Fugitive methane emissions: the achilles’ heal of the natural gas push?

Written by Jim Pierobon on June 17, 2013 — Leave a Comment

Buoyed by low prices, environmental benefits and thousands of newly created jobs, the push to produce more natural gas in the U.S. is reaching its stride thanks largely to horizontal drilling and hydraulic fracturing. But do we understand the implications, some of which might negate the environmental gains?

The answer to many objective analysts is: not yet.

image002This is a sizable ‘nut’ to crack. Let’s focus here only on “fugitive” methane emissions.  These are emissions of methane that escape into the atmosphere throughout the process of extracting, transmitting (including liquifying) and deploying natural gas.

Since April, there have been three important contributions to what is becoming a much-needed conversation about whether fugitive methane emissions, over time, could eliminate the advantage natural gas has other fossil fuels, most notably coal burned to generate electricity and gasoline as a transportation fuel:

1. An working paper by the World Resources Institute that outlines state and federal policies and industry best practices to cost-effectively reduce fugitive methane emissions;

2. The Environmental Protection Agency’s (EPA’s) annual Inventory of U.S. Greenhouse Gas Emissions and Sinks; and

3.  Finding the Facts: What the EPA Greenhouse Gas Inventory Says About Methane Emissions From Natural Gas Systems, by the American Gas Association(AGA). Here AGA presents new data and analysis demonstrating that methane emissions from natural gas systems are low and are on declining trend.

As the primary component of natural gas, methane is 72 times stronger than carbon dioxide (CO2) over a 20-year horizon; 25 times stronger over a 100-year horizon (see graph).  While methane represents only about 10-12% of all U.S. greenhouse gas emissions, its potency — if unchecked — could significantly dilute what is perhaps the most talked-about benefit of more natural gas in America’s, and the world’s, energy future.

When extracted from the well, natural gas is made up of about 83% methane. After it’s processed through the the point of delivery, natural gas is more than 90% methane. At current estimated leakage rates, fugitive emissions cast credible doubts about the benefits of switching cars and trucks off of gasoline or diesel fuel to natural gas.

There are numerous ways to ‘spin’ these and other analyses to advocate one position or another. But, as I like to do here at The Energy Fix, take a step back and focus on next steps that can address the threat and risks of fugitive methane emissions. Are they overblown? What can be done to mitigate them? How much could industry, realistically, do on its own?

In AGA’s analysis of EPA’s annual “Inventory,” as the report is widely known, Energy Policy Analyst Richard Meyer asserts the effective natural gas emissions rate-per-unit is 1.5%. That is significantly lower than the 2.2% and 2.4% derived using data from the EPA’s 2009 and 2010 inventories.

Meyer notes that EPA revised its estimates of natural gas systems’ methane emissions downward 33 percent for 2010, from 215.4 million metric tons (MMTe) of CO2 equivalent in the 2012 Inventory to 143. 6 MMTe in the 2013 Inventory.

Connect the dots and you’ll see what is long-term downward trend for methane emissions.  Annual methane emissions have dropped 10 percent since 1990 and are 17 percent below the recent peak in 2007, Meyer states.

While natural gas utilities have added almost 300,000 local connections to serve an additional 17 million customers — and increase of 30 percent each — methane emissions from distribution systems have dropped 16 percent since 1990, according to the AGA.

While it may be reasonable to conclude that methane emissions are less of a risk or threat than perhaps most informed people think, that does not mean the risk or threat can be ignored.

In the meantime, industry, think tanks, regulators and lawmakers can manage the risk with next steps outlined by the World Resources Institute’s working paper.  I spotlight a few of them here, each of which WRI contends is economically viable and in the industry’s long-term best interests.

A comprehensive review of WRI’s re commendations runs from page 38 – page 42. Note: the recommendations apply also the development of oil shale, as well as, natural gas shale production.

Natural Gas Star logo

CREDIT: U.S. EPA

  • Recognize and reward companies that voluntarily demonstrate a commitment to advancing best practices. The “Natural Gas Star” program (logo, right) could be expanded and more frequently updated to serve as a clearinghouse for technologies and practices. These would enable companies to comply with new rules and air regulations contained in the promulgation of New Source Performance Standards (NSPS) and National Emissions Standards for Hazardous Air Pollutants (NESHAPs).
  • Use Section 111 of the Clean Air Act to set greenhouse gas emissions performance standards for new and existing natural gas infrastructure and equipment. These standards generally are developed by industry leaders with state regulators and implemented by states.
  • Expand the scope of the Toxic Release Inventory to require emissions reporting from oil and gas pre-production and production-stage operations. This can help policymakers better understand risks of exposure to hazardous air pollutants, especially near urban areas. Section 112 of the Clean Air Act expressly authorized the EPA to do this.
  • Develop and publish a menu of policy options for states and provide regulatory assistance to adopt them, especially where shale oil and gas production operations are increasingly rapidly.
  • Establish a FracFocus-like database for voluntary reporting of air emissions funded through public sources that are independent of industry; make submissions subject to third-party verification; and make raw data readily accessible to enable the aggregation, analysis and cross-referencing by independent researchers.

Now these and other recommendations by WRI strike me almost as an unrealistic wish list. But they seem to be within the collective grasp of the largest industry players to seize a leadership role and help frame the process.  With the way the data are trending, the implementation of several of these actions could lead to emission reductions that result in virtually unchallengeable relative benefits for the climate.

