Natural Gas in a Low-Carbon Energy Economy


Growing estimates of US natural gas resources, including a new category of ‘unconventional’ gas, suggest that accessible supplies of this least carbon-intensive of the fossil fuels may be far more abundant than previously assumed. This unexpected development creates opportunities for deploying natural gas in a variety of sectors – including power generation, industry, and transportation – to help displace oil and coal, thereby reducing greenhouse gas emissions and improving air quality.


By Christopher Flavin & Saya Kitasei B


eyond providing a cleaner, market-ready alternative to oil and coal, natural gas can facilitate the systemic changes that will underpin the development of a more


energy-efficient and renewable energy-based economy. For example, smaller, distributed generators, many producing usable heat as well as electricity, could generate economical, low-emission replacements for a large fraction of currently operating conventional power plants, providing flexible back- up to the variable output of the solar and wind generators that will comprise a growing share of the electric power system. All of these gains are contingent on the development of


sound public policy to incentivise and guide the transition. Critical policy decisions that are now pending include: electric power regulation at the local, state, and federal levels; effective federal and state oversight of the natural gas exploration and extraction process; future Environmental Protection Agency (EPA) regulatory decisions under the US Clean Air Act; and putting a price on greenhouse gas emissions.


The Renaissance of Gas Natural gas was first developed as a modern fuel, together with oil, in the late 19th


early 2000s was met by Canadian imports. The 1990s were marked by relatively low and stable gas prices


as US and Canadian suppliers easily kept up with demand growth. But soaring oil prices, together with falling reserves of conventional natural gas, drove gas prices from just over US$2 per million BTU in 2002 to as high as US$13 per million BTU in 2008, making many potential users reluctant to invest in the fuel. Since then, gas prices have moderated somewhat – ranging between US$2.50 and US$6/mmBTU in 2009 and 2010. Still, price volatility remains the Achilles’ heel of natural gas, particularly when compared with coal. Tempering coal’s price advantage are the substantial


Figure 1: US Primary Energy Consumption Trends


century. Most of the early gas resources


were co-located with oil, and this associated gas was extracted almost as an afterthought as the oil industry took off in the early 20th


century. Like oil, natural gas began to be used to a


limited extent in the industrial, residential, and commercial sectors as a feedstock and to heat buildings prior to World War II. Following the war, the US and a few other countries began to build the extensive and expensive pipelines needed to make gas a mainstay of the US energy economy, and the first generation of gas-fired power plants was built. As a by-product of oil production, natural gas was cheap, and by the early 1970s, provided 30% of US energy supply, most of it in industry and buildings. (Figures 1 & 2.) But that was the peak. As US oil supplies dwindled, so did gas, hampered by government price controls that discouraged exploration. By the late 1970s, most experts believed that natural gas


had entered a period of inevitable decline. Policymakers were so worried that, for a time, Congress made it illegal to build gas power plants in the US. While gas maintained its dominant position as an industrial fuel and the most economical means of heating homes, by the 1990s, it had fallen to less than 24% of US energy supply and stayed close to that level for the next decade and a half. Modest demand growth in the 1990s and


worldPower 2010 Source: IEA Figure 2: US Nat Gas Consumption by End-Use


Source: IEA


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