shale gas: policy context · gas 2010 gas 2011 coal eia-icf (2011) lifecycle h) co 2 e analysis...
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Shale Gas: Policy Context
R e s o u r c e s f o r t h e F u t u r e ’ s
C e n t e r f o r E n e r g y E c o n o m i c s a n d P o l i c y ( C E E P )
D r. A l a n K r u p n i c k , C E E P D i r e c t o r 1 1 / 1 4 / 1 1
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Gas price for given rate of return
Production rate
Conventional gas
plays
Shale gas
plays
Costs versus production
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Bulls vs. Bears
• Resource Base: “Enough gas for 100 years” vs. “USGS: 80% lower than EIA estimate of resources”
• Price: Stable and low vs. BAU
• Global warming: “Foundational” vs. “Flimsy bridge to a low carbon future”
• Energy Security: “an answer” vs. BAU
• Environmental risk: “Tempest in a teapot” vs. fracking bans
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Discovered?
Economic?
3 Ps +
cumulative
production?
USGS 2011 Estimate
84 tcf
AEO 2011 410 tcf
Marcellus Natural Gas Resource Base (Old Diagram)
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Marcellus Shale Gas Resource Base (New Diagram)
Unproved and Undiscovered Technically Recoverable
Resources and Inferred Reserves are essentially measuring
the same thing when considering continuous resources.
But using different methods and data
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Whatever the true resource base,
• Companies are learning fast
– Longer “laterals” (from 2000’ to 8000’)
– Faster drilling (from 80 to 20 days)
• And being surprised
– Shallower decline curves (“decades”)
• Two years ago: 4.1 Bcf per well
• Today, some wells up to 7.1 Bcf
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2009 D
ollars
per
millio
n B
tu
Natural Gas Henry Hub Spot Price Forecasts
AEO 2011 AEO 2009
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Low and stable for long-run (based on AEO2011).
Short-run?
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Natural gas and global warming
• Is natural gas (from shale) a lower carbon
substitute for coal? – Fugitive methane*GWP + other fuel cycle elements < >
Coal emissions (CO2e)
• Will natural gas substitute for coal in the
power sector?
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516566
1,096
0
200
400
600
800
1,000
1,200
Gas 2010 Gas 2011 Coal
Life
cycl
e G
HG
Em
issi
on
s (k
g C
O2
e/M
Wh
)
EIA-ICF (2011) Lifecycle CO2e Analysis Shows Gas (with
fracking): 50% Cleaner than Coal
Note: 100 year global warming potential
Source: EIA, ICF International, DBCCA analysis 2011
+10% Revision
Gas still 48%
cleaner than
coal
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CMU study: shale gas ~40% cleaner than coal
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Cornell Study and Critique
• GWP => 20 vs. 100 years
should stimulate further study
• Fugitive methane data are thin (handful of wells in 5
plays). For key play (Haynesville):
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0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
Haynesville Barnett Piceance Uinta Den-Jules
tho
usan
ds o
f cu
bic
mete
rs
Methane “emitted” during flow-back
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Cornell Study and Critique
• GWP => 20 vs. 100 years; IPCC or revised estimates
should stimulate further study
• Fugitive methane data are thin (handful of wells in 5
plays). For key play (Haynesville):
• Documentation misread (IHS Global, 2011)
• Methane is mostly flared, rather than vented. Some
methane too expensive to capture;
• Metering errors can lead to misclassification as fugitive
• Research on-going
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Natural Gas, Power Sector and CO2 emissions
• Increased gas resources:
– NEMS: AEO2009 269 vs. PGC 616 tcf:
increased natural gas use and share, more
carbon
– HAIKU: AEO2010 347 vs. AEO11 827 tcf:
increased gas use and share, slightly less
carbon
• With CO2 policy: cheap gas lowers costs
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A “narrow” bridge to a low carbon future, but pressure on old coal plants to retire will likely
create a bigger role for natural gas
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Energy security and global warming: Heavy-duty LNG-Fueled Trucks
instead of Diesel Trucks
If:
– LNG truck is $70K more expensive than diesel
– LNG is $1.50/ge cheaper
– Observed impatience (31% interest rate)
– 125,000 miles/yr.
– 5.1 mpge
3 year payback
But chicken and egg problem with investment
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New Investment in LNG Infrastructure
• Chesapeake Energy: investing $150 million in Clean Energy Fuels Corp. to develop up to 150 LNG truck fueling stations along major truck corridors (interstates) in the U.S.
• 79 stations over the next 2 years; 250 miles apart
• Clean Energy partnering with Pilot Flying J
• Capacity of system: 3-4 million gallons of LNG/station a year 11K trucks (@125K miles/yr)
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December 2012 Projected (Chesapeake Energy website)
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- Niche market for LNG-fueled heavy-duty trucks - Tougher case for CNG-fueled light-duty vehicles; Weak energy security benefits for now
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Environmental Risk?
Aubrey McClendon
interview with Forbes:
F: It’s clear that as long as
wells are cased and
cemented properly,
fracking is safe, right?
M: 100%!
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Environmental Risk?
• No comprehensive analysis of impact pathways
• No comprehensive examination of expert opinion
• No examination of public opinion where trade-offs are
forced
– “An industry response that hydraulic fracturing has been
performed safely for decades rather than engaging the range
of issues concerning the public will not succeed.” (SEAB,
2011)