We barely published an article intended to open up a discussion on the effect of cheap shale gas on the biobased economy ( September 2012), when Amory Lovins and Jon Creyts of the Rocky Mountain Institute published a column ‘Hot Air About Cheap Natural Gas’. They contend shale gas’s inherent cheapness.
Now it is always interesting to consider the Rocky Mountain people’s arguments, so let us follow them briefly.
Uncertainties
The first argument is about price volatility. Natural gas prices have proven to be very unstable during the past 20 years. An unforeseen major price hike at the beginning of the century was followed by an equally unforeseen dip. Therefore, cheap gas right now does not mean cheap gas during the project’s lifetime.
Demand is no easier to predict. Finding gas in places previously not supplied by pipe will create ‘additional thirst’. So may plans to convert coal-fired power plants to gas-fired plants, and a move toward fuelling transport with gas. On the other hand, energy conservation still has very high potential. New efficiency industries and better building codes are flattening energy demand growth.
So, the RMI people argue that energy efficiency and renewables eliminate fuel price risk. Renewable technologies are increasingly available at competitive cost. In the electricity market, Lovins and Creyts contend, from 2008 onwards half of the world’s new generating capacity was in non-hydro renewables. Their conclusion: make use of cheap gas, especially for substitution of coal, but do not bet exclusively on it.
‘Water vs. gas’ conflict
Two reactions on the RMI site are worth noting. The first reaction foresees a rise in shale gas prices following more regulations (because of the inherent environmental risks), because depletion is much quicker than with conventional drilling, and because as soon as possible, large scale users will want to move to cheap gas, thereby dramatically increasing demand.
A second reaction draws attention to the massive water use in shale gas recovery. This will quickly lead to a water vs. gas conflict, very much like the food vs. fuel conflict. Areas in which water shortage is expected, very much overlap with shale gas production areas. And the author of this reaction also expects that shale gas recovery may come under fire because of fugitive methane emissions, methane being a 72 times stronger greenhouse gas than carbon dioxide.
What about niche markets?
Meanwhile, developments accelerate. On 12 September 2012 Shell announced that it acquired $ 1.935 billion worth of shale gas containing land in Texas ‘in a further step to build a leading portfolio of shale assets rich in oil and natural gas liquids’.
And we wonder: as RMI’s arguments solely concentrate on the energy market, what would the upshot of this line of reasoning be for niche markets, e.g. in chemical industry?