Posted in Carbon management, Clean energy, Climate policy, Costs of energy, Energy independence, Energy policy, Environmental externalities, Gasoline prices, Greenhouse gas emissions, Hydraulic fracturing, International Energy Agency, Liquified natural gas (LNG), Natural gas, Natural gas vehicles, Oil prices, Shale natural gas, U.S. EPA | Tagged , , , , , , , , , , , , , , , , , ,

Updated draft rules for hydraulic fracturing deserve the chance to work

Written by Jim Pierobon on May 17, 2013 — 1 Comment

Complaints by both sides over the Obama administration’s newly updated draft rules regulating the hydraulic fracturing of shale natural gas and oil on public and Indian lands signals the Interior Department has found enough common ground to raise the bar — albeit slightly — on drilling operations.

Because the updated draft rules would only apply to public and Indian-owned lands, their impact may be minimal on private lands, especially in states that have their own – and in some cases – tougher rules. But they effectively set a notable precedent. Industry and environmentalists know that, which is why they were quick to comment on the original draft last year and the updated draft released Thursday.

A major focus of the draft rules, spread over 171 pages, is the increasingly important role for the industry-sponsored chemical registry web site at FracFocus.org. The Obama Administration appears comfortable enough with letting it become the principal means of disclosing certain facts about hydraulic fracturing, or “fracking.” But questions remain whether it is up to the task. As fracking evolves, can it offer enough transparency about the drilling fluids being used and thus pose a threat to the environment, especially water supplies?

From where I write along with my time reporting on and then helping the energy industry communicate its facts, industry deserves the opportunity to prove FracFocus.org and drilling operations generally can be trusted enough unless there is a serious accident due to non-disclosure or operator error. Any major accident should send regulators back to the drawing board.

image002

This app is on FracFocus.org, which is operated for industry by the Ground Water Protection Council and Interstate Oil and Gas Compact Commission.

If FracFocus.org misses a relevant disclosure that it should have captured and the absence of such harms humans and/or the environment, any trust in it and the rules set to be promulgated by the Interior Department’s Bureau of Land Management, will likely be lost possibly for a long time. Here’s to hoping industry does not let that happen.  It now has an added incentive to step up under the ever-increasing scrutiny and produce the natural gas the country and the world need.

Texas and Colorado, two hotbeds of hydraulic fracturing, previously selected FracFocus.org to be their chemical registries. That kind of momentum is hard to argue with. Will it be better than a government-run system?  For the foreseeable future, I think the answer to that has to be yes. It’s FracFocus’ opportunity to lose.

My guess is the reputation of Department of Interior Secretary Sally Jewell, whose official biography states was trained as petroleum engineer and started her career with Mobil Oil Corp. in the oil and gas fields of Oklahoma, depends on whether FracFocus.org succeeds, or not.

After 177,000 public comments, a lot of interested parties are watching the rules process carefully.  If you haven’t yet, see this stinging assessment by the Harvard Environmental Law Policy Initiative. It asserts that relying on FracFocus to aid in regulatory compliance in some states has “serious flaws.”  Among them, FracFocus allows companies to disclose late without penalties. It also claims there is no review of the accuracy of disclosures by FracFocus. In addition: there is an “overly broad standard” that gives companies sole discretion to determine when to assert trade secrets, which allows them to withhold the identity and amount of the chemicals used.

A flurry of initial media reports are ferreting different provisions of the new draft rule. Two citations:

From the FuelFix.com by the Houston Chronicle:  Companies will be required to have water management plans for handling fluids the flow back to the surface. This because those fluids can become contaminated with naturally occurring radioactive substances underground.

From The New York Times:  Companies will be allowed to keep some components of their drilling fluids secret. And the rule will permit companies to run well integrity tests on one representative well rather than all wells in a field where the geology and well construction techniques are similar.

Predictably, many environmental activists cried foul. While that may be their job, to do so without recommending a better solution undermines their credibility. It risks making them irrelevant to the rules process.

For those that did supply specific comments, perhaps more progress can be made before the updated rule is made final 30 days after the updated rule is published in the Federal Register, probably today or Monday.

Let’s briefly dissect perhaps the most outspoken critic of hydraulic fracturing, Sierra Club President Michael Brune. Brune said he believes “the administration is putting the American public’s health and well-being at risk, while continuing to give polluters a free ride” and that “no amount of regulation will make fracking acceptable.”

That in my mind is overreaching on its face. But read on and Brune argues the draft rules “ignore the recommendations” of the Secretary of Energy’s shale gas advisory subcommittee. In 2011, the advisory subcommittee called for more transparency and environmental safeguards, full public chemical disclosure and pollution monitoring than is contained in the newly proposed rule, according to Brune.

Specifically, Brune asserts there is “no requirement for baseline water testing and no setback requirements to govern how close to homes and schools drilling can happen. The new rules also continue to allow the use of toxic diesel fuel for fracking, as well as open pits for storing wastewater — two practices that we know to be environmentally hazardous.”

If you’ve never read a report on a well using hydraulic fracturing, here’s a primer from FracFocus.org.

Posted in Energy policy, Energy risk management, Fossil fuels, Hydraulic fracturing, Natural gas, Risk management, Shale natural gas, U.S. DOE | Tagged , , , , ,

To export LNG or not? If so, how much is prudent?

Written by Jim Pierobon on May 13, 2013 — 1 Comment

President Obama is preparing to decide how much liquified natural gas (LNG) from the the U.S. boom in shale natural gas production it makes sense to export. Economically and geo-politically a LOT hangs in the balance.

If Obama’s first term on energy was mostly about incentivizing renewable energy, his second term is all about whether to embrace growing U.S. supplies of fossil fuels.  What a difference a few years make.

At about $4.30 per million BTUs (British Thermal Units), U.S. natural gas prices are approximately one-third the cost of LNG imported to Europe and one quarter the cost of LNG in China and other Asian nations. With that much of a price differential, the U.S. finds itself in the driver’s seat of the biggest shift in global energy markets since Arab oil producers wrested control of world oil prices from the Texas Railroad Commission.

