Wednesday, May 23, 2012

Shale Gas Boom Helps to Slash CO2 Emissions, As Well as Create Jobs and Save Consumers Billions

The chart above shows the significant reduction in coal's share of total U.S. energy generation, especially over the last four years, based on the most recent EIA data through February 2012.  For the first time in recent history, coal's share of electricity generation fell to below 40% in November and December of last year, and it's fallen even further to around 37% in the first two months of this year.  That's a very significant decline of almost 10% from coal's 48% share of electricity as recently as 2008, and that decline has happened for just one reason. No, it wasn't government regulation or energy policy.  It was because of the shale revolution that has produced an abundant supply of natural gas at historically-low prices, providing electric utilities with a cheaper and cleaner substitute for coal.   

From the Financial Times:

"The shale gas boom in the U.S. has led to a big drop in carbon emissions, as power generators switch from coal to cheap gas.  According to the International Energy Agency, U.S. energy-related emissions of carbon dioxide, the main greenhouse gas, fell by 450m tons over the past five years – the largest drop among all countries surveyed.

Fatih Birol, IEA chief economist, attributed the fall to improvements in fuel efficiency in the transport sector and a “major shift” from coal to gas in the power sector. “This is a success story based on a combination of policy and technology – policy driving greater efficiency and technology making shale gas production viable,” Mr Birol told the Financial Times.

Gas is fast becoming the new fuel of choice for the US power sector: in the past 12 months, coal generation has slumped by 19 per cent while gas generation has increased by 38 per cent, according to U.S. Department of Energy figures. A gas-fired plant produces half the CO2 emissions of a coal-fired one."

MP: So let's sum up some of the many economic and environmental benefits of the shale gas revolution:

1.  Residential, commercial, industrial and electricity-generating customers of natural gas have saved $250 billion over the last three years because of abundant, low-cost gas.

2. Hundreds of thousands of jobs have been created in natural-gas related industries, both directly in the gas drilling activities, and indirectly in the industries supporting natural gas drilling like companies producing steel piping, drilling equipment, fracking sand, etc.   

3. Cheap, abundant natural gas has sparked a manufacturing renaissance in energy-intensive industries like chemicals, fertilizers, and steel.

4. In the process of creating thousands of jobs and saving natural gas customers billions of dollars, the shale revolution has also significantly reduced carbon emissions as electricity producers have switched from dirty coal to clean, cheap natural gas.

Sure seems like a win, win, win situation  - an energy stimulus program that didn't require any taxpayer support and wasn't even part of any intentional energy policy from Washington. As Scott Grannis pointed out on his blog, "We have only just begun to see the impact of this incredible development on the U.S. economy's ability to grow."  And at his talk tonight at the Heritage Foundation for the Prosperity Caucus, Tyler Cowen suggested that we have probably under-estimated the positive effects of the energy revolution on the U.S. economy.  The changing energy landscape will definitely continue to provide significant benefits to the U.S. economy for decades to come. Welcome to the Shale Revolution.

HT: R.J. Kuehl

16 Comments:

At 5/23/2012 10:21 PM, Blogger Unknown said...

Here's one out today:

Oil boom strikes Kansas

SandRidge Energy estimates 15 billion barrels of recoverable oil in the formation, called the Mississippian Lime.

Map of the location can be found here

 
At 5/24/2012 5:31 AM, Blogger Larry G said...

" Arctic Ocean Drilling Stands to Open New Oil Frontier"

" Barring a successful last-minute legal challenge by environmental groups, Shell will begin drilling test wells off the coast of northern Alaska in July, opening a new frontier in domestic oil exploration and accelerating a global rush to tap the untold resources beneath the frozen ocean. "

" And now, the president is writing a new chapter in the nation’s unfolding energy transformation, in this case to the benefit of fossil fuel producers.

“We never would have expected a Democratic president — let alone one seeking to be ‘transformative’ — to open up the Arctic Ocean for drilling,” said Michael Brune, executive director of the Sierra Club. "

http://www.nytimes.com/2012/05/24/science/earth/shell-arctic-ocean-drilling-stands-to-open-new-oil-frontier.html?_r=1&smid=tw-nytimes&seid=auto

 
At 5/24/2012 5:55 AM, Blogger Henry H said...

