Recently the Center for Climate and Energy Solutions (“C2ES”) released a comprehensive report entitled “Leveraging Natural Gas To Reduce Greenhouse Gas Emissions” that lays out in a thoughtful manner the promising future of natural gas. Its timeliness, coming as the shale revolution continues to build in the United States and which President Obama made a centerpiece of his Climate Action Plan (CAP), make this document essential reading.
Michael L. Krancer served as secretary of the Pennsylvania Department of Environmnetal Protection under Gov. Tom Corbett, and as an active participant in the development of the Marcellus Shale, is in a unique position to discuss the C2ES report and its implications for America. He has since rejoined Blank Rome where he is an advisor to U.S. and global energy companies regarding legal, public policy, government relations, state and federal regulatory, financial, corporate, and labor matters. He can be contacted at MKrancer@BlankRome.com.
P&GJ: What is particularly significant about the C2ES report?
Krancer: Two things: first, what the report says; and, second, who C2ES is. The report says natural gas is a key to any viable carbon emissions strategy. C2ES tells us that natural gas has already been a major player in GHG emissions reductions and that energy sector GHG emissions are at their lowest level since 1994. In fact, the U.S. leads the world in carbon emissions reductions and is ahead of the would-be Kyoto Protocol standards. C2ES is the successor to the Pew Center on Global Climate Change and it is an independent, nonpartisan, nonprofit organization working to advance strong policy and action to address the twin challenges of energy and climate change.
P&GJ: The report quotes power generation as a key use of natural gas. What are the projections of the percentage it will have?
Krancer: That will vary and depend on location, time of day, season, market conditions, and other particular factors. The market share for natural gas in electricity generation has been climbing the past few years and will continue because of its price. In 2008, natural gas supplied about 7.3% of PJM’s electricity despite 30% of the capacity in PJM – a regional transmission organization (“RTO”) that coordinates the movement of wholesale electricity – was gas fired. By the end of 2012, about 19.4% of electricity was being generated by natural gas.
P&GJ: What other uses of natural gas are viable: power source for fuel cells, vehicles?
Krancer: In fact, the transportation sector is now the greatest growth market for natural gas as fuel and holds the most potential for environmental benefit. While both electricity generation and manufacturing have in the neighborhood of a 20-30% penetration by natural gas, as fuel transportation it is probably still well below 1%.
P&GJ: How can natural gas be partnered with forms of renewable energy?
Krancer: An important aspect of the Report is underscoring the importance of a diverse energy generation portfolio and the synergy between natural gas and other zero-emitting energy generation sources like nuclear, wind, and solar. This is important because the potential partnership between natural gas and renewable energy is often overlooked. A natural gas plant can be cycled on and off more efficiently and more economically than other large traditional generation sources.
As the Report also notes, the synergy is even deeper when one considers that “the fixed fuel price (at zero) of renewables can…act as a hedge against potential natural gas price volatility.” It is debatable as to whether natural gas price volatility will be as pronounced as some other fuel feedstock commodity prices, but the point is well-taken
P&GJ: Even though natural gas is not 100% emissions-free, why is it the best solution reducing greenhouse gas emissions? With the future of nuclear in limbo, is there any other fuel source that comes close to matching it in terms of availability, price, and its effect on the environment?
Krancer: The contribution of our existing nuclear electricity generation fleet to carbon emissions reductions is critical. The future of nuclear is not in limbo nor should it nor can it be if we are to be serious about reducing carbon emissions. Since long before the first unconventional natural gas well was even drilled, nuclear power generation has been an important keystone to America’s low-carbon emissions performance.
Nuclear power accounts for 64% of the total electricity output of all zero-carbon emissions sources. It has been responsible for the avoidance of 11,879 million metric tons of carbon since 1995. In addition, numerous independent studies show that nuclear life-cycle carbon emissions are comparable to wind, geothermal, and hydroelectric generation.
We have the safest, most efficient and reliable nuclear generation industry in the world. Nuclear power generation is 100% carbon emissions-free. It produces low cost power 24/7/365. Nuclear power now supplies about 20% of the nation’s electricity overall and more than any other source in seven states. A pellet of nuclear fuel the size of the tip of a pencil eraser produces the same amount of energy as 17,000 cubic feet of natural gas, 1,780 pounds of coal, or 149 gallons of oil. Also, because fuel price is quite small for nuclear power, a mere 28% as compared to 80-90% for coal and natural gas plants, power from nuclear plants is much less subject to price instability.
We simply cannot afford to lose any of our existing nuclear power plants if we are going to meet the president’s ambitious goal for carbon emissions reductions. As of today, about 5% of our existing nuclear fleet has announced plans for premature retirement. We need to enact policies and take steps to reverse this negative attrition.
P&GJ: Natural gas seemed to be popular with many environmentalists when it was thought to be a “bridge” fuel. What changed that attitude?
Krancer: The issue is U.S. energy independence and security, along with affordable energy for all. There is an ideological and political opposition to the development use of any fossil fuel, which we see quite evident today. A few years ago, when natural gas was considered in short supply and therefore, by necessity, only a so-called “bridge fuel,” it was not targeted by those who viewed it as such. Today, however, available and inexpensive natural gas — supplies of which stretch for more than 100 years — is no longer a “bridge fuel,” but a fuel of the century and beyond.
Some say natural gas is a threat to wind and solar. An electricity diet fed by all wind and solar is, of course, not physically possible at any point in the near term. Natural gas should be considered a very good partner to wind and solar, not an enemy.
P&GJ: How serious an issue are methane leaks and is the industry doing enough to combat that?