The surging supplies represent a compelling opportunity to improve America’s energy security and likely keep natural gas prices relatively low. The new-found gas also offers U.S. producers an unprecedented opportunity to profit handsomely by selling their product to the world all while creating thousands of even more new jobs in the U.S. Nurturing new geopolitical relationships with foreign countries and championing free trade wouldn’t hurt either. See this recent report on the trade implications by the Congressional Research Service.

Relying on a single study, Department of Energy (DOE) researchers concluded that unleashing U.S. gas exports would be a net economic benefit to the U.S., this despite an anticipated slight rise in prices to U.S. consumers.  Lobby groups led by the American Petroleum Institute and America’s Natural Gas Alliance have seized on the DOE report along with other studies and are pushing hard to open this lucrative gateway.

But public gas utilities and U.S.-based manufacturing companies reliant on natural gas as a  feedstock are not buying it. Both groups are among those who want to keep most of the mushrooming supplies of shale natural gas at home for domestic use and to help keep prices as low as possible.

Clean energy and environmental advocates are not impressed either. Natural gas may emit lower greenhouse gas emissions than renewables, but it is still a fossil fuel. The Sierra Club asserts exporting LNG is a “dirty, dangerous practice.”

LNG tanker in port, left to rt, CREDIT Sierra Club

There are at least 20 applications for U.S. terminals similar to this one for exporting liquified natural gas. CREDIT: Sierra Club, which wants to stop every terminal it can.

Official trading partners to the U.S. such as Japan already have access to U.S. LNG exports. Most of the companies who want U.S.-produced gas, though,  are not trading partners. THAT is the new market; it’s huge, it’s growing and it cannot be ignored.

So it seems highly likely that Obama will approve exporting LNG to non-trading partners. The question is who will earn the licenses needed and whether they can sustain operations safely and cleanly.

At least 20 companies want in on the transport opportunity and have applied to build a new LNG export terminals along a U.S. coastlines.

If U.S. producers are to secure new export contracts,  they would need to have their terminals operating by around 2017. Given the lead times required to fully permit and build LNG export terminals, many experts assert Obama needs to issue the green light for new terminals within the next year, if not this summer. If he balks, that gas could be supplied by less secure sources such as Russia’s Gazprom or producers in the Middle East. Or it could be supplanted by higher-emitting coal to generate electricity.

By the time the U.S. is projected to become a net exporter of natural gas — in 2020 — it could be too late.  Demand is high now throughout much of Europe, as well as, China, India, South Korea and other rapidly growing Asian markets.

According to Sarah Ladislaw, an international energy expert at the Center for Strategic and International Studies, if a new export regime and long-term supply contracts are not in place by 2017, U.S. producers will miss what she called a “window of commerciality.” After that, U.S. producers will likely find plenty of competition from other exporters.

Obama may have tipped his hand earlier this month in discussing energy with Central American presidents. According to Reuters and the Financial Times, he said U.S. natural gas could be used as a bridging mechanism to relieve its energy demands until alternative energy sources can be increased.

“I’ve got to make an executive decision broadly about whether or not we export liquefied natural gas at all,” Mr Obama said during a trip to Costa Rica. “But I can assure you that once I make that decision, then factoring in how we can use that to facilitate lower costs in the hemisphere and in Central America will be on my agenda.”

Posted in Energy independence, Fossil fuels, Liquified natural gas (LNG), Natural gas, Shale natural gas, U.S. DOE | Tagged , , , , , , , , , , ,

Center for Sustainable Shale Development – peeling back the packaging

Written by Jim Pierobon on April 17, 2013 — Leave a Comment

Since its launch about one month ago (see The Energy Fix, March 22), the Center for Sustainable Shale Development has been met with accolades from entities such as The Washington Post to harsh rebukes by the likes of the Sierra Club. It’s not surprising that these and other parties differ on the Center’s potential for improving how the industry manages the myriad risks involved in hydraulic fracturing, aka, fracking.

The Washington Post opined soon after the announcement that  “the right path was never to let drillers continue without more oversight, nor was it to ban fracking. America’s natural gas boom is far too important an opportunity — economic and environmental — to ignore. But sound regulations are needed to ensure that it is not an ecological disaster. These new rules are a large step toward striking the right balance, and everyone involved deserves credit.”

Some media reports such as this one in the Dallas Morning News suggested the idea of peace between environmentalists and energy companies threatens extremists on both sides of the fracking debate. “I think you will see the extremes in both camps become increasingly marginal and isolated, and I think that’s a good thing,” environmentalist Michael Shellenberger wrote in an email to the News. Shellenberger is not a part of the shale partnership, but said he supports the idea.

A quick study of the principal critiques since the announcement convinces me the CSSD represents a serious attempt toward making fracking safer, cleaner and therefore sustainable for affected landowners and their states’ economies.  Without it, all stakeholders involved would be left to their own devices while horizontal drilling and hydraulic fracturing continue to surge ahead with varying levels of oversight.

But let’s not get ahead of ourselves. The Center still has a lot of work — and explaining — to do.

Will The Promised Integrity of the Process Hold Up?

One of the most revealing assessments of the Center’s potential — and the tall hurdles that remain — came from a leader of the premier environmental group involved, the Environmental Defense Fund’s top natural gas policy analyst, Mark Brownstein:

“First, the standards put forth by CSSD are no substitute for strong regulation and enforcement. Voluntary efforts by industry leaders help distinguish the best from the rest and raise the bar for all, but the only path to full protection of our air, water, and health is regulation and enforcement that apply to all.

