Monday, May 10, 2010

Great Article on Shale in WSJ

This morning's Wall Street Journal featured a special section on energy with a lead article by Amy Myers Jaffe, a Fellow for Energy Studies at Rice University, on shale gas, aptly titled "Shale Gas Will Rock the World."  It is a long piece but it articulately states the argument that shale gas is a game changer in everything from the energy industry to the environment to geopolitics.  You should read it.

Ms. Jaffe, who also writes a blog for the Houston Chronicle, succinctly lays out the argument that I've been trying to make in this forum in bits and pieces over the past two years:  the rise of shale gas will change everything. 

Ms. Jaffe pays particularly close attention to the ramifications of shale in geopolitics.  I thought her take on Iran was particularly interesting.  She concludes that western sanctions have hurt Iran's ability to produce its gas reserves, one of the largest in the world.  The timely development shale gas resources in Europe, China and other nations might prevent Iran from being able to sell into these markets.  (I would argue that the huge new liquefaction projects in Qatar and other nations play a large part in this conclusion as well.)  Being left out in the cold might make Iran's nuclear ambitions seem like more of a liability and cause its leadership to take a more moderate stance in the future.  Russia also faces pressures as a legitimate spot market for natural gas evolves in Europe.

I've been saying that shale extraction makes natural gas a "democratic fuel" (small "d" democratic) because it is relatively widespread around the globe, which prevents the creation of a cartel like OPEC for gas.  Ms. Jaffe does a better job articulating the points. 

Ms. Jaffe also focuses on the impacts to renewable resources, noting that cheap, abundant gas will retard the development of the renewable energy market, which is still highly dependent on government subsidies (and mandates).  She urges the continued investment in renewable R&D research, especially from government sources, to make renewable energy sources that can compete independently in the open market.  This is still years away, and using more natural gas now can be a reliable, relatively clean way to get there - assuming we still invest in renewable research.

But coal is a sticking point that she doesn't spend much time addressing.  She makes the fairly controversial statement that we should "avoid the urge to protect coal states and let cheaper natural gas displace coal."  That won't win her any friends in West Virginia, and some might make the argument that coal is usually cheaper on a per Btu basis than gas.  I would argue (as would she) that you need to include some of the costs of externalities (pollution, health impacts, etc.) in the price of coal to discover the true cost of coal.  That's part of the goal of climate legislation, be it a carbon tax or a cap and trade system.  Where that goes in an election year is anybody's guess.


Anonymous said...

Hey, Robert, you've been busy today!

Robert Hutchinson said...

Maybe too busy...Now I have to do my "real" work.