Report: Leveraging Natural Gas To Reduce Greenhouse Gas Emissions


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A report published by the Center for Climate and Energy Solutions in June 2013 which looks at how the use of natural gas can be paired with renewable energy sources in the coming years to further reduce so-called greenhouse gas emissions--carbon and methane--which theoretically will help reduce (don't laugh), "climate change." Of course the climate changes all the time, but don't tell the politicians and Mother Earth worshipers that.

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Report: Leveraging Natural Gas To Reduce Greenhouse Gas Emissions

  1. 1. Leveraging Natural Gas toReduce Greenhouse Gas EmissionsTechnologyJune 2013
  2. 2. Leveraging Natural Gas toReduce Greenhouse Gas EmissionsJune 2013
  3. 3. Center for Climate and Energy Solutionsii© 2013, Center for Climate and Energy Solutions. All Rights Reserved.
  4. 4. Leveraging Natural Gas to Reduce Greenhouse Gas Emissions iiiContents Acknowledgements vi Executive Summary vii I. Overview Of Markets And Uses 1 Introduction 1 Context: A New Dominant Player 1 Climate Implications 2 About This Report 3 Background 3 A History of Volatility: 1990 to 2010 5 Supplies 5 Demand 7 Largely Regional Natural Gas Markets 8 The Rise of an Integrated Global Market 8 II. Price Effects of the Looming Natural Gas Transition 11 Introduction 11 Natural Gas Could Become Dominant in the United States within One to Two Decades 11 There Are Six Price Dichotomies with Natural Gas 13 Decoupling of Natural Gas and Petroleum Prices 13 Decoupling of U.S. and Global Prices 14 Prices for Abundant Supply vs. Prices for Abundant Demand 15 Low Prices for the Environment vs. High Prices for the Environment 16 Stable vs. Volatile Prices 16 Long-Term vs. Near-Term Price 17 Conclusion 17 III. Greenhouse Gas Emissions and Regulations associated with Natural Gas Production 19 Introduction 19 Global Warming Potentials of Methane and CO2 19 Emissions from Natural Gas Combustion 20 Venting and Leaked Emissions Associated with Natural Gas Production 20 Regulation of Leakage and Venting 21 Federal Regulations 21 State Regulations 23 Conclusion 24
  5. 5. Center for Climate and Energy Solutionsiv IV. Power Sector 25 Introduction 25 Advantages and Disadvantages of Natural Gas Use in the Power Sector 26 Opportunities for Further Greenhouse Gas Reductions 29 Key Policy Options for the Power Sector 32 Conclusion 32 Appendix A: Natural Gas Policy 33 Appendix B: Power Plant Technologies 34 V. Buildings Sector 37 Introduction 37 Energy Use in Residential and Commercial Buildings 38 Source-to-Site Efficiency, Site Efficiency, and Full-Fuel-Cycle Efficiency 41 Emissions Comparison: Natural Gas Versus Other Direct Fuels 45 The Role of Efficiency Programs and Standards 49 Barriers to Increased Natural Gas Access and Utilization 51 Conclusion 53 VI. Manufacturing Sector 54 Introduction 54 Natural Gas Use in Manufacturing 54 Potential for Expanded Use 56 Potential for Emission Reductions 57 Barriers to Deployment of CHP systems 59 Conclusion 60 VII. Distributed Generation in Commercial and Residential Buildings and the Role of Natural Gas 61 Introduction 61 The Advantages of Distributed Generation 61 Microgrids 62 Fuel Cells 62 Microturbines 64 Residential Unit CHP 66 Policies to Encourage the Deployment of New Technologies 67 Barriers to Deployment 67 Conclusion 68
  6. 6. Leveraging Natural Gas to Reduce Greenhouse Gas Emissions v VIII. Transportation Sector 69 Introduction 69 Available Natural Gas Transportation Technologies 69 Greenhouse Emissions of Natural Gas as a Transportation Fuel 72 Natural Gas in Buses and Medium- and Heavy-Duty Vehicle Fleets 72 Natural Gas in Passenger Vehicles 74 Conclusion 76 IX. INFRASTRUCTURE 77 Introduction 77 Elements of the U.S. Natural Gas System 77 Regional Differences in Infrastructure and Expansion 78 Direct Emissions from Natural Gas Infrastructure 80 Barriers to Infrastructure Development 81 Conclusion 83 X. Conclusions and Recommendations 84 Endnotes 87
  7. 7. Center for Climate and Energy SolutionsviAcknowledgementsMany individuals, companies, and organizations contributed to the development of this report. The Center forClimate and Energy Solutions (C2ES) wishes to acknowledge all those who volunteered their time and exper-tise, including James Bradbury of the World Resources Institute and the many members of the C2ES BusinessEnvironmental Leadership Council that provided comments and guidance throughout the research process.We would also like to thank the American Clean Skies Foundation and the American Gas Association for theirgenerous support of the project.
  8. 8. Leveraging Natural Gas to Reduce Greenhouse Gas Emissions viiExecutive SummaryRecent technological advances have unleashed a boom in U.S. natural gas production, with expanded supplies and substan-tially lower prices projected well into the future. Because combusting natural gas yields fewer greenhouse gas emissions thancoal or petroleum, the expanded use of natural gas offers significant opportunities to help address global climate change.The substitution of gas for coal in the power sector, for example, has contributed to a recent decline in U.S. greenhousegas emissions. Natural gas, however, is not carbon-free. Apart from the emissions released by its combustion, natural gasis composed primarily of methane (CH4), a potent greenhouse gas, and the direct release of methane during production,transmission, and distribution may offset some of the potential climate benefits of its expanded use across the economy.This report explores the opportunities and challenges in leveraging the natural gas boom to achieve further reduc-tions in U.S. greenhouse gas emissions. Examining the implications of expanded use in key sectors of the economy, itrecommends policies and actions needed to maximize climate benefits of natural gas use in power generation, build-ings, manufacturing, and transportation (Table ES-1). More broadly, the report draws the following conclusions:• The expanded use of natural gas—as a replacement for coal and petroleum—can help our efforts to reducegreenhouse gas emissions in the near- to mid-term, even as the economy grows. In 2013, energy sector emissionsare at the lowest levels since 1994, in part because of the substitution of natural gas for other fossil fuels, particu-larly coal. Total U.S. emissions are not expected to reach 2005 levels again until sometime after 2040.• Substitution of natural gas for other fossil fuels cannot be the sole basis for long-term U.S. efforts to addressclimate change because natural gas is a fossil fuel and its combustion emits greenhouse gases. To avoiddangerous climate change, greater reductions will be necessary than natural gas alone can provide. Ensuringthat low-carbon investment dramatically expands must be a priority. Zero-emission sources of energy, such aswind, nuclear and solar, are critical, as are the use of carbon capture-and-storage technologies at fossil fuelplants and continued improvements in energy efficiency.• Along with substituting natural gas for other fossil fuels, direct releases of methane into the atmosphere must beminimized. It is important to better understand and more accurately measure the greenhouse gas emissions fromnatural gas production and use in order to achieve emissions reductions along the entire natural gas value chain.Table ES-1: Sector-Specific Conclusions and Recommendations—continuedPower SectorIt is essential to maintain fuel mix diversity in the power sector. Too much reliance on any one fuel can expose a utility,ratepayers, and the economy to the risks associated with commodity price volatility. The increased natural gas andrenewable generation of recent years has increased the fuel diversity of the power sector (by reducing the dominance ofcoal). In the long term, however, concern exists that market pressures could result in the retirement of a significant portionof the existing nuclear fleet, all of which could be replace by natural gas generation. Market pressures also could deterrenewable energy deployment, carbon capture and storage, and efficiency measures. Without a carbon price, the negativeexternalities associated with fossil fuels are not priced by society, and therefore there will be less than optimal investmentand expansion of zero-carbon energy sources.Instead of being thought of as competitors, however, natural gas and renewable energy sources such as wind andsolar can be complementary components of the power sector. Natural gas plants can quickly scale up or down theirelectricity production and so can act as an effective hedge against the intermittency of renewables. The fixed fuelprice (at zero) of renewables can likewise act a hedge against potential natural gas price volatility.
  9. 9. Center for Climate and Energy SolutionsviiiTable ES-1: Sector-Specific Conclusions and Recommendations—continuedBuildings SectorIt is important to encourage the efficient direct use of natural gas in buildings, where natural gas applications have a lowergreenhouse gas emission footprint compared with other energy sources. For thermal applications, such as space and waterheating, onsite natural gas use has the potential to provide lower-emission energy compared with oil or propane andelectricity in most parts of the country. Natural gas for thermal applications is more efficient than grid-delivered electricity,yielding less energy losses along the supply chain and therefore less greenhouse gas emissions. Consumers need to bemade aware of the environmental and efficiency benefits of natural gas use through labeling and standards programs and beincentivized to use it when emissions reductions are possible.Manufacturing SectorThe efficient use of natural gas in the manufacturing sector needs to be continually encouraged. Combined heat and powersystems, in particular, are highly efficient, as they use heat energy otherwise wasted. Policy is needed to overcome existingbarriers to their deployment, and states are in an excellent position to take an active role in promoting combined heat andpower during required industrial boiler upgrades and new standards for cleaner electricity generation in coming years. Forefficiency overall, standards, incentives, and education efforts are needed, especially as economic incentives are weak inlight of low natural gas prices.Distributed GenerationNatural gas-related technologies, such as microgrids, microturbines, and fuel cells, have the potential to increase the amountof distributed generation used in buildings and manufacturing. These technologies can be used in configurations that reducegreenhouse gas emissions when compared with the centralized power system as they can reduce transmission losses anduse waste heat onsite. To realize the potential of these technologies and overcome high upfront equipment and installationcosts, policies like financial incentives and tax credits will need to be more widespread, along with consumer educationabout their availability.Transportation SectorThe greatest opportunity to reduce greenhouse gas emissions using natural gas in the transportation sector is through fuelsubstitution in fleets and heavy-duty vehicles. Passenger vehicles, in contrast, likely represent a much smaller emissionreduction opportunity even though natural gas when combusted emits fewer greenhouse gases than gasoline or diesel.The reasons for this include the smaller emission reduction benefit (compared to coal conversions), and the time it willtake for a public infrastructure transition. By the time a passenger fleet conversion to natural gas would be completed, anew conversion to an even lower-carbon system, like fuel cells or electric vehicles, will be required to ensure significantemissions reductions throughout the economy.InfrastructureTransmission and distribution pipelines must be expanded to ensure adequate supply for new regions and to servemore thermal loads in manufacturing, homes, and businesses. Increased policy support and innovative fundingmodels, particularly for distribution pipelines, are needed to support the rapid deployment of this infrastructure.