“Second, some press stories have described CSSD as an “agreement” or “deal” environmental groups have made with industry on fracking. This is not the case. What we’ve agreed to is a set of fifteen standards focused on some of the most pressing problems with shale gas development, and a certification process by which companies would held accountable for complying with those standards in the Marcellus Shale (the nation’s largest shale play which is located in the Appalachian Basin).

“Perhaps the constructive working relationship we’ve developed with the companies participating in CSSD,” Brownstein wrote, “is that it can “lead to a broader consensus on the full range of challenges confronting communities in the middle of the shale gale.  We hope so, but we know we are not there yet ”

The operative word, Brownstein acknowledged,  is “can. Time will tell how effective this effort is, and whether it is can or should to be replicated elsewhere. The next steps are very important. And the results are what matter. Success will hinge on the integrity of this process.”

Scroll down from Brownstein’s explanation and you’ll see several current and former EDF supporters crying foul, like this one from “Brian Brock:  . . . If there is on thing that the long and ugly history of oil and gas extraction has taught us, it is that the industry will do only what is required of it. These voluntary standard do nothing to in tighten those requirements — only give the appearance that they do.”

Read Tom Wilber’s “Shale Gas Review” at TomWilber.blogspot.com

Tom Wilber, who writes the “Shale Gas Review” blog and speaks about the shale gas boom throughout New York state and Appalachia, is one of the most informed and objective commentators on the subject. Stepping through the Center’s claims of “unprecedented collaboration” and “constructive engagement,” he chronicled his effort to decipher some of the 15 standards. Here’s an excerpt:

“Some standards were more sophisticated. Some were not. Performance Standard No. 2 stated that the industry should recycle waste water ‘to the maximum extent possible’ until a standard is set next year.  A theme throughout seemed to be a lack of critical definitions – such as what precisely ‘recycling’ is.

“Searching for a point of clarity, I turned to an issue that, in my mind, would be a decisive test of how sincere this whole effort was, and whether my feeling of creeping skepticism was justified. Would the CSSD’s ‘rigorous performance standards’ require operators to fully disclose fracking compounds?

“The answer, I found in Performance Standard No. 7, is yes: ‘Operators will publicly disclose the chemical constituents intentionally used in well stimulation fluids.’  Followed by a no: ‘If an operator, service company or vendor claims that the identity of a chemical ingredient is entitled to trade secret protection, the operator will include in its disclosures a notation that trade secret protection has been asserted and will instead disclose the relevant chemical family name.‘ ”

What About the Certification Process?

As for a certification process that is to come, the Center’s web site, for now, only declares its aspirations:

“The certification process, including a plan for comprehensive third-party auditing, is currently in development. It is expected that energy companies may begin applying for standard certification later in 2013.

“For a company wishing to achieve certification, an independent audit firm – which has met qualifications set by CSSD – will be retained to evaluate the company’s practices against the CSSD standards. The outcome of the audit may be Certified, Certified with Conditions, or Not Certified. Certified with Conditions will be granted where only minor deviations from the standard are present and corrections must be made within 90 days.”

Posted in Energy independence, Energy policy, Energy security, Hydraulic fracturing, Natural gas, Risk management, Shale natural gas, Sustainability | Tagged , , , , , , , , ,

Collaborative set to forge workable rules for shale hydraulic fracturing shows promise

Written by Jim Pierobon on March 22, 2013 — 2 Comments

Led in part by Chevron, Shell, the Environmental Defense Fund and the Clean Air Task Force, these and seven other organizations are now on record having identified “shared values” in an intriguing effort to better manage the risks of hydraulic fracturing of natural gas and crude oil from shale developments throughout Pennsylvania, Ohio, West Virginia and New York.

CSSD logoI signaled progress towards this type of collaborative and another initiative led by Michael Bloomberg last summer here.  With both now underway, industry and forward-thinking environmental advocates face an unprecedented opportunity to raise the bar in hydraulic fracturing.

Will most of the industry engage? THAT remains to be seen.

The new “Center for Sustainable Shale Development” could help to weed out companies willing to take short cuts which, if they trigger an major accident, could stymie shale development for years, perhaps decades. It might also compel companies with proprietary drilling fluids to share their ingredients – something not likely to impress drillers operating in friendlier political climes, e.g. Texas, Oklahoma and North Dakota.

Fifteen initial performance standards are “designed to ensure safe and environmentally responsible development” of the Appalachian Basin’s shale gas resources. They are to form the foundation of an “independent, third-party certification” process.

Among others, the standards include “state-of-the-art methods” to:

  • reduce air emissions and wastewater from drilling
  • disclose chemicals used in hydraulic fracturing
  • require producers to adopt “closed-loop” systems to contain drilling fluids and eliminate use of open pits
  • reduce methane emissions by capturing vapors in drilling and transmission processes
  • curtail the use of diesel generators that power drilling and fracturing equipment.

An independent contractor is to audit the companies’ compliance.

Whether more U.S. companies get on board is a decision each will reach on its own. Dan Whitten, a spokesman for America’s Natural Gas Alliance, said its leaders had not carefully reviewed the Center’s standards. EQT Corp. is one of the Alliance’s featured members and sits on the new Center’s board of directors.

Let’s hope their aspirations are not too far ahead of reality. Andrew Place, a former deputy director of Pennsylvania’s Department of Environmental Protection (DEP) and a Carnegie Mellon climate-change policy researcher who is the Center’s interim director, acknowledged that “None of us out there can do all 15 standards right now.”

Some reports, including this one in  The Philadelphia Inquirer, portend protests by hard core environmental activists. I for one hope enviros are not short-sighted and miss this opportunity to better manage the myriad risks involved and to build on the net emissions reductions that shale gas delivers compared to the mining and burning of coal for power generation.

