Shale gas development has given fossil fuels a new impulse, delaying, possibly by decades, the time of their replacement by other sources of energy.
By Gustavo Coronel | March 27, 2013
Pennsylvania natural gas well. Photo: Reuters
The current situation
The shale gas boom we have described in previous articles is deeply influencing the way America’s energy picture will change in the medium term. Shale gas development has given fossil fuels a new impulse, delaying, possibly by decades, the time of their replacement by other sources of energy.
The current U.S. energy equation shows that about 62 percent of national energy consumption is of fossil fuels, oil and natural gas, with oil supplying 37 percent and natural gas 25 percent. Coal represents 21 percent, nuclear power 9 percent and renewable sources 8 percent of total consumption. Most of the discussion on the future of this calculus centers on the most likely alternative source that could replace fossil hydrocarbons. Some scientists believe that the total energy requirements of the planet can be met with renewable energy.
Others, such as NASA’s top scientist, James Hansen, ridicules such assertions. He says: “It is conceivable that in a few places, such as New Zealand and Norway, this could come about. But suggesting that renewables will let us phase rapidly off fossil fuels in the United States, China, India, or the world as a whole is almost the equivalent of believing in the Easter Bunny and Tooth Fairy.”
He added: “nuclear power is our best hope to get off of fossil fuels, which are primarily responsible for the heat-trapping gases cooking the planet.” Scientists take sides and nuclear power and renewable energy have distinguished champions. Coal also has strong advocates, especially at the American Coalition for Clean Coal Electricity and at CURC, the Coal Utilization Research Council. CURC cites a report by the IEA, International Energy Agency, which indicates that coal’s share of the global energy mix “will continue to rise, and by 2017 coal will come close to surpassing oil as the world’s top energy source. The IEA expects that coal demand will increase in every region of the world except in the United States.”
Natural gas development is strongly endorsed by many, including President Obama, who in his State of the Union address, January 2012, had this to say: “We have a supply of natural gas that can last America nearly 100 years…and my administration will take every possible action to safely develop this energy.”
The case seems to be that strong inertia related to the long dependence of the nation on fossil hydrocarbons plus the increasing rate of development of shale oil and shale gas deposits indicate that these fuels will keep representing the major portion of the energy equation in the U.S. in the medium term, certainly within the next 20 years.
The outlook for the medium term
A review of the diverse energy consumption projections for 2035 shows some differences among the main predicting organizations, mainly the Energy Information Agency, EIA, the International Energy Agency, IEA, ExxonMobil and British Petroleum. The differences exist because, in order to make their predictions, each organization has had to estimate multiple variables, including population growth, Gross Domestic Product, environmental regulations that could come into effect, technological breakthroughs related to shale gas and shale oil production, international oil prices, growth in the demand for electricity and even weather patterns. A reasonable average of these predictions would suggest that the U.S. 2035 energy equation will probably look like this:
|Sources of U.S. Energy|
This above table tells the probable story of how the U.S. energy equation could change over time. More than an abrupt replacement of one source for another source of energy, as many experts have suggested, the process will be akin to a changing of the guard. It will not be a matter of, say, renewable energy sources replacing fossil hydrocarbons or nuclear power emerging as the key replacement source, but it will be a rather gradual change over time, with individual energy sources contributing to the equation in varying amounts, until fossil fuels lose their historical predominance. The predictions show this will not take place within the next 20 years, as was widely believed some years ago, when the Peak Oil concept made the demise of the oil era sound imminent. As the development of new sources of fossil hydrocarbon deposits become technically and economically viable, the changes in the equation become gentler. However, there are some clear trends that could be summarized as indicated below:
- Oil utilization gets an extended lease on life
Thanks to shale oil, the prospect of oil production increases in the U.S. look attractive. A PricewaterHouseCoopers recent report states that shale oil production has grown from 111,000 barrels per day (b/d) in 2004 to 553,000 b/d in 2011 and kept increasing during 2012. EIA predicts an increase in shale oil output between November 2012 and December 2014 of 1.13 million b/d. The rate of increase in production is accelerating and the reserve base is now on the order of some 35 billion barrels.
- Natural Gas continues growing in importance due to shale gas production
During the last decade, shale gas production has increased by a factor of 12. This production has offset the decline in other natural gas reservoirs. This trend will make it possible for the U.S. to become a net exporter of liquefied natural gas by the early 2020s and to produce about 32 trillion cubic feet in 2035.
- Coal will maintain its relative position but shows some signs of losing ground
Coal is intimately linked to electricity generation. In this respect, IEA considers that coal will remain as the largest energy source for electricity generation for the period 2010-2035, but its share of total electricity generation will decline from 42 percent in 2011 to 35 percent in 2040. The main concerns about coal are environmental, since more stringent government regulations could constrain its utilization. However, there is a tendency for U.S. coal to become a highly exportable commodity, which would keep this sector vigorous. The agency also stated that low projected fuel prices for new natural gas-fired plants and the continued rise in construction costs for new coal-fired power plants will affect the relative economics of coal-fired capacity. While clean coal technologies could influence the future use of coal favorably, research and development in this sector appears strongly underfunded, as compared to financial resources available for research in renewable energy.
- Nuclear barely holding its share
In the EIA forecast, the U.S. the share of total electricity generation by nuclear power plants declines from 20 percent in 2010 to 18 percent by 2035. New nuclear capacity is added by new reactors and the upgrading of older ones but, since total electricity generation grows faster, the relative share of nuclear power will diminish. Natural gas economics are more favorable than those for nuclear and, as a result, additions to electricity generation from nuclear will amount to only about 4 percent of the total new generation, while natural gas additions will be on the order of 60 percent.
- Renewables use will increase at a higher pace than fossil fuels
Other than hydropower electricity, generation from renewable sources will show an increase from 13 percent in 2011 to 16 percent in 2040. Hydroelectricity currently amounts to about 7 percent of total electricity generation, but its future growth will encounter much resistance from environmentalists. Electricity generation from solar and, to a lesser extent, wind energy sources will grow, as lower costs make them more economical. However, IEA projections are not very optimistic about the ability of advanced biofuels to capture a rapidly growing share of the liquid fuels market.
The U.S. energy equation will change in a gradual manner, from being unduly dependent on partly imported liquid fossil fuels to a greater reliance on domestic natural gas, a cleaner source of energy. Energy self-sufficiency, which appeared as an impossible dream only two decades ago, looks within reach for the medium term, thanks to the emergence of shale gas and shale oil as main components of the equation. Renewable energy develops slowly, but with a clearly defined upward trend. Coal will maintain its important role unless legal restrictions impose a reduction in its utilization.
There is no silver bullet to the replacement of fossil hydrocarbons but, rather, an aggregate of partial sectorial contributions, depending on government policy choices, with each one playing a gradual role in the decades ahead.
In the final article of this four part series of shale gas in the U.S. and the world, we will review the global picture of shale gas and the countries in which its development is likely to become significant.
Gustavo Coronel, who served on the board of directors of Petróleos de Venezuela (PdVSA), has had a long and distinguished career in the international petroleum industry, including in the USA, Europe, Venezuela and Indonesia. He is an author, public policy expert and contributor to