Shale gas is igniting the LNG boom in Trucks. For the next 5 years, Waste Management will spend 80% of its vehicle budget on natural gas trucks instead of diesel trucks.

I bet the CO2 emissions reductions in LNG trucks will beat out the hybrid sedans within a decade.

http://finance.yahoo.com/news/truckers-ditch-diesel-040100492.html

 
At 5/24/2012 8:16 AM, Blogger juandos said...

liberal hypocrite knows its an election year

President Barack Obama’s first Earth Day proclamation in 2009 was an urgent call to address global warming. This year? The word “climate” didn’t even get a mention....

 
At 5/24/2012 8:27 AM, Blogger Rufus II said...

Don't overlook Renewables, especially Wind. Wind is now generating over 20% of electricity in S. Dakota and Iowa, and 8.5% in Texas.

Meanwhile, in California, Wind, and other Renewables (not including Large Hydro) are producing steadily in the

15% Range.

 
At 5/24/2012 9:21 AM, Blogger Hydra said...

I bet the CO2 emissions reductions in LNG trucks will beat out the hybrid sedans within a decade.

Probably correct. Truckers have their own fuel infrastructure, and the large vehicle burn many times the fuel as a hybrid sedan does.

Should not be too hard to beat the CO2 emissions REDUCTION.


Natural gas emits less CO2 because it contains less carbon, which is also why it contains less energy. On a weight of fuel basis, you will use more natural gas than diesel to drive a truck the same distance. however, that fuel will still contain less carbon, so less CO2 emission and more H20 emission.

In any case, it is not emissions reductions, but price tht counts for the truckers.

 
At 5/24/2012 9:57 AM, Blogger Jon Murphy said...

The plants are closing down because Aubrey and the boys gave money to the Sierra Club and other green organizations so that they would push the Obama Administration and the EPA into closing down as much coal fired capacity as possible..

Well, that's not correct. If you look at coal's share of electric power generation in America it has been steadily decreasing since the mid 1980's. Also, the regulations you discuss only apply to new power plants, not currently existing ones. Are there political pressures on coal? Of course. But they are not having this large an effect on coal. The fact is, coal is not the cheapest option for the US anymore. Developing nations, such as China, are demanding more and more coal. Coal prices have skyrocketed over the past 5 years, while at the same time natural gas has been falling. Those are economic, not political, factors.

I do think you give the government too much credit. Realistically, there is not much a government can do to control an economy. They can try, but in the end they are just hoping to get lucky. Sure, they can do things like ban markets, but all that does is create a black market.

 
At 5/24/2012 1:50 PM, Blogger juandos said...

From Fox News: Last week PJM Interconnection, the company that operates the electric grid for 13 states (Delaware, Illinois, Indiana, Kentucky, Maryland, Michigan, New Jersey, North Carolina, Ohio, Pennsylvania, Tennessee, Virginia, West Virginia and the District of Columbia) held its 2015 capacity auction. These are the first real, market prices that take Obama’s most recent anti-coal regulations into account, and they prove that he is keeping his 2008 campaign promise to make electricity prices “necessarily skyrocket.”...

From Investors Business Daily: The U.S. Energy Information Administration reported a shocking drop in power sector coal consumption in the first quarter of 2012.

Coal-fired power plants are now generating just 36% of U.S. electricity, vs. 44.6% just one year ago.

Not surprising, since the closings of 319 coal-fueled generating units totaling 42,895 megawatts, about 13% of U.S. coal capacity, have been announced nationwide since January 2010, according to the Sierra Club
...

 
At 5/24/2012 2:28 PM, Blogger Rufus II said...

Meanwhile, if you live in the most wind-intensive state in the Union, Texas, you can sign up with TXU Energy and pay $0.11/KWhr from 6:00 AM to 10:00 PM, and get Free Electricity All Night!

 
At 5/24/2012 2:47 PM, Blogger Rufus II said...

Speaking of MISA:


Synapse’s analysis indicates that the effect of introducing greater levels of wind resources into MISO would depress the average annual market price, relative to a baseline case of no additional wind generation beyond the existing 10 GW in place in MISO today. Since wind energy’s “fuel” is free, once built, wind power plants displace fossil-fueled generation and lower the price of marginal supply—thus lowering the energy market clearing price. Wind power could drive down MISO’s wholesale price of power between $3 and $10 per MWh in the near term and up to nearly $50 per MWh by 2030.