The center grew out of a recommendation by a shale-gas committee that reported to U.S. Energy Secretary Steven Chu in 2011 in part because about 90 percent of all natural gas produced in the U.S. deploys hydraulic fracturing. The committee called for regionally focused councils of excellence in effective environmental, health and safety practices.

John Hanger, the former Secretary of DEP, took up the call in Pennsylvania. The center was initially incorporated as the “Institute for Gas Drilling Excellence.” But the name was changed to reflect that producers are drilling for oil as well as gas. Hanger bowed out after he became a Democratic candidate for governor last year.

Hanger was quick to spotlight the new Center on his blog here. There he vowed that “gas certified as sustainably produced will soon be demanded by gas consumers.”

As much as I’d like to believe that, I remain skeptical that the safer, more transparent development of a less-polluting fossil fuel will engender significant consumer support. Such demand has materialized for wind energy credits in states such as Pennsylvania and Maryland where consumers can choose to source their electricity supply from wind energy systems. But natural gas?

In addition to Chevon Appalachia and Shell North America, two other energy companies helped devise the standards and are represented on the Center’s board: EQT Corp. and Consol Energy. In addition to the Clean Air Task Force and Environmental Defense Fund, two other environmental or public service advocates are serving on the board: Citizens for Pennsylvania’s Future (PennFuture) and the Heinz Endowments.

Let’s see, that makes four from industry and four from outside the industry. If the board splits 4-4 on a key vote, it’s not immediately clear how such a tie would be deal with. Interim director Place could not be reached for comment.

A key player in the mix is Scott Anderson of the Environmental Defense Fund. Watch him here to gain a better sense of the stakes involved.

Posted in Energy risk management, Fossil fuels, Hydraulic fracturing, Natural gas, Risk management, Shale natural gas | Tagged , , , , , , , , , , , , , ,

Bids to Repeal Renewable Energy Standards Getting Traction in AZ, NC, OH & TX, Not in KS

Written by Jim Pierobon on March 21, 2013 — Leave a Comment

A bid by the American Legislative Exchange Council (ALEC) and the Heartland Institute to roll back or repeal state Renewable Portfolio Standard (RPS) requirements is getting traction, including in Arizona, North Carolina, Ohio and Texas.

But not in Kansas.

The Environmental Defense Fund’s (EDF) Marita Mirzatuny calls their tactics “sneaky.” Heartland’s energy senior fellow,  James Taylor, asserts the efforts are living up to the simple logic of ALEC’s proposed “Electricity Freedom Act” in those and other states.

RPS Map by EIA Jan 2012

CREDIT: Energy Information Administration

ALEC and Heartland contend requirements that states generate a certain percentage of electricity sales from renewable sources are not delivering their hoped-for benefits if one includes new sustainable jobs created and the cost of electricity to consumers.

When I spoke to Taylor recently about their plans for the 2013 legislative season, he acknowledged that solar, wind and other renewable energy projects are creating project-oriented jobs. But, once built, their systems don’t need most of those workers; ergo advocates are over-estimating the economic benefits. Instead, the tax and other benefits of RPS’ are lining the pockets of a relatively small number of private developers while doing little to reduce net harmful greenhouse gas emissions.

What IS reducing net greenhouse gas emissions on a significant scale is the 21st Century energy game-changer: hydraulic fracturing of natural gas. The boom in new gas supplies is supplanting coal as a generation source, stabilizing prices for electricity in some states while lowering overall greenhouse gas emissions in a way renewable energy sources are not yet able to achieve on their own.

A ‘Civil War’ Over States’ Rights to Mandate Renewable Energy

One closely-watched showdown in this now-expanding civil war is the elimination in Arizona of performance-based incentives provided to commercial solar system buyers by the state’s two investor-owned utilities. The state’s GOP-controlled Corporation Commission also drastically reduced the upfront incentives provided by the utilities to residential solar energy customers.

SolarCity Governmental Affairs Director Meghan Nutting told EDF that “as the Arizona incentives have been slowly reduced, the industry has kept up. Ratepayers have invested in the industry to a point where we (solar industry) are almost without a need for incentives. But a sudden and complete elimination of all incentives that cuts the commercial solar industry off at the knees means we will have to start over.”

That seems a bit of a stretch because incentives to date have helped reduce the cost of residential solar systems over the past six+ years. But when one looks at the diminimus cost to ratepayers of Arizona Public Service (APS), for example, the commissioners seem to be e splitting hairs to make a political statement.

The Arizona commissioners’ rationale for the cuts was that they will reduce the Renewable Energy Standard and Tariff (REST) premium added to Arizona ratepayers’ utility bills to fund solar. The REST premium was established by the ACC in 2007 and is capped at $4.00 per month. $4 might be worth fighting for on principle. But calculations by Arizona solar advocates concluded that the Performance Based Incentives cuts will save APS ratepayers a miniscule $0.02 to $0.06 per month.

In Texas, Republican State Rep. Scott Sanford has filed House Bill 2026, which would eliminate Texas’ RPS, requiring 5,880 MW of renewable energy by 2015. Trouble is, Texas achieved its RPS target of 10,000 MW of installed capacity by 2025, 15 years ahead of schedule.

The Texas bill would also strip its Public Utility Commission of the authority to oversee the $82 million market in which credits for renewable energy are traded. Now THAT seems unnecessary because those credits are part of contracts that deserve to remain in place.

Claiming that “allowing natural gas, coal, wind and all forms of energy to compete on a level playing field will allow the cheapest, most efficient, and cleanest form of energy to prevail,” Sanford pretends that the playing field is level, which it is not. If he and his allies included the carbon/environmental burden of every fossil fuel in assessing the cost, efficiency and emissions of every source of energy, even natural gas would not prevail as much as people would like.