  10. 10. Leveraging Natural Gas to Reduce Greenhouse Gas Emissions 1I. Overview Of Markets And UsesBy Meg Crawford and Janet Peace, C2ESIntroductionRecent technological advances have unleashed a boom innatural gas production, a supply surplus, and a dramati-cally lower price. The ample supply and lower price areexpected to continue for quite some time, resulting in arelatively stable natural gas market. As a consequence,interest in expanding the use of natural gas has increasedin a variety of sectors throughout the economy, includingpower, buildings, manufacturing, and transporta-tion. Given that combusting natural gas yields lowergreenhouse gas emissions than that of burning coal orpetroleum, this expanded use offers significant poten-tial to help the United States meet its climate changeobjectives. Expanded use of gas in the power sector, forexample, has already led to a decrease in U.S. greenhousegas emissions because of the substitution of gas for coal.It is important to recognize, however, that natural gas,like other fossil fuel production and combustion, doesrelease greenhouse gases. These include carbon dioxideand methane; the latter is a higher global warminggreenhouse gas. Accordingly, a future with expandednatural gas use will require diligence to ensure thatpotential benefits to the climate are achieved. This reportexplores the opportunities and challenges, sector bysector throughout the U.S. economy, and delves into theassortment of market, policy, and social responses thatcan either motivate or discourage the transition towardlower-carbon and zero-carbon energy sources essentialfor addressing climate change.Context: A New Dominant PlayerThroughout its history, the United States has undergoneseveral energy transitions in which one dominantenergy source has been supplanted by another. Today,as the country seeks lower-carbon, more affordable,domestically sourced fuel options to meet a variety ofmarket, policy, and environmental objectives, the UnitedStates appears poised for another energy transition.Past energy transitions, for example, from wood to coal,took place largely without well-defined policies andwere not informed by other big-picture considerations.Transitions of the past were largely shaped by regionaland local economic realities and only immediate, localenvironmental considerations. The potential next energytransition can be more deliberately managed to achieveeconomic and environmental goals. The United Statespossesses the technological capacity and policy struc-tures to do this. This report outlines, sector by sector,those technological options and policy needs.The history of energy consumption in the United Statesfrom 1800 to 2010 moved steadily from wood to coal topetroleum (Figure 1). In the latter half of the 19th century,coal surpassed wood as the dominant fuel. Around 1950,petroleum consumption exceeded that of coal.Petroleum still reigns supreme in the United States;however, due to a number of factors including improvingfuel economy standards for vehicles, its use since 2006is in decline. At the same time, for reasons that thisreport explores in depth, natural gas use is on the rise.As these trends continue, it is entirely possible in thecoming decades that natural gas will overtake petroleumas the most popular primary energy source in theUnited States.1Natural gas already plays a large role in the U.S.economy, constituting 27 percent of total U.S. energyconsumption in 2012. Unlike other fossil fuels, naturalgas has applications in almost every sector, includinggenerating electricity; providing heat and power toindustry, commercial buildings, and homes; poweringvehicles; and as a feedstock in the manufacture ofindustrial products.By all accounts, the existing increase in natural gassupply appears very certain, and the large domesticsupply is expected to keep natural gas prices relativelylow in the near to medium term. Furthermore, thedomestic supply already has and is forecasted to deliver
  11. 11. Center for Climate and Energy Solutions2percent from peak levels of 6,020 million metric tons in2007. This decrease is due to a number of factors, of whichthe increased use of natural gas in the power sector isprominent. Demand is increasing as new and significantlymore efficient natural gas power plants have been recentlyconstructed, existing natural gas power plants are beingused more extensively, and fuel-substitution from coal tonatural gas is taking place. Compared to coal, natural gasis considered relatively clean because when it is burned inpower plants, it releases about half as much CO2(and farfewer pollutants) per unit of energy delivered than coal.As the fraction of electric power generated by coal hasfallen over the last six years and been replaced mostly bynatural gas-fueled generation and renewables, total U.S.CO2emissions have decreased.According to several sources, including the U.S.Energy Information Administration (EIA), additionsin electric power capacity over the next 20 years areexpected to be predominantly either natural gas-fueled or renewable (discussed further in chapter 4 ofsubstantial benefits to the U.S. economy, providing jobsand increasing the gross domestic product. The primaryuncertainties for the natural gas market are how quicklythe expanded use will occur and the specific ways inwhich specific sectors of the economy will be affected.This report delves into the assortment of market, policy,and social responses that can motivate or discouragethis transition. It places this energy transition firmlyin the context of the closely related climate impacts ofdifferent types of energy use, and explores the interplaybetween economic opportunities and the pressing needto dramatically reduce the economy’s emissions ofgreenhouse gases.Climate ImplicationsThe expanding use of natural gas is already reducingemissions of carbon dioxide (CO2), the primary green-house gas, at a time in which the U.S. economy is growing.In 2011, total U.S. CO2emissions were down by nearly 9EnergyConsumption[Quads]20001980196019401920190018801860184018201800010203040YearWoodCoalUS Energy Consumption: 1800–2010WoodCoalPetroleumNatural GasNuclearHydroelectricNon-Hydro/Bio RenewablesNatural GasPetroleumNuclearHydroelectricFIGURE 1: Total U.S. Energy Consumption, 1800 to 2010Source: Energy Information Administration, “Annual Energy Review,” Table 1.3. September 2012. Available at: Wood, which was the dominant fuel in the United States for the first half of the 19th century, was surpassed by coal starting in 1885. Coal as the dominantfuel was surpassed by petroleum in 1950. Within one to two decades, natural gas might surpass petroleum as the dominant energy provider.
  12. 12. Leveraging Natural Gas to Reduce Greenhouse Gas Emissions 3this report). Therefore, as coal’s share of generationcontinues to diminish, the implications for climate in thenear and medium term are reduced CO2emissions fromthe power sector. Further reductions in CO2emissionsare possible if natural gas replaces coal or petroleumin other economic sectors. In addition, wider use ofdistributed generation technologies in the manufac-turing, commercial, and residential sectors, namelynatural gas-fueled combined heat and power (CHP)systems, has great potential to significantly reduce U.S.CO2emissions.In the long term, however, the United States cannotachieve the level of greenhouse gas emissions necessaryto avoid the serious impacts of climate change by relyingon natural gas alone. Also required is the development ofsignificant quantities of zero-emission sources of energy,which economic modeling shows will require policyintervention. Since many of these energy sources, suchas wind and solar, are intermittent and current energystorage technology is in its infancy, natural gas will likelyalso be needed in the long term as a reliable, dispatch-able backup for these renewable sources.Crucially, natural gas is primarily methane, which isitself a very potent greenhouse gas. Methane is about 21times more powerful in its heat-trapping ability than CO2over a 100-year time scale. With increased use of naturalgas, the direct releases of methane into the atmospherethroughout production and distribution have thepotential to be a significant climate issue. Regulationshave already been promulgated by the EnvironmentalProtection Agency (EPA) that address this key issue. Forexample, “green completion” rules for production willrequire all unconventional wells to virtually eliminateventing during the flow-back stage of well completionthrough flaring or capturing natural gas. Releases needto be carefully managed, and EPA regulation of thenatural gas sector will ensure that the climate benefitsfrom transitioning to natural gas are truly maximized.About This ReportTo examine the possible ways in which this energy transi-tion might unfold and the potential implications for theclimate, the Center for Climate and Energy Solutionsand researchers at The University of Texas prepared 9discussion papers looking at individual economic sectors,natural gas technologies, markets, infrastructure, andenvironmental considerations. Then, two workshopsbrought together dozens of respected thought leadersand stakeholders to analyze the potential to leveragenatural gas use to reduce greenhouse gas emissions.Stakeholders included representatives of electric andnatural gas utilities, vehicle manufacturers, fleet opera-tors, industrial consumers, homebuilders, commercialreal estate operators, pipeline companies, independentand integrated natural gas producers, technologyproviders, financial analysts, public utility and other stateregulators, environmental nonprofits, and academicresearchers and institutions.This report is the culmination of these efforts. First,it provides background on natural gas and the eventsleading to the present supply boom. Next, it lays out thecurrent and projected U.S. natural gas market, includingthe forecast price effects during the transition. It detailsthe relationship between natural gas and climate changeand then explores the opportunities and challengesin the power, buildings, and manufacturing sectors. Itlooks at technologies for on-site (distributed) electricitygeneration using natural gas, followed by prospects forincreasing natural gas consumption in the transportationsector. Finally, the report examines the state of natural gasinfrastructure and the barriers to its needed expansion.This report offers insight into ways to lower theclimate impact of natural gas while increasing its usein the electric power, buildings, manufacturing, andtransportation sectors, and looks at infrastructureexpansion needs and what future technologies mayportend for low-emission natural gas use. This report isthe product solely of the Center for Climate and EnergySolutions (C2ES) and may not necessarily representthe views of workshop participants, the C2ES BusinessEnvironmental Leadership Council or Strategic Partners,or project sponsors.BackgroundNatural gas is a naturally occurring fossil fuel consistingprimarily of methane that is extracted with smallamounts of impurities, including CO2, hazardous airpollutants, and volatile organic compounds. Most naturalgas production also contains, to some degree, heavierliquids that can be processed into valuable byproducts,including propane, butane, and pentane.Natural gas is found in several different types ofgeologic formations (Figure 2). It can be produced alonefrom reservoirs in natural rock formations or be associ-ated with the production of other hydrocarbons such asoil. While this “associated” gas is an important source of
  13. 13. Center for Climate and Energy Solutions4increase permeability, and release the natural gas. Thistechnique is known as hydraulic fracturing or “fracking.”The remarkable speed and scale of shale gas develop-ment has led to substantial new supplies of naturalgas making their way to market in the United States.The U.S. EIA projects that by 2040 more than half ofdomestic natural gas production will come from shalegas extraction and that production will increase by 10trillion cubic feet (Tcf) above 2011 levels (Figure 3).The current increase was largely unforeseen a decadeago. This increase has raised awareness of naturalgas as a key component of the domestic energy supplyand has dramatically lowered current prices as wellas price expectations for the future. In recent years,the abundance of natural gas in the United States hasstrengthened its competitiveness relative to coal and oil,domestic supply, the majority (89 percent) of U.S. gas isextracted as the primary product, i.e., non-associated.2With relatively recent advances in seismic imaging,horizontal drilling, and hydraulic fracturing, U.S.natural gas is increasingly produced from unconven-tional sources such as coal beds, tight sandstone, andshale formations, where natural gas resources are notconcentrated or are in impermeable rock and requireadvanced technologies for development and produc-tion and typically yield much lower recovery rates thanconventional reservoirs.3Shale gas extraction, forexample, differs significantly from the conventionalextraction methods. Wells are drilled vertically and thenturned horizontally to run within shale formations. Aslurry of sand, water, and chemicals is then injected intothe well to increase pressure, break apart the shale toFIGURE 2: Geological Formations Bearing Natural GasSource: Energy Information Agency, “Schematic Geology of Natural Gas Resources,” January 2010. Available at: Gas-rich shale is the source rock for many natural gas resources, but, until now, has not been a focus for production. Horizontal drilling and hydraulicfracturing have made shale gas an economically viable alternative to conventional gas resources.Conventional gas accumulations occur when gas migrates from gas rich shale into an overlying sandstone formation, and then becomes trapped by an overlyingimpermeable formation, called the seal. Associated gas accumulates in conjunction with oil, while non-associated gas does not accumulate with oil.Tight sand gas accumulations occur in a variety of geologic settings where gas migrates from a source rock into a sandstone formation, but is limited in its ability tomigrate upward due to reduced permeability in the sandstone.Coalbed methane does not migrate from shale, but is generated during the transformation of organic material to coal.
