Ethiopian News Forum

Is Shale Gas the Climate Bill's New Bargaining Chip?
Posted by Desta Bishu | August 6th, 2009 at 11:01 pm |

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."

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.

Experts argue that the scenario for wind and natural gas isn't clear yet.

New energy actor lacks a complete script

"Gas would be the backup for wind, but you lose part of the gas market to new wind generation," said Harry Vidas, vice president of natural gas consulting at ICF International. "It's not obvious how that works out."

Robert Zavadil of EnerNex Corp. in Knoxville, Tenn., a prominent consultant on the wind integration issue, said that a big buildout of wind generation could reduce the need for backup by natural gas plants, since a drop-off in wind production in one area could be offset by stronger wind flows elsewhere.

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.

Uncertainties linger about price and quantity
In Congress, the major political issue surrounding shale gas these days is a protest against tighter regulation by U.S. EPA.

"There's a great deal of potential," said David Morehouse, a senior petroleum geologist with the Energy Information Administration. "We clearly have the technical capability to produce it. It's a matter of cost versus price. The resource is there. How much of it ultimately will be produced, nobody really knows yet. They're just guessing."

That uncertainty works against shale gas's political impact.

Also working against it is the power of the coal lobby. Some two dozen states contain coal reserves, and the industry holds some of the deepest lobbying coffers on Capitol Hill. Many of the states that contain significant shale gas reserves — like West Virginia — also have a long-standing coal industry with close ties to its members of Congress.

That puts many lawmakers in a situation in which they have to weigh support for coal against the requests of natural gas. And the coal industry is fighting hard to make sure that its views rise to the top.

In an interview yesterday, a spokesman for the American Coalition for Clean Coal Electricity, or ACCCE, emphasized that mass switching away from coal to natural gas would lead to electricity price spikes. Gas has a history of price volatility, and the shale discoveries won't change that, he said.

It's clear that natural gas interests "have joined together to talk about how they can game a climate policy so as to gain market share," said Joe Lucas, senior vice president for communications at ACCCE.

Similarly, the National Mining Association, which represents many coal companies, is running a series of ads saying, "America can't afford to put most of its electricity eggs in the natural gas basket."

"To quote Queen Victoria, we are not amused," said Luke Popovich, a spokesman for the association.

By PETER BEHR AND CHRISTA MARSHALL | nytimes