Let’s be prudent here. Even if the assaults on renewable energy mandates succeed in more than Arizona, the successes scored by wind, solar and other renewable sources deserve to stand, not be reversed. If it makes sense, let’s ‘sunset’  renewable mandates on a pre-determined timetable.

One way to level the playing field would be a carbon tax. Let’s see how natural gas and renewables fare with THAT figured in.

The double-standard in Texas didn’t make sense to lawmakers in Kansas last month. There, the GOP-majority-controlled House and Senate voted to maintain the state’s renewable energy mandates.

Go here for recent developments in North Carolina,  here for what’s happening in Ohio and here for the latest in North Carolina.

So the battle lines are drawn. Action Alerts by EDF, the Natural Resources and Defense Council and their allies are landing in email inboxes as you read this. This is a Civil War that could carry on for a long time.

Posted in Carbon tax, Clean energy, Costs of energy, Natural gas, Renewable energy, Shale natural gas, Solar energy, Utilities, Wind energy | Tagged , , , , , ,

Wind power could be a cost-effective hedge against rising natural gas prices

Written by Jim Pierobon on March 12, 2013 — Leave a Comment

That’s the conclusion of a new report by researcher Mark Bolinger at the U.S. Lawrence Berkeley National Laboratory (LBNL). He’s done an enviable job of scouring public sources for wind energy supply contracts at the Federal Energy Regulatory Commission, state utility commissions and long-term power-purchase agreements in various wholesale markets.

This question is front-of-mind for wind energy professionals and advocates as they strive to articulate a economically sustainable path forward amid the boom in hydraulic fracturing of shale natural gas and the resulting low prices for it. Utilities facing renewable energy purchase requirements are likely plotting similar scenarios.

image002

This chart focuses only on the most recent wind power PPAs and shows how this limited, but current, sample competes with 3 natural gas price scenarios (black lines). The heavy blue line assumes continuation of the Production Tax Credit; the dashed-blue line above it puts wind’s price $28 per megawatt hour above it. CREDIT: Mark Bolinger, Lawrence Berkeley National Lab.

What if demand for gas grows even faster than predicted and prices start climbing sooner rather than later?

Just about all price risk for natural gas consumers is skewed upward. Enter wind energy as a reasonable hedge and a renewable one at that. In fact, this year might be a very good time to hedge, says Bolinger, who works in LBNL’s Environmental Energy Technologies Division.

The value proposition here is the ability of wind to deliver a stable-priced product over very long time frames.

Bolinger notes that locking in today’s low natural gas prices is not easily done, at least not without a certain cost. Even the upward sloping “futures strip,” as economists call it, it is hard to lock in long-term for any significant volume because trading is illiquid beyond the first few years.

Contracts for the physical gas deals are rare and even those deal only in short- or mid-length terms.

With the often uncertain future of the wind Production Tax Credit (PTC), this hedging strategy for wind just might breath some fresh energy into the industry that is looking at falling off yet another “cliff” when any new credits expire for projects that have not yet begun construction. Were the PTC to go away after this year with little chance of another revival, that could complicate the sustainability of this scenario. And it would certainly bump up its cost (see chart).

Among other complications is the softening in policy-driven demand for state renewable energy mandates. A few states are being challenged to halt further purchases of electricity from renewable sources, including Texas. There a boom in wind turbine installations helped the Lone Start State exceed its renewable energy requirement.

Bolinger’s sample draws on 287 power purchase agreements (PPAs) totaling about 23. 5 gigawatts between existing wind generators and electric utilities in the U.S. He compares them to contracted prices at which utilities will be buying wind power from these existing projects for decades to come to a variety of long-term projections of the fuel costs of gas-fired generation modeled by the Energy Information Administration (EIA).

Bolinger is hosting a webinar to elaborate and take questions this Thursday starting a 1 p.m. Eastern. You can register for it here. 

Here are comments illustrating the thinking of some bulk power purchasers as articulated by Google’s Ken Davis in a November 2011 issue of Project Finance Newswire.

“We see value in getting a long-term embedded hedge. We want to lock in the current electricity price for 20 years. We are making capital investment decisions [regarding data centers] on the order of 15 to 20 years. We would like to lock in our costs over the same period. Electricity is our number one operating expense after head count.”
“We are signing [conventional] contracts with three to five years of fixed pricing, but over the life of the data center, those will reset. We are short-term fixed and long-term floating, so it [wind] will not be a perfect hedge in the near term.
“We are less concerned about hedging our cash flows on a quarter by quarter basis. We are more concerned about the long term.”
“We are losing considerable amounts of money on every [wind] MWh [in the near term]. We just want to ensure the project is there in the later years.”
Posted in Clean energy finance, Costs of energy, Green power, Hydraulic fracturing, Natural gas, Power purchase agreements, Renewable energy, Shale natural gas, Wind energy | Tagged , , , , , , ,

Bloomberg to natural gas industry: stop resisting sensible regulations, join with renewables

Written by Jim Pierobon on February 27, 2013 — Leave a Comment

New York City Mayor Michael Bloomberg used the 2013 ARPA-E Energy Innovation Summit near Washington, DC to prod the oil and gas industry to stop resisting efforts to forge “sensible” regulations. “We need sound regulation and we need it soon,” he said.

While he’s been on the bandwagon for enabling responsible hydraulic fracturing for natural gas to help power the Big Apple since last summer, he also used the ARPA-E stage to urge advocates of renewable energy to join with leaders in natural gas to forge a practical path forward together as “energy allies”. This way, he said, both can improve economic and environmental sustainability more effectively than either can do alone.

