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Friday, June 1, 2012

Is gas a climate villain or a solution?

Another criticism of the shale gas boom is that it will worsen - or at best minimally help – global climate disruption. 

It is a critical question.  Scientists say that a 2 degree Celsius (about 3.5 degrees Fahrenheit) increase in global temperatures is the limit of safety, beyond which climate change is likely to become catastrophic and irreversible. Recently, IEA said that global carbon emissions rose 3.2 percent last year to a record high, placing us on track for 11-degrees of warming.  And just this week, the barrier of  400 PPM of atmospheric carbon dioxide was surpassed.
The initial alarm bell on gas’ climate role was rung in a paper that claimed that gas-fired electricity was “dirtier” than coal-fired power when it comes to climate change. That paper has since been thoroughly debunked by about seven subsequent studies; it is clear now that natural gas-fired electric power produces only about half of the carbon emissions of coal-fired power.  However, the original work raised the critical question of methane emissions from shale gas production. Methane is 25 times more potent than carbon dioxide as a greenhouse gas. Methane emissions from gas production, transport, and distribution must – and can be – minimized.

So, the criticism is kept alive.  When the IEA’s Golden Rules for A Golden Age of Gas report was released, it was not unexpected that gas’ climate role was spun negatively: A global dash for "unconventional" gas will put the world on a path to temperature rises well above 2C, the International Energy Agency (IEA) has admitted.  

Certainly, gas can simply displace emissions rather than cut them altogether. In the US, gas-fired power stations are displacing coal-fired power, and US carbon emissions are decreasing as a result.  In Europe, however, last year, the consumption of coal rose by 6 percent - mainly a result of an excess of cheap coal on the market because of less consumption in the US. With no shale gas boom in Europe, gas prices are still high (a factor driving interest in exporting US natural gas).  The rise in coal consumption has increased emissions in the EU.

But – if methane emissions are minimized and gas’ share of the world’s power surpasses coal as in IEA’s ‘Golden Age’ scenario - will gas really be a climate culprit, as the story on the ‘Golden Rules’ suggests?

IEA said in releasing its report that "greater reliance on gas alone" could not achieve the international goal of limiting the global average temperature increase to 2 degrees Celsius above pre-industrial levels.

So, not a culprit, but not a panacea.

We will need better renewable energy policies, better energy policies overall,  and much more aggressive measures to reduce carbon emissions from all sources, while addressing the impacts of natural gas production.

We have no time to lose on any of these fronts.

Gas versus renewables? Only if we let it happen.

One of the criticisms of the growing use of – and drilling for – natural gas is that it will diminish the use of renewable energy.  The publication of the International Energy Agency’s “Golden Rules for a Golden Age of Gas has spawned predictable and slightly hyperbolic headlines, such as 'Golden age of gas' threatens renewable energy, IEA warns.

Actually, IEA said this (p. 80):

The global outlook for renewable sources of energy is not affected substantially by the increased use of gas in the Golden Rules Case, with volumes and shares of output remaining very close to those in the baseline case. Due to lower gas (and consequently electricity) prices, the growth of electricity output from non-hydro renewables is reduced globally by 5% compared with our baseline.

Still, there is legitimate cause for concern.  The argument goes like this.  Abundant supplies of natural gas enabled by the shale gas boom have lowered energy prices in the US, and could do so globally.  Renewable energy is nominally more expensive, in large measure because the energy playing field is grossly tilted against renewables.  The cost of coal-fired power, for example, does not include the costs of the enormous and growing damage that coal does to public health, the environment, and the climate. The result of low gas prices could be – could be – that renewables are crowded out by shale gas-fired power in this unfair competition. 

But “could be” does not mean “will be.” 

In fact, renewable energy appears to be booming in the midst of the US shale gas boom.  Deep in the heart of gas country, Texas this year will exceed its 2025 renewable energy requirement – 13 years ahead of schedule - thanks to its abundant wind resources.  In the PJM power pool, the world's largest wholesale electricity market that extends from Illinois to New Jersey, electricity generated by renewable energy doubled from 2005 to 2011.  And Goldman Sachs Group Inc. plans to invest $40 billion over the next ten years in renewable energy projects - an area the investment bank called one of the biggest profit opportunities since its economists got excited about emerging markets in 2001.

More importantly, natural gas can help renewables and ease the path to a low-carbon future. The key is government policies on renewable energy (which are in need of reform).

IEA said (also on p. 80):

There are factors working both against, and in favour of, renewables in a world of more abundant gas supplies. Depending on the type of policies in place, an abundance of natural gas might diminish the resolve of governments to support low and zero-carbon sources of energy: lower gas prices (and therefore lower electricity prices) can postpone the moment at which renewable sources of energy become competitive without subsidies and, all else being equal, therefore make renewables more costly in terms of the required levels of support. However, an expansion of gas in the global energy mix can also facilitate greater use of renewable energy, if policies are in place to support its deployment, given that gas-fired power generation can provide effective back-up to variable output from certain renewable sources. Moreover, lower electricity prices can encourage customer acceptance of a higher component of electricity from renewable sources.