  14. 14. Leveraging Natural Gas to Reduce Greenhouse Gas Emissions 5has expanded its use in a variety of contexts, and hasraised its potential for reducing greenhouse gas emis-sions and strengthening U.S. energy security by reducingU.S. reliance on foreign energy supplies.A History of Volatility: 1990 to 2010U.S. natural gas markets have only been truly open andcompetitive for about 20 years, when U.S. gas marketswere deregulated and price controls were removed inthe early 1990s. Before that time, government regula-tion controlled the price that producers could chargefor certain categories of gas placed into the interstatemarket (the wellhead price) as well as pipeline access tomarket and in some cases specific uses of natural gas.The results were price signals that periodically resultedin supply shortages and little incentive for increasedproduction. Since deregulation, price fluctuations havebeen pronounced, ranging from less than $2 to morethan $10 per thousand cubic feet (Mcf) (Figure 4).Periods of high market prices have resulted from changesin regulation, weather disruptions, and broader trends inthe economy and energy markets—but also from percep-tions of abundance or scarcity in the market. A numberof supply-side factors also affect prices, including thevolume of production added to the market and storageavailability to hedge against production disruptions ordemand spikes. Looking forward, the average wellheadprice is expected to be much less volatile and remainbelow $5 per Mcf through 2026 and rise to $6.32 per Mcfin 2035, as production gradually shifts to resources thatare less productive and more expensive to extract.4SuppliesSince 1999, U.S. proven reserves of natural gas haveincreased every year, driven mostly by shale gas advance-ments.5In 2003, the National Petroleum Councilestimated U.S. recoverable shale gas resources at 35 Tcf.6In 2012, the EIA put that estimate closer to 482 Tcf outof an average remaining U.S. resource base of 2,543 Tcf,7and in 2011, the Massachusetts Institute of Technology’smean projection estimate of recoverable shale gasresources was 650 Tcf out of a resource base of 2,100 Tcf.8By comparison, annual U.S. consumption of naturalgas was 24.4 Tcf in 2011.9So, these estimates representnearly 100 years of domestic supply at current levelsof consumption.10Figure 3: U.S. Dry Natural Gas Production, 1990 to 2040Source: Energy Information Administration, “Annual Energy Outlook 2013 Early Release” December 2012. Available at gasTight gasAlaskaNon-associated offshoreCoalbed methaneAssociated with oilNon-associated onshore2038203420302026202220182014201020062002199819941990TrillionCubicFeetperYear
  15. 15. Center for Climate and Energy Solutions6Game-Changing TechnologiesRising natural gas prices after deregulation offerednew economic incentives to develop unconventionalgas resources. Advances in the efficiency and cost-effectiveness of horizontal drilling, new mapping tools,and hydraulic fracturing technologies—enabled byinvestments in research and development from theDepartment of Energy and its national labs along withprivate sector innovations—have led to the dramaticincrease in U.S. shale gas resources that can be economi-cally recovered.Even as supply estimates have increased, the costof producing shale gas has declined as more wells aredrilled and new techniques are tried. In one estimate,approximately 400 Tcf of U.S. shale gas can be economi-cally produced at or below $6 per Mcf (in 2007 dollars).11Another estimate suggests that nearly 1,500 Tcf can beproduced at less than $8 per Mcf, 500 Tcf at less than $8per Mcf, and 500 Tcf at $4 per Mcf.12The Geography of Shale Gas ProductionShale gas developments are fundamentally altering theprofile of U.S. natural gas production (Figure 3). Since2009, the United States has been the world’s leadingproducer of natural gas, with production growing bymore than 7 percent in 2011—the largest year-over-yearvolumetric increase in the history of U.S. production.13The proportion of U.S. production that is shale gashas steadily increased as well. In the decade of 2000to 2010, U.S. shale gas production increased 14-foldand comprised approximately 34 percent of total U.S.production in 2011.14From 2007 to 2008 alone, U.S.shale gas production increased by 71 percent.15Shale gasproduction is expected to continue to grow, estimatedto increase almost fourfold between 2009 and 2035,when it is forecast to make up 47 percent of total U.S.production.16The geographic distribution of shale gasproduction is also shifting to new geologic formationswith natural gas potential, called “plays,” such as theBarnett shale play in Texas and the Marcellus shale playFigure 4: U.S. Natural Gas Monthly Average Wellhead Price History, 1976 to 2012Source: Energy Information Administration, “Natural Gas Prices,” 2013. Available at:
  16. 16. Leveraging Natural Gas to Reduce Greenhouse Gas Emissions 7in the Midwest (Figure 5).17Natural gas is currentlyproduced in 32 states and in the Gulf of Mexico, with80.8 percent of U.S. production occurring in Texas,the Gulf of Mexico, Wyoming, Louisiana, Oklahoma,Colorado, and New Mexico in 2010. An increasingpercentage of production is coming from states new onthe scene, including Pennsylvania and Arkansas. Thisnew geography of production has particularly largeimpacts for the development of natural gas infrastruc-ture, as examined in chapter 9.These dramatic increases in production, in combinationwith a weak economy and the accompanying decrease indemand for energy, are reflected in unexpectedly low andless volatile market prices, prices that encourage energyconsumers to look at new uses for the fuel. Yet uncertain-ties remain that could hinder future development andproduction. For one thing, very low prices may result inproducers temporarily closing down wells, particularly ifthe associated liquids produced along with the gas are notsufficient to make up for low natural gas prices and makewell production economically viable.18In the long term,the dynamic nature of natural gas supply and demandwill determine the price levels and volatility. Of particularimportance is the extent and speed of demand expansion,a topic explored in the following section.DemandJust as supply has implications for the price pathof natural gas, so does the demand. Natural gas isconsumed extensively in the United States for a multi-tude of uses: for space and water heating in residentialand commercial buildings, for electricity generationand process heat in the industrial sector, and as indus-trial feedstock, where natural gas constitutes the baseingredient for such varied products as plastic, fertilizer,antifreeze, and fabrics.19In 2012, natural gas use consti-tuted roughly one-quarter of total U.S. primary energyconsumption and was consumed in every sector of theFigure 5: Lower 48 Shale PlaysSource: Energy Information Administration, “Lower 48 States Shale Plays,” May 2011. Available at: BasinUinta BasinDevonian (Ohio)MarcellusUticaBakken***Avalon-Bone SpringSan JoaquinBasinMontereySanta Maria,Ventura, LosAngelesBasinsMonterey-TemblorPearsallTuscaloosaBig HornBasinDenverBasinPowder RiverBasinParkBasinNiobrara*MowryNiobrara*Heath**ManningCanyonAppalachianBasinAntrimBarnettBendNewAlbanyWoodfordBarnett-WoodfordLewisHilliard-Baxter-MancosExcello-MulkyFayettevilleFloyd-NealGammonCodyHaynesville-BossierHermosaMancosPierreConasaugaMichiganBasinFt. WorthBasinPalo DuroBasinPermianBasinIllinoisBasinAnadarkoBasinGreaterGreenRiverBasinCherokee PlatformSan JuanBasinWillistonBasinBlack WarriorBasinArdmore BasinParadox BasinRatonBasinMontanaThrustBeltMarfaBasinValley & RidgeProvinceArkoma BasinForestCity BasinPiceanceBasinLower 48 states shale plays0 200 400100 300MilesBasinsShale playsStacked playsBasinsCurrent playsProspective plays* Mixed shale &chalk play** Mixed shale &limestone play***Mixed shale &tight dolostone-siltstone-sandstoneIntermediate depth/ ageShallowest/ youngestDeepest/ oldest
  17. 17. Center for Climate and Energy Solutions8U.S. economy (Figure 6). Total U.S. consumption ofnatural gas grew from 23.3 Tcf in 2000 to 25.4 in 2012.20Within the overall growth, consumption in severalsectors held steady, while consumption in the industrialsector declined (due to increased efficiency and theeconomic slowdown) and consumption in the powersector grew at an annual average rate of 3.5 percent.In the U.S. power sector in 2010, natural gas fueled23.9 percent of the total generation. From 2000 to 2010,electricity generation fueled by natural gas grew at afaster rate than total generation (5.1 percent versus 0.8percent per year) (Figure 7). This growth can be attrib-uted to a number of factors, including low natural gasprices in the early part of the decade that made naturalgas much more attractive for power generation. In addi-tion, gas-fired plants are relatively easy to construct, havelower emissions of a variety of regulated pollutants thancoal-fired plants, and have lower capital costs and shorterconstruction times than coal-fired plants. Transportationhas remained the smallest sectoral user of natural gas,with natural gas vehicles contributing to a significantpercentage of the total fleet only among municipal busesand some other heavy-duty vehicles.Largely Regional Natural Gas MarketsIn contrast to oil, which is widely traded across nationalboundaries and over long distances, natural gas hasbeen primarily a domestic resource. The low density ofnatural gas makes it difficult to store and to transportby vehicle (unless the gas is compressed or liquefied).