exactly match specs for natural gas combined cycle plants. The agency went so far as to opine that the rule actually wasn’t even necessary since such plants “will be the predominant choice for new fossil fuel-fired generation even absent this rule.”

But the rose of abundant natural gas is not without thorns. One such thorn is the risk of price increases. James Rogers, the CEO of Duke Energy, recently quipped that to Benjamin Franklin’s observation that only death and taxes are certain in life, “I would add the price volatility of natural gas.” Creating a gas-dependent generation fleet exposes us to future price spikes and hitches our fuel security to large uncertainties in the amount of domestic gas that is ultimately recoverable. A full century’s worth of a relatively clean and potentially cheap fuel at our current rate of consumption is obviously an extraordinary thing. Equally obvious is that our current rate of consumption will not remain flat for the next 100 years. If anything, natural gas will likely play a far greater role in our energy mix than it currently does, whether by displacing coal-fired generation, utilization in natural gas vehicles, increased use in manufacturing, or by outcompeting renewables as the cheapest source of power.

Another set of thorns comes in the form of adverse environmental and social impacts from natural gas production. Despite recent advancements in impact mitigation such as faster drilling, smaller and fewer well-pad footprints, and EPA methane capture requirements that go into effect in 2015, there remain serious concerns regarding the potential for shale gas production to contaminate sources of ground and drinking water, induce seismic events, and harm local air quality. Conflicts have already arisen between industry and the communities that bear the burdens of gas development, and they will likely increase in number as development continues: The Energy Information Administration estimates that bringing most of the U.S. shale gas and shale oil resources into production will require more than 630,000 new wells, in addition to the approximately 487,627 natural gas wells producing in 2010.

Communities that have never seen a drilling rig will be inundated with heavy truck traffic, blanketed with acrid exhaust from trucks and generators, and exposed to a surfeit of noise, lights, and dust from drilling and related activities. When communities face up to these realities, as is already occurring, it may become significantly more difficult and expensive for developers to obtain the so-called “social license to operate” in populated areas. This is not to say that community opposition will stop gas development entirely, but rather that it is wickedly hard to predict just how much of the gas resource will be socially developable, and how expensive it will become for developers to comply with tighter regulations that are likely to come with community opposition.

The natural gas boom also presents the prospect of imminent harm to the deployment of renewable energy, and dire environmental consequences that will follow from a failure to cease adding greenhouse gases to the atmosphere. The growing swell toward a utility sector dominated by natural gas has already resulted in collateral damage throughout the renewables industry. Wind, for example, had previously been capable of competing with natural gas generation on a cost basis, thanks to advances in technology and a federal production tax credit that seems poised to expire at the end of this year. Installation of new renewable energy facilities has now all but dried up, unable to compete on a grid now flooded with a low-cost, high-energy fuel that can provide power on demand. What little support there is for renewables is mostly found in state renewable portfolio standards — a policy subsidy that many states appear to be rethinking in light of hard economic times and cheap natural gas.

The U.S. now faces a choice: We can rush into a monolithic energy future dominated by natural gas, or we can leverage the gift of cheap and abundant natural gas to create an energy system that is profitable, affordable, and more sustainable over the long run. To this end, we offer the following recommendations.

First, we should gradually utilize natural gas as the generation backbone for much of the electricity grid, replacing coal-fired generation. Coal-fired generation is aging and approaching retirement and new EPA air regulations make the construction of new coal plants profoundly uneconomic. Gas is cleaner than coal both in terms of localized pollutants and greenhouse gases, and so there is a net benefit for the environment as well as an economic benefit for the system. We could speed this up by guaranteeing cost-recovery for utility investments that replace coal capacity with natural gas capacity.

Second, as we pursue the gift of plentiful and cheap natural gas as the primary alternative to coal-fired generation, we should ensure that renewables — particularly wind and solar — are used as strategic hedges against the risks presented by increased reliance on natural gas for electricity generation. Whatever the factors that could lead to increases in natural gas prices — overestimation of resources, increased regulation, seismic events from drilling or wastewater injection, internationalization of prices via export linkages — these factors are fundamentally an argument for rather than against renewable energy expansion. Renewable energy’s zero-fuel-cost realities operate as a hedge against fluctuating fuel prices. A power system that balances gas and renewables will be able to take advantage of cheap gas while simultaneously insuring itself against fuel price spikes. It is thus imperative that we expand renewable energy standards at the state level. We must also ensure such expansions are strategically and legislatively coupled to the deployment of natural gas.

Third, we should take advantage of cheap gas to lower the integration costs of renewable energy. We’ve all heard that the wind doesn’t blow and the sun doesn’t shine all the time. The rest of the power grid must be flexible enough to accommodate these energy sources when available. In other words, conventional, controllable generation should be able to adjust its output to keep the grid balanced when, for example, wind power output rises or falls. Natural gas is an excellent generation asset for this role. Indeed, it is a model “grid citizen” — flexible, accommodating, and abundant. Provided renewable energy maintains a strong presence in the generation portfolio, gas will automatically assume this role due to its low cost and high flexibility.

Renewable energy is often criticized as expensive and undependable, and thus undeserving of public support and subsidization. But the presence of abundant natural gas mitigates both of these factors ably. With cheap gas replacing coal, power system costs should decline over time anyway, leaving a chunk of savings that could be applied to renewables investment with relatively low impact on consumer rates. The presence of additional gas-powered, system-balancing resources will further lower these costs, as well as account for renewable energy’s natural variability. Moreover, increasing concentrations of renewable energy will actually reduce its overall variability, since the net variability of a collection of many wind farms is lower than the variability of a single wind farm.

There is a more fundamental point to be made. It is high time that we dispense with the notion that gas and renewables should compete in the first place. The real value of renewable energy lies not in low costs (though lower costs are certainly a laudable development), but in its environmental benefits — the cleaner air, water, and land that we all enjoy, and the hope of a future without catastrophic climate change. If we force renewables to go toe-to-toe with fossil fuels on costs, they will lose, again and again, until it is too late to matter. Renewables are worth their extra costs because they are clean. No other fundamental justification is required.

Shale gas production has fundamentally changed the energy game. It has opened the door of opportunity and presented us with a clear choice: to either use our windfall to build an electricity future dominated by natural gas and all its attendant risks, or to leverage the gift of natural gas to build a future that is more economically and environmentally sustainable. We should opt for the latter.

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