An interesting coalition of groups joined together for a side event at the Copenhagen climate change summit on Dec. 12. Gathered were the Worldwatch Institute, a respected think tank represented by its leader, Christopher Flavin; the United Nations Foundation, established by Ted Turner, and represented by its head, Tim Wirth, a former Senator and the main US negotiator for the Kyoto Climate Conference during the Clinton administration; and the American Clean Skies Foundation, which promotes natural gas as a clean alternative to coal, represented by its CEO, Gregory Staple.
Their three-hour conference was about a low-carbon energy source that could reduce US dependency on both imported oil and domestic coal: shale gas.
One of the lead speakers was Aubrey McClendon, CEO of Chesapeake Energy, a large natural gas producer. He stated that he was in Copenhagen to drive home the point that shale gas production was a game changer in "de-carbonizing" the US economy.
Mr. McClendon explained the potential of shale gas:
- New technologies, such as hydraulic fracturing ("fracking") and horizontal drilling, have made it feasible to extract vast "new" reserves of gas from underground formations of shale;
- Natural gas emits about 25 percent less CO2 than oil and 50 percent less than coal;
- Installed natural gas electricity capacity is already in place, and could meet current U.S. energy demands (unlike nuclear, wind, solar, or "clean" coal plants equipped with carbon capture and storage, or CCS);
- The steady output of gas plants can help balance the irregularity of solar and wind power; and
- Unconventional US gas would reduce the nation's dependency on foreign (OPEC) hydrocarbons.
While this message has been delivered consistently to investors by many of the US's independent gas players, the industry could do more to make its case to Congress and the public. The coal, electric utility, and railroad industries have employed top lobbyists to represent their interests, but the natural gas industry has been much less involved in the drafting of US climate change regulations.
Natural Gas Share of US Energy Use to Grow
Still, in its assessment of the American Clean Energy and Security Act of 2009 (also known as ACES, and the Waxman-Markey bill), the Energy Information Administration (EIA) projected that the share of natural gas in US electricity production could increase to 31 percent by 2020 from a 2007 level of 21 percent. EIA further projects a 39-percent contribution to the electricity supply from natural gas by 2030. This would lift the share of natural gas in the overall US energy supply to 26 percent in 2020, up 3 percentage points from 23 percent in 2007, and to 28 percent by 2030.
These projections, however, assume that the US will be unable to take advantage of overseas offsets for its domestic carbon output. EIA also assumes limited deployment of other low-carbon technologies, such as CCS and new nuclear plants.
Gas Industry Seeks Higher Profile
The US natural gas industry believes that ACES should have included greater explicit support for gas in the draft carbon regulation, and also taken a less lenient approach to coal, particularly in the allocation of emissions allowances. The gas industry's presence in Copenhagen is an attempt to raise its public-policy profile, as is the decision by 28 of the largest natural gas independents to form the "American Natural Gas Alliance," which is charged with promoting the benefits of natural gas to the public.
Big Oil Moving into Gas in a Big Way
In a sign of great expectations for the gas market, ExxonMobil recently announced a $41 billion, all-stock acquisition of XTO Energy, an offer price that represents a 25 percent premium above XTO's Dec. 11 closing share price. XTO has the largest proved natural gas reserves among the US independents, and Exxon's commitment to natural gas production in the U.S. not only will offset some of the carbon risks inherent in Exxon's portfolio, but it will also bolster the industry's ability to lobby Congress as it takes up climate change legislation in 2010.
The Impact of "Fracking"
While natural gas is set to play a more significant role in the US energy mix, increased domestic production will carry environmental costs. The industry will need to spend as much political capital on addressing these concerns as it will on improving the position of natural gas in carbon legislation. High on the list of these concerns are the environmental impacts of "fracking."
The Sustainable Investment Research Analyst Network (SIRAN) recently conducted a seminar on the implications of expanded fracking operations. In a follow-up to this article, Alan Petrillo will explore SIRAN's perspective on how the fracturing of shale formations could affect the environment, including the nation's water supply. The process of extracting the fossil fuel with the least impact on the atmosphere could have a big impact on the American landscape.