14 May 2013

Shale of the century shifts carbon consumption

The rise of shale gas in the US has had unexpected consequences as well as the more obvious effects. It was bound to do wonders for local energy prices, but who would have thought that it would play a part in increasing Germany’s emissions of carbon dioxide? 

You can get an idea of shale’s impact on energy markets from a new paper from Chatham House, the Royal Institute of International Affairs. In US Energy: the New Reality John Mitchell reviews recent changes in the energy scene in the US. He shows just how quickly those changes have happened. In 2006, natural gas production in the US reached a low of 18 trillion cubic feet (tcf). (They still use 19th century measurement units there.) By 2012 it had risen by a third to 24 tcf.

The gains for the US are obvious. “Low natural gas prices have expanded the domestic gas market and enhanced the competitiveness of US industries,” says Mitchell. And this will be a long-term effect. Gas-based petrochemical and electricity-intensive industries in the United States “will continue to benefit from cost advantages that are beginning to approach those enjoyed by Middle East petrochemicals industries with oil-related (though discounted) input costs”.

This industrial benefit is in contrast to the UK where last week Sir Alan Rudge, in his farewell address as President of the ERA Foundation, complained that “we are struggling with a disastrous expensive energy policy that is based upon an illusion of a green economy with a huge dependence on imports”. Sir Alan, who has been banging on for some time about the price that industry in the UK has to pay for its energy, lusts after the US’s shale gas. This has, he says, “already reduced energy costs there by a staggering 40 per cent, made them a net exporter of gas, and commenced the rejuvenation of productive industry”.

One consequence of the shale bonanza is, as Sir Alan said, that it has “significantly reduced [CO2] emissions in the USA”. That is because shale gas has half the CO2 content of coal.
This switch from coal to gas in the US has not brought about the dent in CO2 emissions that you might think. It has just exported the carbon for other people to chuck into the atmosphere. One recipient of this carbon looking for a home is Germany.

Mitchell explains what has happened in his paper. Natural gas companies, he points out, have increased their share of the US electricity market by 5 per cent. And it has done this “partly at the expense of coal (which has lost 3 per cent of the electricity generation market)”.

Coal producers haven’t thrown away their picks and shovels and gone on to greener pursuits. They have replaced this loss of domestic sales “by exporting to growing markets in the power sector in Asia and in Europe (the latter reflecting the phasing-out of nuclear power in Germany)”.

So, all those German environmentalists saying no to nuclear power have been bad news for climate change. Yes, Germany is bigger in renewable energy than the rest of Europe, but it still needs to keep the lights on.