Senate climate bill boosts natural gas outlook
By Staff
Reuters
November 3, 2009
WASHINGTON (Reuters) – The natural gas industry looks to be a big winner in U.S. Senate legislation to tackle climate change on expectations it would lead to more gas demand and a new wave of gas-fired power plants.
After getting few breaks in the House of Representatives climate bill earlier this year, the industry stepped up lobbying as the Senate wrote its version.
The industry won the support of lawmakers as it trumpeted gas as abundant, cleaner than coal and more reliable than wind and solar as a constant energy source to cut greenhouse gases.
The Senate bill would require the Environmental Protection Agency to help subsidize coal-fired power plants switching to fuels that emit much fewer greenhouse gas emissions.
The United States, which was recently overtaken by China as the top greenhouse gas emitter, will meet in Copenhagen in December with world leaders from 190 nations to try to hammer out an agreement to replace the 1997 Kyoto protocol on fighting climate change.
However, hopes of a binding global agreement are fading with the Senate bill still stuck in committee and Congress not expected to finalize legislation until next year.
In the Senate measure, the replacement fuel would have to result in at least 25 percent fewer emissions from 2007 levels through 2020. The reductions would rise to 40 percent and then 65 percent during the subsequent 10 years.
The bill does not mandate a specific fuel, but as the legislation is written, the energy source that would be able to meet the emission-reduction targets and also be the easiest for coal-fired power plants to switch to, especially in the early years, would be natural gas, analysts say.
“Clearly it was directed at natural gas, and natural gas would be the principal beneficiary of these subsidies,” said Mary Anne Sullivan, an attorney specializing in climate change and energy at the Washington law firm of Hogan and Hartson.
The gas industry has acknowledged it was asleep at the switch as the House crafted its legislation to tackle global warming. There were incentives to help coal and renewable energy companies prepare for a clean energy economy but precious little for gas.
Sullivan said the Senate bill does not actually provide money for the EPA program, which would have to be approved by lawmakers under separate legislation.
Nonetheless, the industry could still claim a big win.
“That is a very important step forward, because it provides an economic incentive to switch from coal to gas,” said Dan Weiss, energy analyst at the Center for American Progress.
If the funding comes through, it could result in about 140 new 500-megawatt power plants running on gas, said William Durbin with the Wood Mackenzie energy consulting firm.
“It will add about 5 to 6 billion cubic feet per day of natural gas demand. That’s a big number,” he said. The Energy Department forecasts U.S. gas demand will average about 62 billion cubic feet a day next year.
KING COAL
Still, the industry has a tough sell as coal accounts for half of U.S. power generation.
“Electric generators have shown a preference for coal,” said Roger Cooper, executive vice president of the American Gas Association.
Coal has generally been cheaper than natural gas to run power plants. Any financial incentive to use natural gas in the climate change bill could cause power generators to switch to gas.
The industry argues natural gas is more reliable than solar and wind for electricity generation as these sources can be slowed by weather-related factors, such as cloudy skies or when there is little breeze.
Supporters also point to rising supplies of natural gas in the United States, which has increased its natural gas reserves by 40 percent over the last few years from gas trapped in shale rock thanks to advanced drilling techniques.
The industry also argues gas is a good fuel for national security. While America must import about 65 percent of its oil supply, nearly 90 percent of its gas is drilled domestically.
While environmental groups see natural gas as a better alternative to coal, they prefer using more renewables for future electricity generation. Green groups also oppose the gas industry efforts to expand offshore drilling.
“We do believe natural gas will be the winner in any reasonable carbon-constrained legislation,” said Cooper of the American Gas Association.
Somerset’s NRG power plant closing down
By Marc Munroe Dion
Herald News
November 5, 2009
SOMERSET — Forty employees will lose their jobs when NRG Energy shuts down its circa 1925 power plant on Riverside Avenue in January.
According to NRG spokesman David Knox, the company will deactivate the plant on Jan. 2.
“Market forces are part of the reason,” Knox said. “Also, the requirement that we close down or repower kicks in in September of 2010. We are obeying that.”
Knox said NRG will continue to move ahead with plans to convert the plant from burning coal to a plasma gasification process, which breaks down coal into its component parts before converting it into energy. Knox did not provide a timeframe for the completion of that conversion.
