Marcellus Shale gas has increased recoverable natural gas reserves in the U.S. by about a third over estimates prepared a few years ago. Europe is also exploring shale gas as an alternative to problematic Russian gas supplies and low proven natural gas reserves. POWER contributors in the U.S. and UK examine the comparative economic value, public acceptance, and political implications of these massive shale gas reserves.
The U.S. natural gas reserves chart looks like a roller coaster. In 1967, the U.S. Department of Energy’s Energy Information Administration (EIA) predicted that proven U.S. natural gas reserves were 293 trillion cubic feet (Tcf), the peak reported at the time. Since that year predictions have slid downward, hitting a low of 164 Tcf in 1994. That very low number sparked a scramble to construct new liquefied natural gas (LNG) import terminals about a decade ago. Then, a few short years ago, advanced drilling techniques made the vast reserves of shale gas more than a mile beneath Earth’s surface accessible. Today, the EIA’s prediction of U.S. proven natural gas reserves is 2,552 Tcf, enough gas to keep the U.S. economy fueled for a century, at the current rate of consumption, and LNG export terminals are under development. The ability to tap even deeper shale gas reserves promises even more startling reserve estimates in the next few years (Figure 1).
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| 1. Shale gas glut. The U.S. Energy Information Administration predicts that shale gas will become the predominant source of natural gas in the coming years. Units are trillion cubic feet per year of dry gas. Source: EIA, Annual Energy Outlook 2011 |
The rise in predicted shale gas reserves in Europe is similar, but with different consequences. The European Union (EU) is blessed with large quantities of shale gas reserves, although they are not equally distributed across the 27 EU countries (EU27). However, with few exceptions, EU countries are poor in conventional natural gas. Consequently, most of them are beholden to Russian gas pipelines for a large portion of their natural gas needs and will be dependent on imported gas for the foreseeable future. Several countries in the EU have also taken the political position that drilling for unconventional natural gas is environmentally unacceptable and have prohibited such drilling.
Copious amounts of natural gas, from conventional or unconventional sources, will provide significant economic benefits to those countries that can cheaply tap the resource. Not only does the use of natural gas produce half the carbon dioxide emissions of coal combustion, but the cost of production (once the full implementation of expected environmental retrofits to coal-fired plants are considered) also will probably produce reasonably priced electricity for many years, because the plentiful supply of gas should keep prices relatively low in the U.S.
The prospects for the EU are less promising, given that the majority of its gas is imported and the level of enthusiasm for exploiting unconventional gas resources is lower than in the U.S. The EU also faces other legal and political barriers to bringing unconventional gas to market that do not exist in the U.S., such as state ownership of the gas beneath Earth’s crust.
In this special report we discuss the momentous impact of shale gas on the economies of the U.S. and the EU. In our opinion, the immense flow of unconventional gas promises to be a game changer for the global power generation industry. We predict it will undermine the economics of renewable and nuclear projects, providing a path for quicker reductions of carbon and other emissions than expensive retrofits of solid fuel power plants and the means to keep electricity prices in check for years to come. In the U.S., the last “dash for gas,” which ended almost a decade ago, left many combined cycle plants either mothballed or used sparingly when the price of natural gas spiked. Today, long-term, low-cost natural gas will make these plants very valuable for many years into the future.
No question, the gas glut means it’s no longer business as usual for power generators. The effect is one that Joseph Schumpeter called “creative destruction,” a situation in which industries must revolutionize their economic structure from within, necessarily destroying the old one in the process. Those countries that embrace unconventional gas as the natural evolution of the power generation industry and release their grasp on old technologies will benefit greatly. Those that are slow to respond will be severely disadvantaged in the global marketplace.
U.S. Gas Supplies Gush
Looking for some cheap windmills? T. Boone Pickens is selling.
In 2008, Pickens, a longtime guru of gas, hatched a scheme to push windmills for electric power production in order to divert natural gas to power diesel-powered trucks. The plan, which won the enthusiastic support of the Sierra Club, promised a move toward “energy independence” by reducing the use of oil products in transportation.
In May 2008, Pickens ordered 667 windmills with a total capacity of 1,000 MW from GE, a $2 billion order, to equip a wind project in the Texas Panhandle. The project was the centerpiece of the “Pickens Plan.”
But the Pickens Plan, and the man’s status as a darling of wind power folks, quickly crashed on the shoals of an ocean of new natural gas. Within a year, Pickens was trying to unload his wind turbines, which had become twirling white elephants.
Though Pickens has sold out on wind, he’s sticking with gas, earning condemnation from environmentalists who were lauding him in 2008. Now they charge that Pickens might—shockingly—be looking to make a profit from gas. The 82-year-old Pickens, who made his first billion drilling for gas at Mesa Petroleum, told the politics newspaper Roll Call in an interview last May that “you can’t do wind because natural gas is too cheap.”
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