Thursday, May 09, 2013

How Is Expanding Oil and Gas Production Consistent with Addressing Climate Change?

Last month the International Energy Agency (IEA) reported that the amount of carbon dioxide emitted for each unit of global energy use was essentially unchanged between 1990 and 2010, despite the implementation of global climate agreements and the expenditure of hundreds of billions of dollars for renewable energy projects and incentives. Just a few days earlier, the US Environmental Protection Agency released its annual inventory of US greenhouse gas (GHG) emissions, showing a 1.6% reduction from 2010 to 2011. US emissions were up 8% since 1990 but have fallen 5% since 2000 and nearly 8% from their pre-recession peak in 2007. Much of the US's recent divergence from the global trend is attributable to the displacement of coal from the power sector by shale gas.

As unwelcome as the IEA's finding was, it is unlikely to have shocked anyone who understands the scale of global energy systems and the continued reliance of many developed and developing countries on coal for power generation. The transition to lower-carbon energy systems is underway, as reflected in the details of the IEA report. However, it will take additional decades to reach targets consistent with limiting the projected global temperature increase to 2° C, which the IEA indicates would require a 60% reduction in the carbon intensity of energy by 2050 from current levels. That implies that energy companies still need to develop additional oil and gas resources in the interim, in order to support the economic activity that--among other things--will be necessary to fund the recommended investments in cleaner energy and energy efficiency.

At first glance that might seem paradoxical. After all, oil and gas account for 55% of US GHG emissions and around 40% of global emissions today. However, when gas displaces a higher-emitting fuel like coal, global emissions fall. This has been a matter of some controversy, due to uncertainty about the contribution of fugitive methane emissions from shale gas wells. Yet the estimates in the EPA inventory indicate that methane emissions from US natural gas systems actually fell by 9% between 2005 and 2011, even though US natural gas production grew by 27% over that interval, with shale gas output increasing by 950%. A new analysis from ExxonMobil indicates that on a lifecycle basis, replacing coal with shale gas in power generation reduces GHG emissions by an average of 53%, while also reducing overall freshwater consumption by half.

Assessing the role of oil in the decarbonization of global energy is more complicated. Oil exploration and development must continue, even in a static or eventually shrinking market, because reserves that have been produced must be replaced, by either new discoveries or further development of existing fields. Simply allowing today's oil fields to decline and hoping to make up their energy contribution from other sources would be very risky, particularly for the transportation sector with its extremely high reliance on oil. Moreover, four-fifths of the emissions from petroleum occur during end-use combustion. That means that most emission reductions from petroleum must come about through reduced demand, via some combination of increased fuel efficiency, fuel substitution--particularly in those markets where oil is still used in electricity generation--and/or reductions in transportation metrics such as vehicle miles traveled.

In a recent Bloomberg op-ed, Michael Levi of the Council on Foreign Relations considered the impact of increasing US oil production from the standpoint of both the "social cost of carbon" and its incremental contribution to global emissions. He concluded that even at a high estimated environmental cost, the climate impact of an extra barrel of US oil would come in under $10 per barrel, well below its economic value. He also concluded that significantly higher US oil production would add little to global emissions. Its impact would be even smaller if OPEC producers reduced output to try to preserve high oil prices. Mr. Levi addressed that scenario in an earlier op-ed.

Last month's IEA report concluded that the world is not yet on track to reduce emissions by enough to limit temperature increases to 2° C, and more must be done. Yet even if we were on that track, the IEA forecasts upon which the report was based suggest that combined oil and gas consumption in 2035 would still be about 2% higher in 2035 than in 2010, with a bit of a shift from oil to gas. On today's trajectory, both oil and gas will grow, even as renewable energy and energy efficiency expand significantly. On either basis, an all-of-the-above approach to energy encompassing oil and gas, along with renewables, carbon sequestration, nuclear power and efficiency is fully consistent with addressing climate change.

A slightly different version of this posting was previously published on the website of Pacific Energy Development Corporation. 


richtfan said...

we don't need, for any reason, to "decarbonize" our economy, environment or anything else. that is a false premise. there is nothing wrong with carbon dioxide in our air. plants MUST have it to grow well. the more there is, the more plants (food) we can grow to feed the ever growing population. it is simply a joke to think that driving a car destroys the environment.

Geoffrey Styles said...

Rather than engage in a debate about climate science, let's focus on civilization's long-term trend of decarbonization. We're not going to resolve here the question of whether we're overloading the natural carbon cycle.

Decarbonization to date has been consistent with a shift toward higher quality energy sources, in an engineering sense, and higher productivity. So far, these transitions have taken us from wood to coal to oil, and now increasingly to natural gas. Nuclear power, a high quality and fully decarbonized energy source fits into that trend, too. So do renewables, though intermittent renewables still have some quality issues to work out, for which there may be technical solutions. See:

Ed Reid said...


There is a huge difference between a small capacity storage battery with the capability to smooth wind fluctuations during periods when the wind is blowing and the large capacity storage required to time-shift wind generated electricity, generated during periods of low electricity demand,for delivery during periods of higher electricity demand.

Geoffrey Styles said...

As they point out at the end of the article, though clearly they're emphasizing what a short amount of storage could do. I was thinking about blogging about this, probing the question of where the storage should be. A bit of storage could pay nice returns for a wind farm owner if it "firms up" some capacity. However, shouldn't the larger blocks of storage be on the grid side, where they can smooth out intermittency and demand spikes across the whole grid? Of course if the storage is there, there's no guarantee that the power stored would be renewable sourced. My view is you'd store what's cheapest: off-peak hydro, wind, coal or nuclear, but likely not solar. What's your take?

Ed Reid said...


The wind industry needs to decide, or have decided for it, what it wants to be when it grows up. The current situation, which combines "must take" requirements and supported prices, cannot be allowed to continue as wind penetration grows.

Certainly, storage at the turbine to smooth output when the wind is blowing would increase the value of wind generated electricity, to the wholesale price of electricity from other sources at the same time. Certainly, as well, storage at the wind farm which allowed the electricity to be dispatched would increase the value of wind generated electricity, to the wholesale price of other sources of electricity at the same time.

Storage on the grid, as you suggest, would not increase the value of the wind generated electricity relative to the wholesale price of other sources of off-peak power which might be used to fill the storage.

Absent storage at the wind farm, wind generated electricity prices would always be dependent upon price guarantees and "must take" provisions.

Of course, rent seeking will continue as long as there is rent to be sought.