The conversion to gasification has been steadily opposed by citizens groups, including the Conservation Law Foundation, an environmentalist group. Those groups believe the Department of Environmental Protection should not have allowed the conversion because it violates a 2001 agreement between DEP and NRG Energy that would have required the plant to significantly reduce emissions or close. The CLF claimed that converting to synthetic gas violates the spirit of the original accord because it will not reduce carbon emissions sufficiently.
Owner NRG claims the gasification process allows for a 95 percent reduction in both mercury and sulfur dioxide emissions and a 60 percent reduction in nitrogen oxide.
“I’m a little shocked,” said CLF attorney Shanna Cleveland. “My reaction is that this is what we’ve been asking for all along.”
Cleveland said her group would continue to oppose any attempt to convert the plant to coal gasification.
“It doesn’t make sense to bring this plant back from the dead to emit more greenhouse gasses,” Cleveland said. “We’re hoping this serves as a recognition that coal-fired plants are no longer environmentally or economically feasible.”
Knox said union workers would be laid off according to union contracts and nonunion workers would receive standard company severance pay.
The announcement came as a surprise for many.
“I can’t comment,” Somerset Board of Selectmen Chairman William Meehan said Wednesday afternoon, shortly after NRG announced plans to close. “I haven’t heard anything.”
“I’m thrilled,” said Boston-based Toxics Action Center Lead Organizer Silvia Broude, who has participated in many local demonstrations against the the power plant.
“I’m going to call it a victory,” Broude said. “Organizing works.”
Broude said her group will continue to oppose coal gasification at the site.
Local Coalition for Clean Air member Al Lima, who has participated in numerous demonstrations against the plant and against plans to convert to coal gasification, was guardedly happy.
“Good,” Lima said. “They said they would clean it up or shut it down.
“We’re still concerned about gasification,” Lima said. “It’s not over yet.”
America’s Natural Gas Revolution
By Daniel Yergin and Robert Ineson
Wall Street Journal
November 3, 2009
The biggest energy innovation of the decade is natural gas—more specifically what is called “unconventional” natural gas. Some call it a revolution.
Yet the natural gas revolution has unfolded with no great fanfare, no grand opening ceremony, no ribbon cutting. It just crept up. In 1990, unconventional gas—from shales, coal-bed methane and so-called “tight” formations—was about 10% of total U.S. production. Today it is around 40%, and growing fast, with shale gas by far the biggest part.
The potential of this “shale gale” only really became clear around 2007. In Washington, D.C., the discovery has come later—only in the last few months. Yet it is already changing the national energy dialogue and overall energy outlook in the U.S.—and could change the global natural gas balance.
From the time of the California energy crisis at the beginning of this decade, it appeared that the U.S. was headed for an extended period of tight supplies, even shortages, of natural gas.
While gas has many favorable attributes—as a clean, relatively low-carbon fuel—abundance did not appear to be one of them. Prices had gone up, but increased drilling failed to bring forth additional supplies. The U.S., it seemed, was destined to become much more integrated into the global gas market, with increasing imports of liquefied natural gas (LNG).
But a few companies were trying to solve a perennial problem: how to liberate shale gas—the plentiful natural gas supplies locked away in the impermeable shale. The experimental lab was a sprawling area called the Barnett Shale in the environs of Fort Worth, Texas.
The companies were experimenting with two technologies. One was horizontal drilling. Instead of merely drilling straight down into the resource, horizontal wells go sideways after a certain depth, opening up a much larger area of the resource-bearing formation.
The other technology is known as hydraulic fracturing, or “fraccing.” Here, the producer injects a mixture of water and sand at high pressure to create multiple fractures throughout the rock, liberating the trapped gas to flow into the well.
The critical but little-recognized breakthrough was early in this decade—finding a way to meld together these two increasingly complex technologies to finally crack the shale rock, and thus crack the code for a major new resource. It was not a single eureka moment, but rather the result of incremental experimentation and technical skill. The success freed the gas to flow in greater volumes and at a much lower unit cost than previously thought possible.
In the last few years, the revolution has spread into other shale plays, from Louisiana and Arkansas to Pennsylvania and New York State, and British Columbia as well.