Krancer: C2ES does identify an important caveat in its message, and one that makes a lot of sense. Specifically, do not let the promise of GHG emissions reductions through the use of natural gas as a downstream fuel be eclipsed by methane leaks at the upstream production phase. Fortunately, the news is very good in this regard. The early pronouncements of a certain Cornell professor on the issue of methane leaks in upstream operations have been conclusively refuted by any number of later more credible studies.
The EPA’s recent 18th Annual Greenhouse Gas Inventory Report documents a 66% decline in methane emissions from natural gas development from prior estimates. In fact, the EPA reports that oil and gas systems now emit less methane than waste facilities such as landfills and sewage treatment plants.
Also, the results of the first in a series of a major new multi-stakeholder studies showed that methane leakage from shale gas operations is very small. Toward the end of 2012 it was announced that a research team including the University of Texas, URS, and Aerodyne Research would conduct a major field study to measure methane emission from natural gas production operations.
This series of studies was to involve an unprecedented volume of data. The surprising results of the survey, announced on Sept. 16, confirm there is a very low methane leakage rate from shale natural gas exploration and production activities: about 1.5% or less.
P&GJ: How strongly determined are these opponents to curb natural gas development, and how are they going about advocating their cause especially in terms of lobbying and financial support?
Krancer: Like any ideological position, it is intense, persistent, and not subject to amendment by contrary facts. Strategic litigation is one forum that has been adopted. Even if the opponents see no chance of winning a particular case, the strategy is to bog down any project in litigation in the hope that delays and expenses might work to kill it where the facts and the law cannot.
P&GJ: What have been some of the pluses and minuses that you have witnessed in the ongoing development of the Marcellus Shale? Has fracking caused undue problems with road damage, water supplies, water and sewage treatment?
Krancer: In Pennsylvania, thanks to Gov. Tom Corbett who worked with the Legislature, we have our Act 13, which imposes on the industry an impact fee for wells drilled. About two-thirds of what is collected is returned to local communities to deal as they see fit with local impacts. The impact fee raised about $204 million in its first year and over $201 million in its second year. Importantly, unlike some states’ so-called “severance tax” that is based on the value of the natural gas extracted, Pennsylvania’s impact fee revenue did not tumble like severance tax revenue did on account of the declining price of natural gas.
P&GJ: Isn’t one issue that needs to be addressed the steady increases in gas flaring, especially in the Eagle Ford and Bakken basins where the oil play dominates?
Krancer: As noted earlier, the federal EPA regulations deal with flaring. Operators are incentivized to keep flaring to a minimum. Also, it should be remembered that, sometimes, limited flaring is necessary as a safety measure.
P&GJ: Does the Report discuss the need for new pipeline infrastructure, and if so, where?
Krancer: Yes, the Report devotes an entire section to this topic. The Report says, in essence, that, “Transmission and distribution pipelines must be expanded to ensure adequate supply for new regions and to serve more thermal loads in manufacturing, homes, and businesses. Increased policy support and innovative funding models, particularly for distribution pipelines, are needed to support the rapid deployment of this infrastructure.”
P&GJ: Some industrialists such as Dow Chemical are leading an effort to restrict LNG exports, fearing their feedstock costs will rise as a result. Is this a legitimate concern?
Krancer: Deloitte did a study some months ago that proved Dow’s concerns are overstated. The API has also documented the same thing. The Deloitte study (“Exporting the American Renaissance: Global Impacts of LNG Exports from the United States”) concludes that the impact on domestic natural gas prices from exporting LNG would be minimal — only $0.15 MMBtu. This is because of the huge extent of the supply in the U.S. and the responsiveness of the natural gas market to price signals.
P&GJ: Natural gas has typically been influenced by price volatility. Is this no longer an issue?
Krancer: While there have been some price spikes based on local conditions at certain times as mentioned above, the overall price volatility of natural gas is actually less than the historic price volatility of oil. Furthermore, even though the price of natural gas has been steadily decreasing, it has not seen the up and down spikes that we have seen at times in international oil markets.
P&GJ: President Obama’s Climate Action Plan at one point cites natural gas as an important tool in dealing with climate change, then he returns to the phrase “bridge fuel.” Is he trying to have it both ways?
Krancer: It is true that the president does, at one point, throw a sop to the ideologues mentioned above by calling natural gas a “bridge fuel.” The smart bet is that the president knows better. That characterization of the role of natural gas is refuted by his own Department of Energy, the Energy Information Administration and the International Energy Agency, all of which have reported that recoverable reserves of natural gas are so vast that it is and will continue to be the fuel of at least the next century or more.
Even the president’s CAP states that net oil imports are at the lowest levels in 20 years and that the U.S. has become the world’s leading producer of natural gas. Moreover, the president is obviously fully aware of the geopolitical and national security benefits being realized right now — and will be for decades to come — from America’s oil and natural gas abundance being delivered by hydraulic fracturing.
The Wall Street Journal ran an important article on that topic July 2 pointing to just one aspect of America’s new energy abundance that is making a big difference: stabilizing world oil prices. President Obama’s White House National Security Advisor Tom Donilon is quoted as saying that increasing American energy supplies “helps reduce our vulnerability to global supply disruptions and price shocks.” This is making the entire world more secure by allowing us to, among, other things, more easily isolate rogue nations like Iran.
P&GJ: What can and should the federal government do to help natural gas development proceed in an orderly manner?
Krancer: As I told Congress when it asked me that very question: “back off” (http://www.youtube.com/watch?v=c2ryLitw7EA). The states in which fracturing is taking place know what they are doing and have been regulating that activity for years. In fact, it was the considered decision of Congress back in the 1970s, when it was passing all the federal environmental laws like the Clean Air Act, the Safe Drinking Water Act and others, to have the states regulate that activity.