(See chapter 8 for an extended discussion of liquefiedand compressed natural gas.) Natural gas is thereforetransported via pipelines that connect the natural gaswells to end consumers. Trade patterns tend to be moreregional (particularly in the United States), and pricestend to be determined within regional markets. On theworld stage, resources are concentrated geographically.Seventy percent of the world’s gas supply (includingunconventional resources) is located in only threeregions—Russia, the Middle East (primarily Qatar andIran), and North America. Within the United States, 10states or regions account for nearly 90 percent of produc-tion: Arkansas, Colorado, Gulf of Mexico, Louisiana,New Mexico, Oklahoma, Pennsylvania, Texas, Utah,and Wyoming. Significant barriers exist to establishinga natural gas market that is truly global. While mostnatural gas supplies can be developed economicallywith relatively low prices at the wellhead or the point ofexport,21high transportation costs—either via long-distance pipeline or via tankers for liquefied natural gas(LNG)—have, until recently, constituted solid barriers toestablishing a global gas market.In 2011, net imports of natural gas, delivered viapipeline and LNG import facilities, constituted only 8percent of total U.S. natural gas consumption (1.9 Tcf),the lowest proportion since 1993.22Of this amount,about 90 percent came from Canada.23(By contrast, 45percent of U.S. oil consumption was imported in 2011,of which 29 percent came from Canada.24) Net importsof natural gas have decreased by 31 percent since 2007,with U.S. production growing significantly faster thanU.S. demand. These trends and greater confidence inU.S. domestic gas supply suggest that prices betweencrude oil and gas will continue to diverge, establishing anew relationship that may fundamentally change the wayenergy sources are used in the United States.The Rise of an Integrated Global MarketAlthough most of the world’s gas supply continues tobe transported regionally via pipeline, the global gastrade is accelerating because of the growing use ofLNG. Natural gas, once liquefied,25can be transportedFigure 6: U.S. Natural Gas Consumption bySector, 2012Source: Energy Information Administration, “Natural Gas Consumption byEnd Use,” 2013. Available at Fuel3%Oil & GasIndustryOperations6%ElectricPower36%Vehicle Fuel0%Industrial28%Commercial11%Residential16%FIGURE 6: U.S. Natural Gas Consumptionby Sector, 2012
  18. 18. Leveraging Natural Gas to Reduce Greenhouse Gas Emissions 9by tanker to distant destinations and regasified for use.Between 2005 and 2010, the global market for LNG grewby more than 50 percent,26and LNG now accounts for30.5 percent of global gas trade.27From 2009 to 2011alone, global capacity for gas liquefaction increased byalmost 40 percent, with global LNG trade set to rise by30 percent by 2017.28In the United States, prospects for exports of LNGdepend heavily on the cost-competitiveness of U.S.liquefaction projects relative to those at other locations.During 2000 to 2010, new investments were made in theUnited States in infrastructure for natural gas importa-tion and storage, prompted by lower supply expectationsand higher, volatile domestic prices. Since 2000, NorthAmerica’s import capacity for LNG has expanded fromapproximately 2.3 billion cubic feet (Bcf) per day to22.7 Bcf per day, around 35 percent of the United States’average daily requirement.29However by 2012, U.S.consumption of imported LNG had fallen to less than0.5 Bcf per day, leaving most of this capacity unused.30The ability to make use of and repurpose existing U.S.import infrastructure—pipelines, processing plants, andstorage and loading facilities—would help reduce totalcosts relative to “greenfield,” or new, LNG facilities. Givennatural gas surpluses in the United States and substan-tially higher prices in other regional markets, several U.S.companies have applied for export authority and haveindicated plans to construct liquefaction facilities.31The EIA projects that the United States will become anet exporter of LNG in 2016, a net pipeline exporter in2025, and a net exporter of natural gas overall in 2021.This outlook assumes continuing increases in use ofLNG internationally, strong domestic natural gas produc-tion, and relatively low domestic natural gas prices.32Incontrast, a study done by the Massachusetts Institute ofTechnology presents another possible scenario in whicha more competitive international gas market coulddrive the cost of U.S. natural gas in 2020 above that ofinternational markets, which could lead to the UnitedStates importing 50 percent of its natural gas by 2050.33Yet while increased trade in LNG has started to connectinternational markets, these markets remain largelydistinct with respect to supply, contract structures, marketregulation, and prices.The increase in domestic production (supplies) ofnatural gas, low prices, and forecasts of continued lowprices have not gone unnoticed. The implications forenergy consumption are far-reaching and extend acrossall sectors of the economy. This report examines howeach sector may take advantage of this energy trans-formation and evaluates the greenhouse gas emissionimplications of each case.Figure 7: Trends in U.S. Natural Gas Consumption by Sector, 2000 to 2010Source: Energy Information Administration, “Natural Gas Consumption by End Use,” 2013. Available at PowerTransportationIndustrialCommercialResidential20102009200820072006200520042003200220012000TrillionCubicFeetFigure 6: U.S. Natural Gas Consumption by Sector, 2000–2010 (Tcf)
  19. 19. Center for Climate and Energy Solutions10
  20. 20. Leveraging Natural Gas to Reduce Greenhouse Gas Emissions 11II. Price Effects of the Looming Natural Gas TransitionBy Michael Webber, The University of Texas at AustinIntroductionGiven technology developments that have fundamentallyaltered the profile of U.S. natural gas production andrecent low prices that have pushed demand for naturalgas in all sectors of the economy, the importance ofnatural gas relative to other fuels is growing. If recenttrends continue, it seems likely that natural gas will over-take petroleum as the most-used primary energy sourcein the United States. in the next one to two decades.Such a transition will be enabled (or inhibited) by amixed set of competing price pressures and a compli-cated relationship with lower-carbon energy sources thatwill trigger an array of market and cultural responses.This chapter seeks to layout some of the key underlyingtrends while also identifying some of these different axesof price tensions (or price dichotomies). These trendsand price tensions will impact the future use of naturalgas in all of the sectors analyzed later in this report.Natural Gas Could Become Dominant in theUnited States within One to Two DecadesFor a century, oil and natural gas consumption trendshave tracked each other quite closely. Figure 1 showsnormalized U.S. oil and gas consumption from 1920 to2010 (consumption in 1960 is set to a value of 1.0). Thesenormalized consumption curves illustrate how closelyoil and gas have tracked each other up until 2002, atwhich time their paths diverged: natural gas consump-tion declined from 2002 to 2006, while petroleum usegrew over that time period. Then, they went the otherdirection: natural gas consumption grew and oil produc-tion dropped. That trend continues today, as naturalgas pursues an upward path, whereas petroleum iscontinuing a downward trend.The growing consumption of natural gas is driven bya few key factors:1. It has flexible use across many sectors, includingdirect use on-site for heating and power; use atpower plants; use in industry; and growing usein transportation.2. It has lower emissions (of pollutants and green-house gases) per unit of energy than coal andpetroleum3. It is less water-intensive than coal, petroleum,nuclear, and biofuels4. Domestic production meets almost all of theannual U.S. consumptionBy contrast, the trends for petroleum and coal aremoving downwards. Petroleum use is expected to drop as aconsequence of price pressures and policy mandates. Theprice pressures are triggered primarily by the split in energyprices between natural gas and petroleum (discussed indetail below). The mandates include biofuels productiontargets (which increase the production of an alternative topetroleum) and fuel economy standards (which decreasethe demand for liquid transportation fuels). At the sametime, coal use is also likely to drop because of projectionsby the EIA for price doubling over the next 20 years andenvironmental standards that are expected to tighten thetolerance for emissions of heavy metals, sulfur oxides,nitrogen oxides, particulate matter, and CO2.Petroleum use might decline 0.9 percent annuallyfrom the biofuels mandates themselves. Taking thatvalue as the baseline, and matching it with an annualgrowth of 0.9 percent in natural gas consumption (whichis a conservative estimation based on trends from thelast six years, plus recent projections for increased useof natural gas by the power and industrial sectors),indicates that natural gas will surpass petroleum in 2032,two decades from now, as depicted in Figure 2. A steeperprojection of 1.8 percent annual declines in petroleummatched with 1.8 percent annual increase in natural gasconsumption sees a faster transition, with natural gassurpassing petroleum in less than a decade.While such diverging rates might seem aggressive,they are a better approximation of the trends over the