Ultimately, the way that renewables retain their appeal, in a gas-abundant world, will depend on the resolve of governments. (emphasis mine)

Thus, it is up to us.

Wednesday, May 30, 2012

Seeing green in IEA’s Golden Rules

The International Energy Agency’s Golden Rules for a Golden Age of Gas report has laid out a set of “must-dos” for the unconventional gas industry if it is to maintain its social license to operate and surpass coal as the world’s second largest source of energy after oil.  The must-dos involve substantially tighter regulations and industry practices to minimize or avoid the environmental and social impacts of gas development. 

The typical industry response to calls for more oversight is to issue dire warnings about halting investment or price increases that will be passed along to consumers. But those warnings – should they be issued this time – should be dismissed.

The industry can well afford tougher requirements on such issues as methane capture, for – to paraphrase Royal Dutch Shell CEO Peter Voser -  it’s in the industry’s interest to capture as much gas as possible. But what about other, tougher environmental standards?

IEA has calculated that the adoption of its proposed “Golden Rules” for shale gas development would add about seven percent to the cost of each well.  But adding to the cost of each well doesn’t necessarily add to the price of gas – or, for that matter, decrease corporate profits - because of very favorable tax treatment of gas extraction

The market price of gas as I write this is priced at about $2.50 per thousand cubic feet. So IEA is saying that its “Golden Rules” would add less than eighteen cents to that price. That would still place the price of gas well below the tipping point - $2.75 per thousand cubic feet - where some analysts claim that gas will stop displacing coal as the preferred fuel for electricity generation.

But the calculation isn’t complete.  There is green in the Golden Rules for gas companies.  IEA estimates that applying the Golden Rules across the board – not on a per-well basis – would allow the industry to plan better, minimize or eliminate environmental risk,  improve efficiency, optimize drilling and infrastructure, , and take advantage of economies of scale.  Taken together, these benefits could yield overall cost savings of 5 percent. So IEA’s 7 percent cost increment is slashed by 70 percent to about 2 percent; again, subject to most of those remaining costs still being eligible to be written off companies’ Federal tax bills.

The cost of maintaining an untenable status quo will be far higher to the gas industry.

Tuesday, May 29, 2012

To get to a golden age of gas, follow the golden rules.

The International Energy Agency has issued a new report: Golden Rules for a Golden Age of Gas. In it, IEA projects that the world’s demand for natural gas could rise more than 50% by 2035 – reaching as much as 25% of the global energy mix, surpassing coal as the world’s second largest energy source after oil.

IEA says that for shale gas and other natural gas resources to attain those levels, they must be developed in an environmentally acceptable way. It is urging that government regulators, the industry, and stakeholders adopt a set of "golden rules" that take into account a range of social and environmental considerations.

IEA summed up the situation well in its press release:

“The technology and the know-how already exist for unconventional gas to be produced in an environmentally acceptable way,” said IEA Executive Director Maria van der Hoeven. “But if the social and environmental impacts are not addressed properly, there is a very real possibility that public opposition to drilling for shale gas and other types of unconventional gas will halt the unconventional gas revolution in its tracks. The industry must win public confidence by demonstrating exemplary performance; governments must ensure that appropriate policies and regulatory regimes are in place.”

“If this new industry is to prosper, it needs to earn and maintain its social license to operate,” said IEA Chief Economist Fatih Birol, the report’s chief author. “This comes with a financial cost, but in our estimation the additional costs are likely to be limited.” Applying the Golden Rules could increase the cost of a typical shale-gas well by around 7%, but, for a larger development project with multiple wells, investment in measures to reduce environmental impacts may in many cases be offset by lower operating costs.

The Golden Rules contain no surprises; indeed, they repeat what I and other industry observers and investors have long been calling for. They stress the responsibility of government to impose and enforce strict regulations, and the industry to employ the “highest possible standards” of performance.  IEA calls on operators to go beyond minimally satisfying legal requirements in demonstrating their commitment to local development and environmental protection.  

The Golden Rules call for transparency, measuring and monitoring of environmental impacts, and engagement with local communities; careful choice of drilling sites and robust well standards to prevent any leaks from wells into nearby aquifers; rigorous assessment, tracking, and monitoring of water requirements and of waste water; measures to target zero venting and minimal flaring of gas; improved project planning; attention to cumulative impacts; minimizing the use of chemical additives and promoting the development and use of more environmentally benign alternatives; and consistently high and continuously improving environmental performance.

IEA’s Golden Rules present a responsible, achievable course for getting unconventional shale gas right.  But following these rules and allowing natural gas to become the world’s second largest energy source is not a cure-all.  IEA points out that "greater reliance on gas alone" could not achieve the international goal of limiting the global average temperature increase to 2 degrees Celsius above pre-industrial levels. As we are heading to 11-degrees of warming, we must take much more aggressive measures.

