Shale Gas Boom: The Angel or Devil for Earth?

Shale Gas Discovery and Boom in the US

In the past few years, the United States has experienced the shale gas boom. Shale gas is a new type of natural gas trapped in Earth's shale formations. Its extraction has been technically difficult and thus prohibitably expensive, but recent technological advancement enabled commercial extraction at low costs, even lower than those of conventional natural gas.

This is causing a land slide effect in the energy dynamics in the US, particularly in the fuel mix for electricity generation. The below figure from US EIA suggests that this year natural gas surpassed coal as a fuel source for electricity generation for the first time. Some experts predict that the US can be a net exporter of energy, at least in the electricity sector in near future.

(source: US Energy Information Administration)

Recent Discovery in Japan

On the other side of the Pacific Ocean, Japan's Agency of Natural Resources and Energy announced in June that there is a potential large natural gas field off the coast of Niigata in the Northeastern Japan. It is unclear at this point how much and what form of natural gas can be extracted from the field, but if successful, this would have significant policy implications for national energy policy. Japan currently has almost zero domestic production of fossil fuel, and it is increasingly dependent on it at least in the short term, in the aftermath of the accident at Fukushima Daiichi nuclear power plant. The gas field itself won't be enough to satisfy the increasing demand for natural gas in Japan, but the discovery implicates potential shale gas in the surrounding regions. When combined with potential import of shale gas from North America, natural gas is expected to play an important role in filling the hole of nuclear power in the short to medium term.

(Source: The Daily Yomiuri)

Is Natural Gas a Clean Energy Source?

The discovery of natural gas on both sides of the Pacific Ocean is mostly welcomed by policy makers and general public; it could lead to energy independence, and is generally considered as a clean energy source. The table below shows the emission factor of greenhouse gas (GHG) by fuel source. It indicates that GHG emissions from natural gas is only about a half of that from coal when producing the same amount of energy. So, simply put, the transition from coal and residual fuel to natural gas in theory should result in dramatic reduction in GHG emissions in the electricity sector.

Table: Emission Factor by Fuel Source
Fuel Source
Emission Factor
(kg CO2 / MMBtu)
Motor Gasoline
Natural Gas
Distillate Fuel
Jet Fuel
Ethanol (E85)
Residual Fuel
(Source: US Energy Information Administration) 

Contrary to this popular belief, I would argue that natural gas may not be as clean as the emission factor suggests for the following two reasons. One reason is purely scientific; the extraction process of natural gas is associated with fugitive methane emissions — another important GHG. While US EPA recently revised its emission factor estimate to incorporate the fugitive methane, some critics argue that EPA continues to underestimate the GHG potential of natural gas. This argument is based on the belief that hydraulic fracturing, a method used for shale gas extraction, causes the release of a large amount of fugitive methane during extraction. (For more details, please read this report)

Besides this scientific reason, an economic factor may lessen the GHG advantage of natural gas in the long run. The discovery of shale gas caused downward pressure on the price of natural gas. The figure below shows a dramatic drop in natural gas prices relative to other fossil fuels since 2009. The lower fuel costs would translate into a reduction in retail electricity prices. While it is a good news for consumers in the short run, the law of economics suggests that the lower costs tend to induce more demand. In the US, the price elasticity of demand for electricity is about -0.4, meaning that 10% reduction in electricity price causes the demand to surge by 4%.

(Source: American Century Investments Blog)

It is difficult to quantify these scientific and economic effects, but they indicate that the discovery of shale gas may not be as positive as many suggest today. When combined with the potential adverse impact on groundwater and geological stability of shale formations, we need to take a hard look at the aggregated impacts of shale gas before advancing further.

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