  21. 21. Center for Climate and Energy Solutions12last six years than the respective 0.9 percent values. Anannual decline in petroleum of 1.8 percent is plausiblethrough a combination of biofuels mandates (0.9 percentannual decline), higher fuel economy standards (0.15percent annual decline), and price competition thatcauses fuel-switching from petroleum to natural gas inthe transportation (heavy-duty, primarily) and industrialsectors (0.75 percent annual decline). Natural gas growthrates of 1.8 percent annually can be achieved by naturalgas displacing 25 percent of diesel use (for on-sitepower generation and transportation) and natural gascombined-cycle power plants displacing 25 percent of1970s and 1980s vintage coal-fired power plants by 2022.While this scenario is bullish for natural gas, it is notimplausible, especially for the power sector, whose powerplants face retirement and stricter air quality standards.Coupling those projections with reductions in per-capitaenergy use of 10 percent (less than 1 percent annually)over that same span imply that total energy use wouldstay the same.These positive trends for natural gas are not to sayit is problem-free. Environmental challenges exist forwater, land, and air. Water challenges are related toquality (from risks of contamination) and quantity (fromcompetition with local uses and depletion of reservoirs).Land risks include surface disturbance from productionactivity and induced seismicity from wastewater reinjec-tion. Air risks are primarily derived from leaks on site,leaks through the distribution system, and flaring at thepoint of production. Furthermore, while natural gasprices have been relatively affordable and stable in thelast few years, natural gas prices have traditionally beenvery volatile. However, if those economic and environ-mental risks are managed properly, then these positivetrends are entirely possible.FIGURE 1: U.S. Oil and Gas Consumption, 1920 to 2010Source: Energy Information Agency, “Annual Energy Review 2010” Technical Report, 2011.Note: U.S. oil and gas consumption from 1920 to present day (normalized to a value of 1 in 1960) shows how oil and gas have tracked each other relativelyclosely until 2002, after which their paths diverge. Since 2006, natural gas consumption has increased while petroleum consumption has decreased.U.S.OilandGasConsumption(Normalizedto1960=1)200019801960194019200. Oil and Gas Consumption 1920–2010 (Normalized to 1960 = 1)Natural Gas Consumption Normalized to 1960Petroleum Consumption Normalized to 1960Natural Gas Consumption Normalized to 1960Petroleum Consumption Normalized to 1960Natural GasPetroleum
  22. 22. Leveraging Natural Gas to Reduce Greenhouse Gas Emissions 13There Are Six Price Dichotomies withNatural GasIn light of the looming transition to natural gas as thedominant fuel in the United States, it is worth contem-plating the complicated pricing relationship that naturalgas in the United States has with other fuels, marketfactors, and regions. It turns out that there are severalrelevant price dichotomies to keep in mind:1. Natural Gas vs. Petroleum Prices,2. U.S. vs. Global Prices,3. Prices for Abundant Supply vs. Prices for AbundantDemand,4. Low Prices for the Environment vs. High Prices forthe Environment,5. Stable vs. Volatile Prices, and6. Long-Term vs. Near-Term Prices.The tensions along these price axes will likely play animportant role in driving the future of natural gas in theUnited States and globally.Decoupling of Natural Gas andPetroleum PricesOne of the most important recent trends has been thedecoupling of natural gas and petroleum prices. Figure 3shows the U.S. prices for natural gas and petroleum(wellhead and the benchmark West Texas Intermediate(WTI) crude at Cushing, Oklahoma respectively) from1988 to 2012.34, 35While natural gas and petroleum priceshave roughly tracked each other in the United States fordecades, their trends started to diverge in 2009 as globaloil supplies remained tight, yet shale gas productionincreased. This recent divergence has been particularlystark, as it’s driven by the simultaneous downward swingin natural gas prices and upward swing in petroleumprices. For many years, the ratio in prices (per millionBTU, or MMBTU) between petroleum and natural gasoscillated nominally in the range of 1–2, averaging 1.6for 2000–2008. However, after the divergence began in2009, this spread became much larger, averaging 4.2 for2011 and, remarkably, achieving ratios greater than 9spanning much of the first quarter of 2012 (for example,FIGURE 2: U.S. Oil and Gas Consumption and ProjectionsSource: Energy Information Agency, “Annual Energy Review 2010” Technical Report, 2011.Note: Natural gas might pass petroleum as the primary fuel source in the United States within one to two decades, depending on the annual rate of decreases inpetroleum consumption and increases in natural gas consumption. Historical values plotted are from EIA data.U.S.AnnualEnergyConsumption[Quads]Year2025 20302020201520102005202530354045YearU.S. Oil and Gas Consumption & ProjectionsHistorical Petroleum ConsumptionHistorical Natural Gas ConsumptionProjected Petroleum Consumption at 0.9% annual declineProjected Natural Gas Consumption at 0.9% annual increaseProjected Petroleum Consumption at 1.8% annual declineProjected Natural Gas Consumption at 1.8% annual increaseHistorical Projections Fast Transition Slow TransitionDeclining Petroleum ConsumptionIncreasing Natural Gas Consumption
  23. 23. Center for Climate and Energy Solutions14natural gas costs approximately $2/MMBTU today,whereas petroleum costs $18/MMBTU).This spread is relatively unprecedented and, ifsustained, opens up new market opportunities for gas tocompete with oil through fuel-switching by end-users andthe construction of large-scale fuel processing facilities.For the former, these price spreads might inspire institu-tions with large fleets of diesel trucks (such as municipali-ties, shipping companies, etc.) to consider investing inretrofitting existing trucks or ordering new trucks thatoperate on natural gas instead of diesel to take advantageof the savings in fuel costs. For the latter, energy compa-nies might consider investing in multi-billion dollargas-to-liquids (GTL) facilities to convert the relativelyinexpensive gas into relatively valuable liquids.Decoupling of U.S. and Global PricesAnother important trend has been the decoupling ofU.S. and global prices for natural gas. Figure 4 showsthe U.S. prices for natural gas (at Henry Hub) comparedwith European Union and Japanese prices from 1992to 2012.36, 37, 38, 39In a similar fashion as discussed below,while natural gas prices in the U.S. and globally (inparticular, the European Union and Japan) have trackedeach other for decades, their price trends started todiverge in 2009 because of the growth in domestic gasproduction. In fact, from 2003–2005, U.S. natural gasprices were higher than in the EU and Japan becauseof declining domestic production and limited capacityfor importing liquefied natural gas (LNG). At that time,and for the preceding years, the U.S. prices were tightlycoupled to global markets through its LNG importssetting the marginal price of gas.Consequently, billions of dollars of investments weremade to increase LNG import capacity in the UnitedStates That new import capacity came online concur-rently with higher domestic production, in what can onlybe described as horribly ironic timing: because domesticproduction grew so quickly, those new imports were nolonger necessary, and much of that importing capacityremains idle today. In fact, once production increased in2009, the United States was then limited by its capacityto export LNG (which is in contrast to the situation justa few years prior, during which the United States waslimited by its capacity to import gas), so gas prices plum-meted despite growing global demand. Thus, while theUnited States was tightly coupled to global gas marketsFIGURE 3: U.S. Oil and Gas Prices, 1988 to 2012Sources: Energy Information Administration, U.S. Natural Gas Prices, Tech. rep., April 2, 2012. Available at: Information Administration, Cushing, OK WTI Spot Price FOB (Dollars per Barrel), Tech. rep., April 4, 2012. Available at: While natural gas and petroleum prices have roughly tracked each other in the U.S. for decades, their price trends started to diverge in 2009.FuelPrice[U.S.NominalDollarsperMillionBTU]2006 2008 2010 20122002 20041998 20001994 19961990 199205101520YearU.S. Oil and Gas Prices 1988 to 2012WTI Cushing OilWellhead Natural Gas
  24. 24. Leveraging Natural Gas to Reduce Greenhouse Gas Emissions 15for well over a decade, it has been decoupled for the lastseveral years. At the same time, the European Union andJapan are tightly coupled to the world gas markets, (withthe European Union served by LNG and pipelines fromthe Former Soviet Union, and Japan served by LNG).How long these prices remain decoupled will depend onU.S. production of natural gas, U.S. demand for naturalgas, and the time it takes for these isolated markets toconnect again. In fact, LNG terminal operators arenow considering the investment of billions of dollars toturn their terminals around so that they can buy cheapnatural gas in the U.S. that they can sell at higher pricesto the EU and Japan. Once those terminals are turnedaround, these geographically-divergent market pricescould come back into convergence.Prices for Abundant Supply vs. Prices forAbundant DemandAnother axis to consider for natural gas prices is thetension between the price at which we have abundantsupply, and the price at which we have abundant demand.These levels have changed over the years as technologyimproves and the prices of competing fuels have shifted,but it seems clear that there is still a difference betweenthe prices that consumers wish to pay and producers wishto collect. In particular, above a certain price (say, some-where in the range of $4–8/MMBTU, though there is nosingle threshold that everyone agrees upon), the UnitedStates would be awash in natural gas. Higher prices makeit possible to economically produce many marginal plays,yielding dramatic increases in total production. However,at those higher prices, the demand for gas is relativelylower because cheaper alternatives (nominally coal, wind,nuclear and petroleum) might be more attractive options.At the same time, as recent history has demonstrated,below a certain price (say, somewhere in the range of$1–3/MMBTU), there is significant demand for naturalgas in the power sector (as an alternative to coal) andthe industrial sector (because of revitalized chemicalmanufacturing, which depends heavily on natural gas as afeedstock). Furthermore, if prices are expected to remainlow, then demand for natural gas would increase in theresidential and commercial sectors (as an alternativeFIGURE 4: Natural Gas Prices in Japan, the European Union and the United States, 1992 to 2012Sources: BP, “BP Statistical Review of World Energy,” Tech. rep., June 2011, Available at: Information Administration, Henry Hub Gulf Coast Natural Gas Spot Price, Tech. rep., April 6, 2012. Available at: Information Administration, Price of Liquefied U.S. Natural Gas Exports to Japan, Tech. rep., April 6, 2012. Available at:, European Natural Gas Import Price, Tech. rep., April 6, 2012. Available at: While natural gas prices in the U.S. and globally (EU and Japan) have tracked each other for decades, their price trends started to diverge in 2009.FuelPrice[U.S.DollarsperMillionBtu]2008 201220102004 20062002200019981994 1996051015YearEuropean UnionJapanUnited States