Monday, May 28, 2012

Memorial Day

The piece below was written by my son, Brian F. Quigley, in 2006, when he was in the eighth grade. Brian has allowed me to post it here in honor of his late grandfather - my Father, Thomas W. Quigley (pictured below circa 1945)  - and in honor of all those who made the ultimate sacrifice for our nation; and in honor of the women and men who serve us now in uniform.

A Fateful Favor
Brian Quigley

How many times have you heard people say that “it was fate” or “it was meant to be”?  You think about it briefly and go on with your day-to-day activities.  However, what would happen if your entire life would be non-existent if it wasn’t for fate?  What if your parents had never met?  What if your parents were never born?  Everyone can agree that if not for fate, things would be a whole lot different.

When I was younger – about seven years ago - my grandfather told me a story that makes me think how fate really does matter.

The year was 1945.  The United States was nearing the end of World War II, the most devastating war in history.  It had started as a European conflict and expanded to the Pacific after the Japanese attacked Pearl Harbor in 1941.  My grandfather served in the United States Army on one of its fifteen hospital ships.  I remember my grandfather describing his ship, the U. S. S. Comfort.  The Comfort was essentially a floating hospital.  It contained operating rooms, 700 beds, and every department pertaining to the care of wounded, sick, and injured people.  The details of the ship were still sharp in my grandfather’s mind, even 54 years later.  “It looked like it could have been a cruise ship,” he said.  But being in the Army, he knew it was quite the opposite.

These ships were classified as “non-combatant vessels” used to evacuate sick and wounded Army, Navy, and Marine personnel from combat areas.  The ship bore a big red cross on its smokestack, which told the enemy that it was a hospital ship and should be respected.  The red cross was brightly lit at night, and, like all hospital ships, the Comfort usually traveled alone.

Hundreds of service men and women worked aboard the Comfort.  In addition to doctors, nurses, and other medical employees, there were also machinists, cooks, maintenance and administrative workers, and others trained in communications.  It really was a floating hospital.

My grandfather told me this story of one man who had enlisted in the Army, and had been assigned to the Comfort.  While onboard, this man met many  people, and he became friends with many of his shipmates.  This man was a Sergeant.  He was an administrative officer.  He had many duties – record-keeping, paperwork, and regular inspections of the ship.  This involved going to all the wards aboard the ship to check on needed supplies, collect reports on the condition of the patients, and checking on problems.  The Sergeant called this part of his job “making the rounds.”

On the night of April 28, 1945, the Comfort was stationed off the islands of Okinawa south of the Japanese mainland.  The Comfort was treating the wounded from the battle of Okinawa, the bloodiest battle of the Pacific War, which was still raging.  The Sergeant was scheduled to be on duty that night, and he would have to make the rounds.  As he was collecting his clipboard and preparing to leave his bunk, a crewmate who was a friend of the Sergeant dropped by and offered to go in his place and give the Sergeant the night off.  “I owe you a favor,” he told the Sergeant.  “I’ll make the rounds for you.”  The Sergeant was surprised, but grateful for the offer.  He accepted, and handed his buddy his clipboard.  After all, everyone likes a day off now and then.

About an hour after the Sergeant’s buddy began making the rounds for him, the Japanese Air Force disregarded the rule for respecting hospital ships.  On that clear, moonlit night, from out of nowhere, a Japanese kamikaze plane streaked across the starry sky and flew straight down the Comfort’s red cross-emblazoned smokestack, exploding with a deafening roar.  The entire ship shook for the force of the impact.  The communications room near the base of the smokestack was destroyed.  The engine of the kamikaze tore through the ship, finally coming to rest in the engine room far below deck. Heavy smoke filed the wards, and there was a huge fire where the telephone room had been.     

The ship was in chaos. The floating hospital, which was supposed to be a haven for the wounded, had become a floating battleground.  Forty-eight people were wounded, and twenty-eight people were killed in the attack, including surgeons, nurses, and patients.

The sergeant was among the fortunate ones.  He was jolted from his bunk when the kamikaze hit, but he was unhurt.  He scrambled to the deck to help his shipmates, and for many hours afterward he worked to put out the fire, help the injured, and begin the grim task of searching through the rubble for casualties. 

The Sergeant worked all that night and straight through the next day.  Late in the afternoon on the day after the attack, the Sergeant found out that his buddy who had gone out to make the rounds in his place was among those who had died in that horrible event on that fateful night.  His friend was killed because he had taken the Sergeant’s place.  Had it not been for his buddy’s offer to make the rounds for him, the Sergeant would have been among those killed in the attack.

As my grandfather ended the story, he told me that I should be very grateful to the man who offered to do the Sergeant’s job on April 28, 1945.  When I asked why, he replied that this man, who was in the wrong place at the wrong time on that night 54 years ago, had given me the opportunity to live.  I then realized that fate had given me the chance to know and love a great man – that Sergeant – who was none other than my own grandfather.

For more on the USS Comfort, see here.