Natural Gas & The Low-Carbon Economy


environmental advantages of natural gas, which have gained economic significance as clean air standards have become progressively tighter in recent decades. Burning natural gas produces virtually none of the sulphur, mercury, or particulates that are among the most health-threatening of pollutants that result from coal combustion. A National Research Council study published in 2009 estimated that the environmental damages associated with electricity from natural gas are 95% lower than from coal. Although natural gas does produce nitrogen oxides and carbon monoxide – and is an important contributor to ozone pollution in some areas of the US – these can be reduced substantially with widely available emissions controls. Growing concern about climate change in recent years has also worked in favour of natural gas. Gas contains 25% less carbon than oil and half as much carbon as coal. Planned and proposed federal and state actions to curb greenhouse gas emissions – from stricter requirements for emissions control technology to renewable or clean energy portfolio standards to a cap on carbon – all expose oil and coal investments to much higher risk than natural gas. Thus, environmental considerations have helped revive interest in natural gas as a source of electricity in recent years.


Figure 3: Share of US Electric Generation


Outside of the power sector, other applications of natural gas


have begun attracting interest as well – particularly in the face of dramatically higher oil prices. From 1995 to 2005, oil cost an average of 34% more than natural gas. And in the past few years, as world oil prices have skyrocketed, North American gas prices have not risen as rapidly. In 2008 and 2009, the average price of oil was more than double the price of gas, and by March 2010 oil was nearly three times as expensive. Transportation, the sector where


A newfound abundance of natural gas promises to tip the fossil fuel balance further in its favour


oil is dominant, will likely be affected most by the widening price gap between oil and gas. Boosted by a new generation of compressed- gas fuel tanks, natural gas vehicles


have already become popular in countries such as Italy and Pakistan, where they are seen as an economical way to reduce dependence on oil. In the US, where gasoline prices have been relatively low by


international standards, natural gas vehicles have never been as popular, but many local governments have turned to gas- powered buses to reduce fuel costs and the local air pollution from diesel buses. Texas businessman T. Boone Pickens has proposed a nationwide effort to convert heavy-duty trucks to run on natural gas, in part to minimize US dependence on foreign oil. Recent studies conclude that, beyond their ability to reduce


local air pollution, natural gas vehicles also lower GHG emissions by roughly 25% compared with oil, far less than the reductions possible in power generation but significant nonetheless. The big question now facing energy planners is whether sufficient natural gas will be available at a competitive price to allow for significant displacement of oil in transportation and coal in power generation. The answer to that question will likely be determined in large measure by efforts to develop new sources of natural gas, which has already had profound effects on the US energy industry in recent years.


The Unconventional Gas Revolution A newfound abundance of natural gas promises to tip the


Source: IEA Since the 1990s, 65% of the new capacity added to the US


power grid has consisted of a new generation of efficient gas- fired power plants, compared with 2% for coal. While much of this capacity remains underutilised, due in part to relatively high gas prices, the decline in prices in 2009 boosted natural gas to 23% of US power generation, up from 20% in 2007 and just 12% as recently as 1990. During the same period, coal declined from 52% of US electricity to 45% (Figure 3).


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fossil fuel balance further in its favour. Gas production in the US peaked in the early 1970s, along with oil, but in recent years technological advances have dramatically reversed the decline. Advances in horizontal drilling and hydraulic fracturing have unlocked gas resources in ‘unconventional’ reservoirs, such as tight sands, coal bed methane, and shale rock rich in organic materials. As a result, resource estimates have increased sharply, and as lessons learned in the US are applied to exploration and production of unconventional resources internationally, natural gas has the potential to shed the supply, price volatility,


worldPower 2010


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