These market price declines will lead to reduced overall energy costs. In one scenario, prices were $3.9 billion to $7.9 billion per year lower than baseline costs with the addition of 20 GW of wind, and from $6.1 to $12.2 billion per year lower than baseline costs with the addition 40 GW. These cost savings will exceed the annual costs of transmission improvements needed to integrate this level of wind power.

When including the effects of transmission, the net savings ranges from $3 to $6.9 billion per year for the 20 GW wind addition scenario, and $3.3 to $9.4 billion per year for the 40 GW wind addition scenario.


Study

 
At 5/24/2012 2:48 PM, Blogger Rufus II said...

MISO

 
At 5/24/2012 3:28 PM, Blogger juandos said...

"Meanwhile, if you live in the most wind-intensive state in the Union, Texas, you can sign up with TXU Energy and pay $0.11/KWhr from 6:00 AM to 10:00 PM, and get Free Electricity All Night!"...

Proving yet again there's NO free lunch or electricity we have the following: Texas enacted a renewable portfolio standard (RPS) mandating that the state’s competitive electric providers buy a minimum 2,000 MW of qualifying renewable energy by 2009. The purchase mandate was part of a broad electricity restructuring bill sponsored by Enron Corp., parent of Enron Wind Corporation, a story detailed elsewhere at MasterResource.

The Texas Legislature, with the support of Governor Rick Perry, later increased the RPS to 10,000-MW by 2025. Texas met this target for installed wind capacity in 2010, a full fifteen years ahead of schedule. Subsequent attempts to increase the mandate, and to carve out a solar mandate, have been repulsed by a more free-market legislature.
...

So who is really paying for the RPS?

Learning from Others’ Mistakes: What Europe’s Experience with Renewable Mandates and Subsidies can Teach Texas

 
At 5/24/2012 6:52 PM, Blogger StVIS said...

"Yeah, but it looks like we'll be paying considerably more for nat gas sometime in the future as current economics erodes drillers' cash. In fact, Chesapeake Energy announced it may run out of cash for next years drilling operations.

Consider this:

http://www.businessinsider.com/the-natural-gas-massacre-gets-bloodier-2012-5

Fitch, in downgrading Chesapeake’s Issuer Default Rating and senior unsecured ratings to BB-, estimated that the shortfall this year alone would reach $10 billion—in the first quarter, the company bled $3 billion in cash—and that it would be forced to dump up to $20 billion in assets to get through this.

[...]

In fracking, during the initial phase of production, high pressure blows a huge quantity of gas out the well—and the quantity of the first 24 hours, the “initial production,” is bandied about to investors and lenders, who are so impressed.

Alas, it’s the most the well will ever produce in a 24-hour period. As pressure drops, gas production drops precipitously. All wells have decline rates. But instead of declining gradually over decades, shale gas wells decline sharply over days, weeks, and months. After a year, production may be down by 80%, and after a year and a half by 90%.

But the outsized production early in the lifecycle allows drillers to show a big upfront profit. To conceal the decline rates, they drill another well. And another well, and so on. The more they drill, they more they have to drill to hide the drop-off in production of the prior wells—ad infinitum! Which is impossible. But drillers kept it up long enough to get prices to collapse. And then, what caught up with them was ... reality."

 
At 5/24/2012 7:17 PM, Blogger VangelV said...

Well, that's not correct. If you look at coal's share of electric power generation in America it has been steadily decreasing since the mid 1980's. Also, the regulations you discuss only apply to new power plants, not currently existing ones. Are there political pressures on coal? Of course. But they are not having this large an effect on coal. The fact is, coal is not the cheapest option for the US anymore. Developing nations, such as China, are demanding more and more coal. Coal prices have skyrocketed over the past 5 years, while at the same time natural gas has been falling. Those are economic, not political, factors.

Coal had around half the electricity generation market in 2004 but it is down to less than 40% today. That is a huge drop that began even when natural gas prices were high. Why did this happen when cost was not that big a factor? Well, you can thank the regulators who made it very clear that the older plants would have to be shut down as approval processes would be stalled. And there was no way that the EPA would allow many new coal plants to open up.