Bloomberg echoed warnings, many of which have been captured here on The Energy Fix, that sensible regulations can minimize the risk of a disaster that could significantly slow the growth of hydraulic fracturing of natural gas and oil. consequences.

Bloomberg and Pickens CREDIT theepochtimes DOT com

Mayor Michael Bloomberg, with T. Boone Pickens, tests pizza from the natural gas-powered Neapolitan Express food truck at City Hall in New York, Feb. 21. CREDIT Samira Bouaou/The Epoch Times

The notion of leaders in natural gas and renewables working together is not new. While not as far afield from renewables as the coal industry is, some natural gas industry leaders have almost scoffed at the possibility. Still others have demonstrated an open mind about what might work.

Michael Eckhart, the founding President of the American Council on Renewable Energy (ACORE), invited and welcomed Skip Horvath, President of the Natural Gas Supply Association, to speak at ACORE’s annual policy conference in December 2010. Among the ideas discussed during their exchange was the need for improved energy storage systems to help levelize the supply of power to the grid. Bloomberg went out of his way to make the same point in his ARPA-E remarks.

Bloomberg’s appeal to enable more natural gas drilling was the second in as many days. T. Boone Pickens was featured in earlier ARPA-E keynote session making the case for innovative thinking to capitalize on America’s growing energy self-sufficiency powered by new supplies of natural gas and oil from hydraulic fracturing. It comes as New York continues to consider how to lift the current bad on drilling in the lucrative Utica shale reservoir throughout much of New York state.

America’s Natural Gas Alliance responded stating “we have worked constructively and at great length with policy makers in states to ensure there is strong oversight in place that provides assurances to communities we are carrying out our work in a transparent and responsible way.” ACORE did not respond quickly to a request for comment.

As the CEO of what is widely viewed as the most innovative large city in the U.S., Bloomberg said to keep en eye on New York City for its already impressive progress in deploying renewables and boost building energy efficiency. He said 250 commercial buildings have been retrofitted since 2007.

Along the way, the city has created the “largest public database” in the world of how its buildings use energy. Match that, he said, with the “most ambitious” green building laws anywhere, efforts to foster the development of tidal power near lower Manhattan and a wind energy system taking shape 13 miles off its southern tip.

After about 800,000 of its residents and businesses lost power due to Hurricane Sandy last October Bloomberg is taking fresh steps to incentivize building owners to invest in cogeneration.

Posted in Building efficiency, Coal, Efficiency, Energy risk management, Hydraulic fracturing, Natural gas, Offshore wind, Renewable energy, Risk management, Shale natural gas, Sustainability, U.S. DOE, Wind energy | Tagged , , , , , , , , , , , ,

Boone Pickens: focus energy innovation more on cheap, plentiful natural gas made in the U.S.

Written by Jim Pierobon on February 26, 2013 — 2 Comments

You may have heard it before from Texas oilman T. Boone Pickens about the potential for natural gas produced in the U.S. But featuring him at this year’s ARPA-E Energy Innovation Summit Tuesday near Washington, DC put a new spin on the benefits of America becoming more energy self-sufficient on the backs of the lower-emitting fossil fuel.

Boone Pickens CREDIT MyDesultoryBlog DOT com

Boone Pickens tried focusing this year’s ARPA-E Innovation Summit more on the potential for natural gas transportation fuels. CREDIT: mydesultoryblog.com

Pickens, who made his first fortune as an independent oilman during the takeover heyday in the 1980s, told a Summit keynote session Tuesday he’s been trying to sell policymakers on promoting U.S.-produced natural gas for decades admittedly without success.

The boom enabled by integrating horizontal drilling with hydraulic fracturing of shale natural gas rock deep underground, however, has elevated the job-creating, cost-reducing  and net emissions benefits of finding and producing more natural gas on par and this and other conferences addressing the future of a smarter grid, renewable energy, energy efficiency and electric vehicles.

What a difference a few years make. Spotlighting the “Pickens Plan” is a notable sea-change in the thinking of the Summit’s organizers at the U.S. Department of Energy and perhaps even the White House.

The innovation that’s needed is not for a new technology, Pickens prodded. It’s fresh thinking about policies that can supplant much of America’s dependence on crude oil for gasoline imported partly from the Middle East.

“There is no free market for oil. Oil is controlled by OPEC,” Pickens said, urging the roughly 2,000 attendees in the room to own up to that simple fact. America has the resources and the brainpower to do something about it within even a five-year time frame — with dramatically new policies of course.

America is dependent on oil exported through the Strait of Hormuz for about 17 million barrels of oil per day, 12% of its daily consumption.

“I want us to (rely more) on our own resources,” he preached. “We have more natural gas than any other country. Nobody has been able to duplicate it around the world. We’re fools if we don’t use it. It’s cheap, it’s abundant and it’s ours.”

Pickens proposed selling — over a 10-year-period — oil from the U.S. Strategic Petroleum Reserve to boost funding for alternative energy. He also tried reviving the concept of a North American Energy Alliance between the U.S., Canada and Mexico, an idea he said was first proposed in an op-ed published in the Houston Chronicle 20 years ago.

“We can, with our resources, take care of ourselves. Develop the economy on the back of cheap energy. If you don’t pick domestic natural gas, you pick OPEC.”