  25. 25. Center for Climate and Energy Solutions16to electricity for water heating, for example) and in thetransportation sector (to take advantage of price spreadswith diesel, as noted above).The irony here is that it is not clear that the pricesat which there will be significant increases in demandwill be high enough to justify the higher costs that willbe necessary to induce increases in supply, and so theremight be a period of choppiness in the market as theprices settle into their equilibrium. Furthermore, asglobal coal and oil prices increase (because of surgingdemand from China and other rapidly-growing econo-mies), the thresholds for this equilibrium are likely tochange. As oil prices increase, natural gas productionwill increase at many wells as a byproduct of liquidsproduction, whether the gas was desired or not. Sincethe liquids are often used to justify the costs of a newwell, the marginal cost of the associated gas productioncan be quite low. Thus, natural gas production mightincrease even without upward pressure from gas prices,which lowers the price threshold above which there willbe abundant supply. At the same time, coal costs areincreasing globally, which raises the threshold belowwhich there is abundant demand. Hopefully, thesemoving thresholds will converge at a stable medium,though it is too early to tell. If the price settles too high,then demand might retract; if it settles too low, theproduction might shrink, which might trigger an oscil-lating pattern of price swings.Low Prices for the Environment vs.High Prices for the EnvironmentAnother axis of price tension for natural gas is whetherhigh prices or low prices are better for achieving envi-ronmental goals such as reducing the energy sector’semissions and water use. In many ways, high natural gasprices have significant environmental advantages becausethey induce conservation and enable market penetrationby relatively expensive renewables. In particular, becauseit is common for natural gas to be the next fuel sourcedispatched into the power grid in the United States, highnatural gas prices trigger high electricity prices. Thosehigher electricity prices make it easier for renewableenergy sources such as wind and solar power to competein the markets. Thus, high natural gas prices are usefulfor reducing consumption overall and for spurringgrowth in novel generation technologies.However, inexpensive natural gas also has importantenvironmental advantages by displacing coal in thepower sector. Notably, by contrast with natural gasprices, which have decreased for several years in a row,prevailing coal prices have increased steadily for overa decade due to higher transportation costs (which arecoupled to diesel prices that have increased over thatspan), depletion of mines, and increased global demand.As coal prices track higher and natural gas prices tracklower, natural gas has become a more cost-effectivefuel for power generation for many utility companies.Consequently, coal’s share of primary energy consump-tion for electricity generation has dropped from 53percent in 2003 to less than 46 percent in 2011 (withfurther drops in the first quarter of 2012), while theshare fulfilled by natural gas grew from 14 percent to20 percent over the same span. At the same time, therewas a slight drop in overall electricity generation due tothe economic recession, which means the rise of naturalgas came at the expense of coal, rather than in additionto coal. Consequently, for those wishing to achieve theenvironmental goals of dialing back on power generationfrom coal, low natural gas prices have a powerful effect.These attractive market opportunities are offset insome respects by the negative environmental impactsthat are occurring from production in the Bakken andEagle Ford shale plays in North Dakota and Texas. Atthose locations, significant volumes of gases are flaredbecause the gas is too inexpensive to justify rapidconstruction of the pricey distribution systems thatwould be necessary to move the fuel to markets.40, 41Consequently, for many operators it ends up beingcheaper in many cases to flare the gas rather than toharness and distribute it.And, thus, the full tension between the “environ-mental price” of gas is laid out: low prices are goodbecause they displace coal, whereas high prices aregood because they bring forward conservation andrenewable alternatives. This price axis will be importantto watch from a policymaker’s point of view as timemoves forward.Stable vs. Volatile PricesOne of the historical criticisms of natural gas has beenits relative volatility, especially as compared with coaland nuclear fuels, which are the other major primaryenergy sources for the power sector. This volatility is aconsequence of large seasonal swings in gas consump-tion (for example, for space and water heating in thewinter) along with the association of gas production with
  26. 26. Leveraging Natural Gas to Reduce Greenhouse Gas Emissions 17oil, which is also volatile. Thus, large magnitude swingsin demand and supply can be occurring simultane-ously, but in opposing directions. However, two forcesare mitigating this volatility. Firstly, because naturalgas prices are decoupling from oil prices (as discussedin above), one layer of volatility is reduced. Many gasplays are produced independently of oil production.Consequently, there is a possibility for long-term supplycontracts at fixed prices. Secondly, the increased use ofnatural gas consumption in the power sector, helps tomitigate some of the seasonal swings as the consumptionof gas for heating in the winter might be better matchedwith consumption in the summer for power generationto meeting air conditioning load requirements.Between more balanced demand throughout the yearand long-term pricing, the prospects for better stabilitylook better. At the same time, coal, which has histori-cally enjoyed very stable prices, is starting to see highervolatility because its costs are coupled with the price ofdiesel for transportation. Thus, ironically, while naturalgas is reducing its exposure to oil as a driver for volatility,coal is increasing its exposure.Long-Term vs. Near-Term PriceWhile natural gas is enjoying a period of relatively stableand low prices at the time of this writing, there areseveral prospects that might put upward pressure on thelong-term prices. These key drivers are: 1) increasingdemand, and 2) re-coupling with global markets.As discussed above, there are several key forcingfunctions for higher demand. Namely, because naturalgas is relatively cleaner, less carbon-intensive, and lesswater-intensive than coal, it might continue its trend oftaking away market share from coal in the power sectorto meet increasingly stringent environmental standards.While this trend is primarily driven by environmentalconstraints, its effect will be amplified as long as naturalgas prices remain low. While fuel-switching in the powersector will likely have the biggest overall impact onnew natural gas demand, the same environmental andeconomic drivers might also induce fuel-switching inthe transportation sector (from diesel to natural gas),and residential and commercial sectors (from fuel oilto natural gas for boilers, and from electric heating tonatural gas heating). If cumulative demand increasessignificantly from these different factors but supply doesnot grow in a commensurate fashion, then prices willmove upwards.The other factor is the potential for re-coupling U.S.and global gas markets. While they are mostly emptytoday, many LNG import terminals are seeking to reversetheir orientation, with an expectation that they will beready for export beginning in 2014. Once they are ableto export gas to EU and Japanese markets, then domesticgas producers will have additional markets for theirproduct. If those external markets maintain their muchhigher prevailing prices (similar to what is illustrated inFigure 4), re-coupling will push prices upwards.Each of these different axes of price tensions reflectsa different nuance of the complicated, global naturalgas system. In particular, they exemplify the differentmarket, technological and societal forces that willdrive—and be driven by—the future of natural gas.ConclusionOverall, it is clear that natural gas has an importantopportunity to take market share from other primaryfuels. In particular, it could displace coal in the powersector, petroleum in the transportation sector, andfuel oil in the commercial and residential sectors. Withsustained growth in demand for natural gas, coupledwith decreases in demand for coal and petroleumbecause of environmental and security concerns, naturalgas could overtake petroleum to be the most widely usedfuel in the United States within one to two decades.Along the path towards that transition, natural gas willexperience a variety of price tensions that are manifesta-tions of the different market, technological and societalforces that will drive—and be driven by— the future ofnatural gas. How and whether we sort out these tensionsand relationships will affect the fate of natural gas andare worthy of further scrutiny.