Now this is fine when there is a lot of cheap gas around but not so good when reality begins to set in. As I have been pointing out for so many years the game only works as long as new drilling can hide the huge depletion rates and the accountants use EURs that are much higher than what the production data is showing. Since that depends on cash flows we expect to see the producers load up on debt and/or issue new equity and sell off some assets. But the end game is clear. The natural gas drilling will stop and the huge declines will reduce the volume gas available for electricity generation and home heating. The utilities and home owners will have to battle it out for the remaining gas eventually as the price bust turns to a boom. But as all the leases are written off and regulators force accountants to use realistic EURs it will be very hard for future drilling activity to attract financing.

I do think you give the government too much credit. Realistically, there is not much a government can do to control an economy. They can try, but in the end they are just hoping to get lucky. Sure, they can do things like ban markets, but all that does is create a black market.

I do not give it much credit at all. Government is great at getting in the way, wasting resources, and destroying useful economic activity. Many of the older coal mines will never open up again. New electricity generation plants cannot be built very quickly even if Congress got out of the way and the EPA approved them. I expect that we will either see a huge decline in real economic activity or a huge increase in energy prices. And I suspect that factories that need a cheap source of electricity will look to relocate elsewhere.

 
At 5/24/2012 8:32 PM, Blogger StVIS said...

"I expect that we will either see a huge decline in real economic activity or a huge increase in energy prices. And I suspect that factories that need a cheap source of electricity will look to relocate elsewhere."

Lately, the US has witnessed a ("semi-quasi" as I like to call it) resurgence in manufacturing, partly due to low energy prices. However, what happens when the bottom falls out, the gas industry gets gutted and suddenly, $8 per 1,000 cubic feet settles in to support drilling? What will happen with factories looking for cheap energy?

You've long been critical of this blog's optimistic appraisal of the shale gas industry. With out a doubt, some have likely taken you as a fool, but Dr. Burry was lauded as a fool for years before the US housing bust occurred, and his fund's shorts proved correct.

Along with the inevitable gas industry bust and the fragile US economy of course is the imploding eurozone. If that's not enough, the long-awaited slowdown of China finally seems to be gaining steam, though I don't we'll see a hard downturn this year.

The long-term aftermath's bet says when the dust settles, the balance of global power will finally settle in China's favor - at the expense of the West.

 
At 5/25/2012 7:16 AM, Blogger VangelV said...

Lately, the US has witnessed a ("semi-quasi" as I like to call it) resurgence in manufacturing, partly due to low energy prices. However, what happens when the bottom falls out, the gas industry gets gutted and suddenly, $8 per 1,000 cubic feet settles in to support drilling? What will happen with factories looking for cheap energy?

That is the problem. Mark can be right about one of the factors but not both. Because of the cost of shale gas you need $8 per Mcf to break even if you are the average producer. If a company builds a factory based on the idea of $5 per Mcf gas it is looking at an economy with very weak demand or with a shortage of gas.

You've long been critical of this blog's optimistic appraisal of the shale gas industry. With out a doubt, some have likely taken you as a fool, but Dr. Burry was lauded as a fool for years before the US housing bust occurred, and his fund's shorts proved correct.

What I am critical of is Mark not doing his homework. Hype is one thing but unless you can show that the producers can generate the cash flows that are necessary to self finance you have to really question that math used and some of the EUR assumptions. You also have to ignore shale company management telling us in 2005 that as long as gas prices stayed above $7.50 there was a lot of money to be made. That was when the companies were developing the sweet spots in the shale formations, not half a decade later when the marginal areas have to be drilled off.

Again, he could argue for one or two of his points but can't put it all together into a coherent picture that implies the type of positive scenarios that he is trying to articulate.

Along with the inevitable gas industry bust and the fragile US economy of course is the imploding eurozone. If that's not enough, the long-awaited slowdown of China finally seems to be gaining steam, though I don't we'll see a hard downturn this year.

The problem is that a collapsing Euro could mask serious problems with the USD. Obama is spending like a drunken sailor on shore leave. Romney is not promising much better fiscal discipline. That makes money printing inevitable and there is no way to escape the consequences once confidence begins to be lost.

The long-term aftermath's bet says when the dust settles, the balance of global power will finally settle in China's favor - at the expense of the West.

What worries me is the story that China is looking to back its currency with precious metals. If that happens the speed of the American decline will be much more rapid than the pessimists imagine.

 

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