Posted in Clean energy, Clean tech, Clean transportation, Costs of energy, Electric transportation, Electric vehicles, Emissions from power plants, Energy independence, Energy policy, Fossil fuels, Hydraulic fracturing, Natural gas, Natural gas vehicles, Renewable energy, Shale natural gas, U.S. DOE | Tagged , , , ,

Collaboration on Illinois legislation could achieve standards for regulating hydraulic fracturing

Written by Jim Pierobon on February 23, 2013 — Leave a Comment

Illinois is on track to go where no push for hydraulic fracturing has gone before in the U.S.: a consensus on how to regulate the controversial practice of injecting chemicals and large amounts of water deep underground to flush out large quantities of natural gas and crude oil.

As states such as New York and Maryland struggle over similar rules before giving industry permission to start drilling, an impressive array of industry representatives, environmentalists, regulators and lawmakers have worked up until this week behind closed doors with Attorney General Lisa Madigan to forge the “Hydraulic Fracturing Regulatory Act” in the Illinois General Assembly.

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Apologies for the low-resolution image but it at least outlines the Illinois and New Albany basins coveted by industry for shale natural gas and oil. CREDIT: Cropped from eia.gov

According to numerous accounts from the parties involved HB 2615, as drafted,would require oil and gas companies to test water before, during and after drilling. It would hold them liable if contamination was found after drilling began. It also would require companies to disclose the chemicals used in the process and control air pollution.

One shortcoming of the bill purely from a practical perspective is that it would also allow residents to sue if they believed they had been harmed. Imagine what opponents are likely to do with this provision. Anybody can ‘believe’ they’ve been harmed when quite possibly they may have no evidence of any harm.

Now if there IS evidence, that’s another story. Hopefully as this legislation winds its way through the legislative process in the Capitol in Springfield, it will require a reasonable measure of proof so as not to lose enough support from the industry to enable “fracking,” as it’s known, to proceed.

Most importantly, it can set an example of how disparate parties can find enough common ground to address the significant risks of fracking, ways to minimize them and ultimately how any harmed parties can be made whole.

“This is a situation where Illinois really is leading the way,” said Ann Alexander, a senior attorney with the Natural Resources Defense Council’s (NRDC) Midwest program, who participated in negotiations. “We hope we are setting a floor for others to be able to build on (because) there is very much a gold rush mentality.” Read more of her perspective here.

Twenty-nine members of the General Assembly, led by Assistant Majority Leader John E. Bradley from downstate where much of the natural gas is to be found, signed on to co-sponsor the bill by the time it was submitted February 21 to the Rules Committee in that chamber.

NRDC, Environmental Law and Policy Center, Sierra Club and other environmental groups all sought a state moratorium on fracking until public health risks and be fully studied and addressed. But the gold-rush mentality — yearning to grow domestic supplies of natural gas and oil and the thousands of jobs in each state that can come with it — is not likely to be derailed.

The real challenge, as The Energy Fix has pointed out previously here, is how to set achievable and sensible standards that address the biggest risks. A variety of stakeholder groups are working quietly toward that end. Two such risks are threats to regional water supplies and what to do about the release of methane, a potent greenhouse gas.

In a statement, America’s Natural Gas Alliance, stated: “Our companies look forward to engaging with Illinois policy makers as they develop rules for hydraulic fracturing and updates to the Illinois Oil and Gas Act that fit the unique circumstances in the state.”

How practical and protective any such law becomes remains to be seen. Kudos to the environmental groups for how  they helped draft what could be the most stringent, science-based, regulations possible under these circumstances.

Allen Grosboll, co-legislative director at the Environmental Law and Policy Center, told Huffington Post it’s likely the measure will pass the Legislature because of the unusual negotiations. “One of the more stunning aspects of this is legislation is that (lawmakers) invited the environmental community and industry to the table and, in more than five months of negotiations (produced) what I think is the most comprehensive fracking bill in country,” Grosboll said.

Here is how NRDC highlights key provisions of the bill:

  • Extensive regulation of the drilling process, mandating numerous best practices.
  • A requirement that all waste – which includes “flowback” of all the chemical-laced water pumped into the ground – be stored in closed tanks, rather than the pits that chronically leak and overflow elsewhere.
  • Restrictions on venting and flaring of natural gas (which contains the potent greenhouse gas methane, as well as other harmful constituents, and turns to smog).
  • A ban on the dangerous practice of injecting diesel (which contains carcinogenic hydrocarbons).
  • Required disclosure of all fracking chemicals to the public before operations commence (and limits on industry’s ability to claim that this information is a trade secret).
  • Citizen rights to public hearings concerning proposed permits, and to appeal permits that are granted.
  • Citizen enforcement against violations of law or permits.
  • Provisions to protect the state’s water supply, including authority to deny permits as necessary during drought conditions.
  • Baseline and post-frack testing of potentially affected waters to help identify instances in which contamination may be associated with fracking.
  • A presumption of liability for contamination that appears post-fracking in proximity to operations.
  • A detailed application, containing information about planned operations, that must be posted on a state web site.
  • Setbacks (albeit not always as large as we believe are necessary) from population centers – including schools, residences, and nursing homes – as well as water resources and nature preserves.
  • Mandatory plugging of nearby abandoned wells that can serve as pathways for contamination.
  • Regulatory authority to address the problem of earthquakes induced by underground waste injection.
  • Bonding and insurance requirements to enhance financial accountability.

Among the bill’s shortcomings: it does nothing to provide local communities with power to more stringently regulate fracking if they deem it neccesary. It also does not, and probably cannot, narrow or close loopholes in the federal Clean Air Act, Clean Water Act, and the loophole  that exempts drilling and fracking waste from being treated as hazardous.  Hat-tip to this ProPublica investigation that spelled out the risks of this exemption.

Posted in Energy policy, Fossil fuels, Greenhouse gas emissions, Hydraulic fracturing, Natural gas, Oil, Risk management, Shale natural gas | Tagged , , , , , , , , , , , , ,
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