  27. 27. Center for Climate and Energy Solutions18
  28. 28. Leveraging Natural Gas to Reduce Greenhouse Gas Emissions 19III. Greenhouse Gas Emissions and Regulations associatedwith Natural Gas ProductionBy Joseph Casola, Daniel Huber, and Michael Tubman, C2ESIntroductionNatural gas is a significant source of greenhouse gasemissions in the United States. Approximately 21percent of total U.S. greenhouse gas emissions in 2011were attributable to natural gas.42When natural gas iscombusted for energy, it produces carbon dioxide (CO2),which accounts for most of greenhouse gas emissionsassociated with this fuel. Natural gas is composedprimarily of methane (CH4), which has a higher globalwarming potential than CO2. During various steps ofnatural gas extraction, transportation, and processing,methane escapes or is released to the atmosphere.Although this represents a relatively smaller portionof the total greenhouse gas emissions associated withnatural gas production and use, vented and leakedor “fugitive” emissions can represent an opportunityto reduce greenhouse gas emissions, maximizing thepotential climate benefits of using natural gas.Total methane emissions from natural gas systems(production, processing, storage, transmission, anddistribution) in the United States have improvedduring the last two decades, declining 13 percent from1990 to 2011, driven by infrastructure improvementsand technology, as well as better practices adopted byindustry. This has occurred even as production andconsumption of natural gas has grown. Methane emis-sions per unit of natural gas consumed have dropped32 percent from 1990 to 2011. Since 2007, methaneemissions from all sources have fallen almost 6 percent,driven primarily by reductions of methane emissionsfrom natural gas systems. Nevertheless, given its impacton the climate, emphasis on reducing methane emis-sions from all sources must remain a high priority. Thischapter discusses the differences between methane andCO2, emission sources, and state and federal regulationsaffecting methane emissions.Global Warming Potentials of Methaneand CO2On a per-mass basis, methane is more effective atwarming the atmosphere than CO2. This is representedby methane’s global warming potential (GWP), whichis a factor that expresses the amount of heat trappedby a pound of a greenhouse gas relative to a pound ofCO2over a specified period of time. GWP is commonlyused to enable direct comparisons between the warmingeffects of different greenhouse gases. By convention, theGWP of CO2is equal to one.The GWP of a greenhouse gas (other than CO2)can vary substantially depending on the time periodof interest. For example, on a 100-year time frame, theGWP of methane is about 21.43But for a 20-year timeframe, the GWP of methane is 72.44The differencestems from the fact that the lifetime of methane in theatmosphere is relatively short, a little over 10 years, whencompared to CO2, which can persist in the atmospherefor decades to centuries.Since models that project future climate conditionsare often compared for the target year of 2100, it isoften convenient to use 100-year GWPs when comparingemissions of different greenhouse gases. However, thesecomparisons may not accurately reflect the relativereduction in radiative forcing (the extent to which a gastraps heat in the atmosphere) arising from near-termabatement efforts for greenhouse gases with shortlifetimes. Whereas near-term reductions in CO2emis-sions provide reductions in radiative forcing benefitsspread out over a century, near-term abatement effortsfor methane involve a proportionally larger near-termreduction in radiative forcing. In light of potentialclimate change over the next 50 years, the control ofmethane has an importance that can be obscured whengreenhouse gases are compared using only their 100-year
  29. 29. Center for Climate and Energy Solutions20GWPs. Accordingly, reducing methane emissions fromall sources is important to efforts aimed at slowing therate of climate change.Emissions from Natural Gas CombustionOn average, natural gas combustion releases approxi-mately 50 percent less CO2than coal and 33 percentless CO2than oil (per unit of useful energy) (Figure 1).In addition, the combustion of coal and oil emits otherhazardous air pollutants, such as sulfur dioxides andparticulate matter. Therefore, the burning of natural gasis considered cleaner and less harmful to public healthand the environment than the burning of coal and oil.The U.S. Energy Information Administration (EIA)has projected that U.S. energy-related CO2emissionswill remain more than 5 percent below their 2005 levelthrough 2040, a projection based in large part on theexpectation that: 1) natural gas will be steadily substi-tuted for coal in electricity generation as new naturalgas power plants are built and coal-fired power plantsare converted to natural gas, and 2) state and federalprograms that encourage the use of low-carbon tech-nologies will continue.45The EIA predicts that naturalgas—fired electricity production in the United Stateswill increase from 25 percent in 2010 to 30 percent in2040, in response to continued low natural gas pricesand existing air quality regulations that affect coal-firedpower generation.Venting and Leaked Emissions Associatedwith Natural Gas ProductionIn 2011, natural gas systems contributed approximatelyone-quarter of all U.S. methane emissions (Figure 2), ofwhich over 37 percent are associated with production.46In the production process, small amounts of methanecan leak unintentionally. In addition methane may beintentionally released or vented to the atmosphere forsafety reasons at the wellhead or to reduce pressurefrom equipment or pipelines. Where possible, flarescan be installed to combust this methane (often at thewellhead), preventing much of it from entering theatmosphere as methane but releasing CO2and other airpollutants instead.These methane emissions are an important, yet notwell understood, component of overall methane emis-sions. In recent years greenhouse gas measurement andreporting requirements have drawn attention to the needfor more accurate data. This uncertainty can be seenin the revisions that have accompanied sector emissionFigure 1: CO2Emissions from Fossil FuelCombustionSource: Environmental Protection Agency, Draft Inventory of U.S. GreenhouseGas Emissions and Sinks: 1990-2011. 2013. Chapter 3 and Annex 2. Availableat: CO2content for petroleum has been calculated as an average of repre-sentative fuel types (e.g., jet fuel, motor gasoline, distillate fuel) using 2011 data.This graphic does not account for the relative efficiencies of end-usetechnologies.0102030405060708090100Natural GasPetroleumCoalTgCO2equivalentperQuadrillionBtuFigure 2: Sources of Methane Emissions inthe United States, 2011Source: Environmental Protection Agency, Draft U.S. Greenhouse GasInventory Report, 2013. Available at: Mining11%Landfills18%EntericFermentation24%Natural GasSystems24%
  30. 30. Leveraging Natural Gas to Reduce Greenhouse Gas Emissions 21estimates. Just recently for example, EPA revised down-ward the estimated level of methane emissions attribut-able to production of natural gas. In 2010, it estimatedabout 58 percent of methane emission in the natural gassystem came from production. In 2013, EPA reduced thatnumber to 37 percent. A major reason for this revisionwas a change in EPA’s assumption about emissionleakage rates. Based on EPA’s GHG inventory data, theassumed leakage rate for the overall natural gas systemwas revised downward from 2.27 percent in 2012 to 1.54percent in 2013.47Independent studies have estimatedleak rates ranging from 0.71 to 7.9 percent.48, 49, 50EPAand others are trying to better understand the extent ofleakage and where this leakage is occurring.Given the climate implications of methane, consider-able effort is also being focused on reducing leakage andmethane emissions overall. According to EPA, methaneemissions from U.S. natural gas systems have declinedby 10 percent between 1990 and 2011 even with theexpansion of natural gas infrastructure.51This declineis largely the result of voluntary reductions includinggreater operational efficiency, better leakage detection,and the use of improved materials and technologiesthat are less prone to leakage.52In particular, the EPA’sNatural Gas Star Program has worked with the naturalgas industry to identify technical and engineeringsolutions that minimize emissions from infrastructure,including zero-bleed pneumatic controllers, improvedvalves, corrosion-resistant coatings, dry-seal compressors,and improved leak-detection and leak-repair strategies.The EPA has tracked methane reductions associated withits Natural Gas STAR program (Figure 3) and estimatesthat voluntary actions undertaken by the natural gassector reduced emissions by 94.1 billion cubic feet (Bcf)in 2010. Notably, many of the solutions identified by thisvoluntary program have payback periods of less thanthree years (depending on the price of natural gas).53The success of the Natural Gas STAR program furtherhighlights the importance of understanding whereemission leakage is occurring because without accuratedata, it is difficult to prioritize reduction efforts ormake the case for technologies and processes like thosehighlighted by the program.Regulation of Leakage and VentingRegulations applicable to methane leakage and ventingfrom natural gas operations have been implemented atboth the federal and state level. Although air pollutionfrom natural gas production has been regulated invarious forms since 1985 (e.g., toxic substances such asbenzene and volatile organic compounds that contributeto smog formation), over the past few years, due tothe recent increase in natural gas production and theuse of new extraction methods (particularly hydraulicfracturing), natural gas operations have come underrenewed scrutiny from policy-makers, non-governmentalorganizations, and the general public. In response topotential environmental and climate impacts fromincreased natural gas production including deploymentof new technologies, new state and national rules arebeing developed.Federal RegulationsEPA released new air pollution standards for naturalgas operations on August 16, 2012. The New SourcePerformance Standards and National EmissionsStandards for Hazardous Air Pollutants are the firstfederal regulations to specifically require emissionreductions from new or modified hydraulically fracturedand refractured natural gas wells. The New SourcePerformance Standards require facilities to reduceemissions to a certain level that is achievable using thebest system of pollution control, taking other factorsFigure 3: Annual and Cumulative Reductionsin Methane Emissions Associated with theEnvironmental Protection Agency’s NaturalGas STAR Program, 2004 to 2010Source: Environmental Protection Agency, “Accomplishments,” July 2012.Available at,000-800-600-400-20002010200920082007200620052004BillionCubicFeetCumulativeAnnual
  31. 31. Center for Climate and Energy Solutions22into consideration, such as cost.54Under the NationalEmissions Standards for Hazardous Air Pollutantsprogram, EPA sets technology-based standards forreducing certain hazardous air pollutant emissions usingmaximum achievable control technology. The regula-tions target the emission of volatile organic compounds,sulfur dioxide, and air toxics, but have the co-benefit ofreducing emissions of methane by 95 percent from wellcompletions and recompletions.55Among several emission controls, these rules alsorequire the use of “green completions” at natural gasdrilling sites, a step already mandated by some jurisdic-tions and voluntarily undertaken by many companies.In a “green completion,” special equipment separateshydrocarbons from the used hydraulic fracturing fluid,or “flowback,” that comes back up from the well as itis being prepared for production. This step allows forthe collection (and sale or use) of methane that maybe mixed with the flowback and would otherwise bereleased to the atmosphere. The final “green comple-tion” standards apply to hydraulically fractured wells thatbegin construction, reconstruction, or modification afterAugust 23, 2011, estimated to be 11,000 wells per year.The “green completion” requirement will be phased-inover time, with flaring allowed as an alternative compli-ance mechanism until January 1, 2015.While the “green completion” regulations areexpected to reduce methane emissions from natural gaswells, concern has been expressed that the regulationsdo not apply to onshore wells that are not hydraulicallyFigure 4: Venting Regulations by StateSource: Resources for the Future. “A Review of Shale Gas Regulations by State.” July 2012. Available at: venting restrictionsAspirational standardsNotice and approval requiredNo venting allowedNo evidence of regulationNot in studyNo natural gas wells as of 2010
  32. 32. Leveraging Natural Gas to Reduce Greenhouse Gas Emissions 23fractured, existing hydraulically fractured wells untilsuch time as they are refractured, or oil wells, includingthose that produce associated natural gas.56However,geologic and market barriers may limit the applicabilityof this type of rule to other sources of natural gas.State RegulationsNumerous states have also implemented regulations thataddress venting and flaring from natural gas explorationand production. Some states with significant oil and gasdevelopment, such as Colorado, North Dakota, Ohio,Pennsylvania, Texas, and Wyoming, already have ventingand/or flaring requirements in place. For example, Ohiorequires that all methane vented to the atmosphere beflared (with the exception of gas released by a properlyfunctioning relief device and gas released by controlledventing for testing, blowing down, and cleaning outwells). North Dakota allows gas produced with crude oilfrom an oil well to be flared during a one-year periodfrom the date of first production from the well. After thattime period, the well must be capped or connected to anatural gas gathering line.57These regulations may bechanged or upgraded as the national “green completion”rules come into effect. Maps produced by Resources forthe Future, show the diversity of state regulations thatapply to venting and flaring in natural gas developmentin 31 states (Figures 4 and 5).Figure 5: Flaring Regulations by StateSource: Resources for the Future. “A Review of Shale Gas Regulations by State.” July 2012. Available at: flaring restrictionsAspirational standardsNotice and approval requiredFlaring requiredNo evidence of regulationNot in studyNo natural gas wells as of 2010
  33. 33. Center for Climate and Energy Solutions24ConclusionThe climate implications associated with the productionand use of natural gas differ from other fossil fuels (coaland oil). Natural gas combustion yields considerablylower emissions of greenhouse gases and other air pollut-ants; however, when methane is released directly into theatmosphere without being burned—through accidentalleakage or intentional venting—it is about 21 times morepowerful as a heat trapping greenhouse gas than CO2when considered on a 100-year time scale. As a result,considerable effort is underway to accurately measuremethane emission and leakage. Policy-makers shouldcontinue to engage all stakeholders in a fact-baseddiscussion regarding the quantity and quality of availableemissions data and what steps can be taken to improvethese data and accurately reflect the carbon footprintof all segments of the natural gas industry. To that end,additional field testing should be performed to gatherup-to-date, accurate data on methane emissions. Policy-makers have begun to create regulations that addressmethane releases, but a better understanding and moreaccurate measurement of the emissions from natural gasproduction and use could potentially identify additionalcost-effective opportunities for emissions reductionsalong the entire natural gas value chain.
