Now, as the issues of shale gas and hydraulic fracturing have focused attention on this sector, significant questions have emerged about the practicality and desirability of using natural gas as a bridge fuel.
One of the most interesting of the recent analyses of these questions is a report by David Hughes. He suggests that a convergence of interests between the natural gas industry looking to hype a new production prospect with investors, the energy policy establishment looking for a new energy source to support future economic growth and large environmental interests looking for a simple way to lower carbon emissions gave rise to the natural gas as bridge fuel mantra.
The most interesting part of his report is a close look at the production numbers for natural gas and an assessment of whether it is even possible for natural gas to serve as a bridge fuel. His bottom line: that the bridge fuel concept for natural gas represents wishful thinking and is not possible to achieve.
How does he reach this conclusion? First, the idea of natural gas as a bridge fuel assumes there can be significant shifts in electricity production from coal to natural gas. However, in order for natural gas to provide 45% of US energy by 2035, as projected by the Energy Information Administration, there would have to be record amounts of drilling.
Yet, the history of natural gas production is a story about a race against depletion. When natural gas production peaked in the US in 1973, only about 7,000 gas wells were drilled annually. Now, however, the steep production decline rates for shale gas wells 70% of production in the first 5 years; an average well life of 7.5 years – show that relying on shale gas for a large proportion of U.S. gas production may require 30,000 successful new wells each year.
Hughes calculates that to replace coal with natural gas in electricity production, gas production would not only have to increase by 64% from current production levels, but the necessary pipelines, storage and gas power plant capacity infrastructure would cost more than $700 billion to build. As Marc Lipschultz, global head of energy and infrastructure for Kohlberg Kravis Roberts & Co., pointed out this week, this development of expensive shale gas presents a capital operating challenge .
The bridge fuel concept also assumes that the current low natural gas prices will continue for the indefinite future. However, the prices observed since late 2008 are a recent phenomenon. Shale gas is a complex and high cost source of natural gas fraught with environmental issues. At current prices, companies can only make a profit on shale gas fields if they have exemptions from regulation, shift responsibility for health and environmental impacts to private citizens, and use overstated reserve estimates to raise capital. The illusion of profit in these companies has been maintained by churning cash on mergers and acquisitions, rather than actually producing something that is worth more than the cost of producing it.
All of which suggests that our energy security and future depend upon looking to conservation and efficiency of use and less upon chasing illusory increases in production.