The supply impact has been dramatic. In the lower 48, states thought to be in decline as a natural gas source, production surged an astonishing 15% from the beginning of 2007 to mid-2008. This increase is more than most other countries produce in total.
Equally dramatic is the effect on U.S. reserves. Proven reserves have risen to 245 trillion cubic feet (Tcf) in 2008 from 177 Tcf in 2000, despite having produced nearly 165 Tcf during those years. The recent increase in estimated U.S. gas reserves by the Potential Gas Committee, representing both academic and industry experts, is in itself equivalent to more than half of the total proved reserves of Qatar, the new LNG powerhouse. With more drilling experience, U.S. estimates are likely to rise dramatically in the next few years. At current levels of demand, the U.S. has about 90 years of proven and potential supply—a number that is bound to go up as more and more shale gas is found.
To have the resource base suddenly expand by this much is a game changer. But what is getting changed?
It transforms the debate over generating electricity. The U.S. electric power industry faces very big questions about fuel choice and what kind of new generating capacity to build. In the face of new climate regulations, the increased availability of gas will likely lead to more natural gas consumption in electric power because of gas’s relatively lower CO2 emissions. Natural gas power plants can also be built more quickly than coal-fired plants.
Some areas like Pennsylvania and New York, traditionally importers of the bulk of their energy from elsewhere, will instead become energy producers. It could also mean that more buses and truck fleets will be converted to natural gas. Energy-intensive manufacturing companies, which have been moving overseas in search of cheaper energy in order to remain globally competitive, may now stay home.
But these industrial users and the utilities with their long investment horizons—both of which have been whipsawed by recurrent cycles of shortage and surplus in natural gas over several decades—are inherently skeptical and will require further confirmation of a sustained shale gale before committing.
More abundant gas will have another, not so well recognized effect—facilitating renewable development. Sources like wind and solar are “intermittent.” When the wind doesn’t blow and the sun doesn’t shine, something has to pick up the slack, and that something is likely to be natural-gas fired electric generation. This need will become more acute as the mandates for renewable electric power grow.
So far only one serious obstacle to development of shale resources across the U.S. has appeared—water. The most visible concern is the fear in some quarters that hydrocarbons or chemicals used in fraccing might flow into aquifers that supply drinking water. However, in most instances, the gas-bearing and water-bearing layers are widely separated by thousands of vertical feet, as well as by rock, with the gas being much deeper.
Therefore, the hydraulic fracturing of gas shales is unlikely to contaminate drinking water. The risks of contamination from surface handling of wastes, common to all industrial processes, requires continued care. While fraccing uses a good deal of water, it is actually less water-intensive than many other types of energy production.
Unconventional natural gas has already had a global impact. With the U.S. market now oversupplied, and storage filled to the brim, there’s been much less room for LNG. As a result more LNG is going into Europe, leading to lower spot prices and talk of modifying long-term contracts.
But is unconventional natural gas going to go global? Preliminary estimates suggest that shale gas resources around the world could be equivalent to or even greater than current proven natural gas reserves. Perhaps much greater. But here in the U.S., our independent oil and gas sector, open markets and private ownership of mineral rights facilitated development. Elsewhere development will require negotiations with governments, and potentially complex regulatory processes. Existing long-term contracts, common in much of the natural gas industry outside the U.S., could be another obstacle. Extensive new networks of pipelines and infrastructure will have to be built. And many parts of the world still have ample conventional gas to develop first.
Yet interest and activity are picking up smartly outside North America. A shale gas revolution in Europe and Asia would change the competitive dynamics of the globalized gas market, altering economic calculations and international politics.
This new innovation will take time to establish its global credentials. The U.S. is really only beginning to grapple with the significance. It may be half a decade before the strength of the unconventional gas revolution outside North America can be properly assessed. But what has begun as the shale gale in the U.S. could end up being an increasingly powerful wind that blows through the world economy.
Mr. Yergin, author of the Pulitzer Prize-winning “The Prize: The Epic Quest for Oil, Money, & Power” (Free Press, new edition, 2009) is chairman of IHS CERA. Mr. Ineson is senior director of global gas for IHS CERA.