  34. 34. Leveraging Natural Gas to Reduce Greenhouse Gas Emissions 25IV. Power SectorBy Doug Vine, C2ESIntroductionThe U.S. power industry produces electricity from avariety of fuel sources (Figures 1 and 2). In 2012, coal-fueled generation provided a little more than 39 percentof all electricity, down from 50 percent in 2005. Nuclearpower provided around 19 percent of net generation.Filling the gap left by the declining use of coal, naturalgas now provides nearly 29 percent of all electricity andrenewables, including wind and large hydroelectricpower, provide about 12 percent. Petroleum-fueledgeneration is in decline, providing less than 1 percent ofelectricity in 2012.Natural gas use in the power sector during the 1970sand 1980s was fairly consistent and low, contributing adeclining share of total electricity generation as coal andnuclear power’s share of total electricity significantlyincreased. In 1978, in response to supply shortages (theresult of government price controls), Congress enactedthe Power Plant and Industrial Fuel Use Act.58Thelaw prohibited the use of oil and natural gas in newindustrial boilers and new power plants, with the goalof preserving the (thought to be) scarce supplies forresidential customers.59As a consequence, the demandfor natural gas declined during the 1980s, contributingto an oversupply of gas for much of the decade. Thefalling natural gas demand and prices spurred the repealin 1987 of sections of the Fuel Use Act that restricted theuse of natural gas by industrial users and electric utili-ties.60(For an overview of key policies impacting naturalgas supply, see Appendix A). Continued low natural gasprices in the 1990s stimulated the rapid construction ofgas-fired power plants.61In the early 2000s, the buildingboom in natural gas-fired generation was temperedFigure 1: U.S. Electricity Generation by Fuel Type, 1973 to 2012Source: Energy Information Administration, “Electricity Net Generation: Total (All Sectors). Table 7.2a,” March 2013. Available at: HydroelectricNuclearNatural GasPetroleumCoalNon-Hydroelectric Renewables
  35. 35. Center for Climate and Energy Solutions26somewhat by price spikes, although natural gas-firedgenerating capacity continues to be added more than anyother fuel type. Since 1990, electricity generation fromnatural gas has increased from around 11 percent to 29percent of the total net generation in 2012 (Figure 1). In2006, natural gas surpassed nuclear power’s share of thetotal generation mix, and in April 2012, natural gas andcoal each contributed a little more than 32 percent oftotal generation.This chapter explores the combination of factorsdriving change in the power sector. It examines theadvantages and disadvantages of natural gas use, thecompetitive nature of alternative energy sources, andthe synergy between natural gas and renewable energygeneration. Finally, it explores relevant policy optionsthat could lower greenhouse gas emissions in the sector.Advantages and Disadvantages of NaturalGas Use in the Power SectorFrom the perspective of an electrical system operator,a power plant owner, or an environmental perspective,natural gas-fueled power generation has many advan-tages. Natural gas can provide baseload, intermediate,and peaking electric power, and can thus meet all typesof electrical demand. It is an inexpensive, reliable,dispatchable source of power that is capable of supplyingfirm backup to intermittent sources such as wind andsolar.62Natural gas power plants can be constructed rela-tively quickly, in as little as 20 months.63Air emissions aresignificantly less than those associated with coal genera-tion, and compared to other forms of electric generation,natural gas plants have a small footprint on the land-scape. However, even though combustion of natural gasproduces lower greenhouse gas emissions than combus-tion of coal or oil, natural gas does emit a significantamount of carbon dioxide (CO2), and its direct releaseinto the atmosphere, as discussed in chapter 3, addsquantities of a greenhouse gas many times more potentthan CO2. Finally, natural gas-fired power plants must besited near existing natural gas pipelines, or else buildingnew infrastructure may significantly increase their cost.Cost of Building Natural Gas-Fired Power PlantsNatural gas-fired combined-cycle electricity generation(see Appendix B for a list of power plant technologies)is projected to be the least expensive generation tech-nology in the near and mid-term, taking into accounta range of costs over an assumed time period. Thesecosts include capital costs, fuel costs, fixed and variableoperation/maintenance costs, financing costs, andan assumed utilization rate for the type of generationplant (Figure 3). The availability of various incentivesincluding state or federal tax credits can also impact thecost of an electricity generation plant, but the range ofvalues shown in Figure 3 do not incorporate any suchincentives. Based purely on these market forces, utilitieslooking at their bottom lines and public utility commis-sions looking for low-cost investment decisions will favorthe construction of natural gas-fired technologies in thecoming years.EmissionsFor each unit of energy produced, a megawatt-hour(MWh) of natural gas-fired generation contributesaround half the amount of CO2emissions as coal-firedgeneration and about 68 percent of the amount of CO2emissions from oil-fired generation (Table 1).While combustion of natural gas produces lowergreenhouse gas emissions than combustion of coal oroil, natural gas does emit a significant amount of carbondioxide (CO2). In 2011, the power sector contributedabout 33 percent of all U.S. CO2emissions.64Since 2005,total greenhouse gas emissions from the electricity sectorhave decreased, even as net electricity generation hasremained steady, a result of natural gas-fired electricityFigure 2: U.S. Electricity Generation byFuel Type, 2012Source: Energy Information Administration, “March 2013 Monthly Energy Re-view. Table 7.2b. Electricity Net Generation: Electric Power Sector,” Availableat: Gas29%Coal39%
  36. 36. Leveraging Natural Gas to Reduce Greenhouse Gas Emissions 27generation displacing petroleum- and coal-fired genera-tion and an increase in the use of renewable generation.In 2012, CO2emissions from power generation were attheir lowest level since 1993 (Figure 4).Future Additions to Electricity Generation CapacityThere is strong evidence that the trends toward morenatural gas in the power sector will continue in the nearand medium term. With natural gas prices expected tostay relatively low and stable and the increasing likeli-hood of a carbon-constrained future, natural gas hasbecome the fuel of choice for electricity generation byutilities in the United States.65, 66In 2012, the electricpower industry planned to bring 25.5 gigawatts (GW)of new capacity on line, with 30 percent being naturalgas-fired (and the remainder being 56 percent renewableenergy and 14 percent coal.67Between 2012 and 2040,the U.S. electricity system will need 340 GW of newgenerating capacity (including combined heat and poweradditions), given rising demand for electricity and theplanned retirement of some existing capacity.68Naturalgas-fired plants will account for 63 percent of cumulativecapacity additions between 2012 and 2040 in the EnergyInformation Administration (EIA) Annual EnergyOutlook 2013 reference case, compared with 31 percentfor renewables, 3 percent for coal, and 3 percent fornuclear (Figure 5).Federal tax incentives and state programs willcontribute substantially to renewables’ competitive-ness in the near term.69For example, with the windproduction tax credit, wind generation is expected toincrease more than 18 GW from 2010 to 2015. SimilarlyFigure 3: Estimated Levelized Cost of New Generation Resource, 2020 and 2040Source: Energy Information Administration, “Annual Energy Outlook 2013,” April 15, 2013. Available at: Price in 2011 cents per kilowatt-hour.0 3 6 9 12 15Natural Gascombined cycleWindNuclearCoalNatural Gascombined cycleWindNuclearCoal20402020Levelized Cost (2011 cents per kilowatthour)Incremental Transmission CostsVariable Costs, Including FuelFixed CostsCapital costsTable 1: Average Fossil Fuel Power Plant Emission Rates (pounds per Megawatt Hour)GENERATION FUEL TYPECO2LB/MWHSULFUR DIOXIDELB/MWHNITROGEN OXIDESLB/MWHCoal 2,249 13 6Natural Gas 1,135 0.1 1.7Oil 1,672 12 4Source: Environmental Protection Agency, “Clean Energy—Air Emissions,” 2012. Available at:
  37. 37. Center for Climate and Energy Solutions28with the solar investment tax credit, utility and end-usesolar capacity additions are forecast to increase by 7.5GW through 2016.70In addition to federal incentives,state energy programs mandate increased renewableenergy capacity additions in thirty-eight states. Thesestates have set standards specifying that electric utilitiesdeliver a certain amount of electricity from renewable oralternative energy sources. Increasing the deploymentof zero-carbon energy technologies such as renewables,nuclear, and carbon capture and storage needs to be apriority in order for the United States (and the rest of theworld) to address climate change.Figure 4: U.S. Emissions in the Power Sector, 1990 to 2012Source: Energy Information Administration, “Monthly Energy Review,” Table 12.6, March 27, 2013. Available at: OilNatural GasCoalFigure 5: Additions to Electricity Generation Capacity, 1985 to 2040Source: Energy Information Administration, “Annual Energy Outlook 2013,” April 15, 2013. Available at: ProjectionsNatural Gas/OilNuclearHydro/OtherCoalOther RenewablesSolarWind