Resources for the Future’s
Center for Energy Economics and Policy (CEEP)
Shale Gas: Policy Context
D r. A l a n K r u p n i c k , C E E P D i r e c t o r
11/14/11
4
4
Costs versus production
Production rate
Shale gas
plays
Conventional gas
plays
Gas price for given rate of return
Bulls vs. Bears
• Resource Base: “Enough gas for 100 years”
vs. “USGS: 80% lower than EIA estimate of
resources”
• Price: Stable and low vs. BAU
• Global warming: “Foundational” vs. “Flimsy
bridge to a low carbon future”
• Energy Security: “an answer” vs. BAU
• Environmental risk: “Tempest in a teapot” vs.
fracking bans
Marcellus Natural Gas Resource Base
(Old Diagram)
Discovered?
USGS 2011 Estimate
84 tcf
Economic?
AEO 2011
410 tcf
3 Ps +
cumulative
production?
Marcellus Shale Gas Resource Base
(New Diagram)
Unproved and Undiscovered Technically Recoverable
Resources and Inferred Reserves are essentially measuring
the same thing when considering continuous resources.
But using different methods and data
Whatever the true resource base,
• Companies are learning fast
– Longer “laterals” (from 2000’ to 8000’)
– Faster drilling (from 80 to 20 days)
• And being surprised
– Shallower decline curves (“decades”)
• Two years ago: 4.1 Bcf per well
• Today, some wells up to 7.1 Bcf
2
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
2031
2032
2033
2034
2035
2009 Dollars per million Btu
10
Natural Gas Henry Hub Spot Price
Forecasts
9
8
7
6
5
4
3
AEO 2011
AEO 2009
Low and stable for long-run
(based on AEO2011).
Short-run?
Natural gas and global warming
• Is natural gas (from shale) a lower carbon
substitute for coal?
– Fugitive methane*GWP + other fuel cycle elements < >
Coal emissions (CO2e)
• Will natural gas substitute for coal in the
power sector?
EIA-ICF (2011) Lifecycle CO2e Analysis Shows Gas (with
fracking): 50% Cleaner than Coal
Gas still 48%
cleaner than
coal
Lifecycle GHG Emissions (kg CO2e/MWh)
1,200
1,000
1,096
+10% Revision
800
600
566
516
400
200
0
Gas 2010
Gas 2011
Coal
Note: 100 year global warming potential
Source: EIA, ICF International, DBCCA analysis 2011
13
CMU study: shale gas ~40% cleaner than coal
14
Cornell Study and Critique
• GWP => 20 vs. 100 years
 should stimulate further study
• Fugitive methane data are thin (handful of wells in 5
plays). For key play (Haynesville):
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Methane “emitted” during flow-back
thousands of cubic meters
8,000
7,000
6,000
5,000
4,000
3,000
2,000
1,000
0
Haynesville
Barnett
Piceance
Uinta
Den-Jules
Cornell Study and Critique
• GWP => 20 vs. 100 years; IPCC or revised estimates
 should stimulate further study
• Fugitive methane data are thin (handful of wells in 5
plays). For key play (Haynesville):
• Documentation misread (IHS Global, 2011)
• Methane is mostly flared, rather than vented. Some
methane too expensive to capture;
• Metering errors can lead to misclassification as fugitive
• Research on-going
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Natural Gas, Power Sector and
CO2 emissions
• Increased gas resources:
– NEMS: AEO2009 269 vs. PGC 616 tcf:
increased natural gas use and share, more
carbon
– HAIKU: AEO2010 347 vs. AEO11 827 tcf:
increased gas use and share, slightly less
carbon
• With CO2 policy: cheap gas lowers costs
A “narrow” bridge to a low carbon future,
but pressure on old coal plants to retire will likely
create a bigger role for natural gas
Energy security and global warming:
Heavy-duty LNG-Fueled Trucks
instead of Diesel Trucks
If:
– LNG truck is $70K more expensive than diesel
– LNG is $1.50/ge cheaper
– Observed impatience (31% interest rate)
– 125,000 miles/yr.
– 5.1 mpge
 3 year payback
But chicken and egg problem with investment
New Investment in LNG
Infrastructure
• Chesapeake Energy: investing $150 million in
Clean Energy Fuels Corp. to develop up to 150
LNG truck fueling stations along major truck
corridors (interstates) in the U.S.
• 79 stations over the next 2 years; 250 miles
apart
• Clean Energy partnering with Pilot Flying J
• Capacity of system: 3-4 million gallons of
LNG/station a year 11K trucks (@125K
miles/yr)
December 2012 Projected (Chesapeake Energy website)
- Niche market for LNG-fueled heavy-duty
trucks
- Tougher case for CNG-fueled
light-duty vehicles;
Weak energy security benefits for now
Environmental Risk?
Aubrey McClendon
interview with Forbes:
F: It’s clear that as long as
wells are cased and
cemented properly,
fracking is safe, right?
M: 100%!
Environmental Risk?
• No comprehensive analysis of impact pathways
• No comprehensive examination of expert opinion
• No examination of public opinion where trade-offs are
forced
– “An industry response that hydraulic fracturing has been
performed safely for decades rather than engaging the range
of issues concerning the public will not succeed.” (SEAB,
2011)