It's a Gas, Gas, Gas

Renewables will be challenged by unconventional natural gas supplies.

Bill Opalka | Sep 23, 2010

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Unconventional natural gas is often see as the bridge fuel that will further better integration of renewable energy resources, but now it is a power price depressant that will keep renewables at a cost disadvantage for the foreseeable future.

That view was part of a wide-ranging discussion on the current economic and policy landscape that affects renewable energy. The topic was one of several discussed in the recent American Bar Association-American Council on Renewable Energy webinar. The webinar is part of a series that assesses how renewable energy's future will be affected by developments throughout the power sector, especially as they affect the wider acceptance of wind, solar, biomass and other resources.
 
One issue noted here previously is how the current low price of natural gas is making it difficult for renewable energy developers to sell output to utilities. Unconventional shale gas, while not as cheap as conventionally drilled natural gas, will continue to depress prices.

One significant question will be answered in the coming months as the Environmental Protection Agency determines how strictly regulated extraction practices will be.

"The question mark is not the theoretical availability. The question is going to be the political and regulatory ability of those resources to be fully exploited," said Roger Ballentine, president of Green Strategies Inc. "Even if is only partially exploited, there will be significant impact in two ways.

Ballentine said that the political environment has moved away from pricing carbon or regulating emissions, the natural gas option "is going to become a significant option for baseload capacity."

That's bad news for renewables. "I think it's clear, until the price of renewables comes down, natural gas will become the first option for carbon reduction, not renewables," he said. "In the longer term, utility scale renewable generation is going to be challenged significantly from the availability of inexpensive gas."

Hank Habicht, managing partner, SAIL Venture Partners, discussed the "bridge fuel" aspect of natural gas in the renewables landscape. "The price makes the bridge substantially longer," he said.

"One of the issues with renewable energy development is the ability to obtain favorable power purchase agreements and that gas is affecting the attractiveness of renewable and that's something everybody has to watch," he added.

But it's not an unmitigated string of positive news for unconventional gas, the speakers noted. Water use and pollution issues need to be confronted.

"I think it could be a big inhibitor, but the issues have yet to be defined . massive water use is going to require the industry find reuse strategies," Habicht noted.

The potential reserves of shale gas are so great, the effect on prices will be felt for some time, said Pat Wood, principal of Wood3 Resources. "Even if half the supply is unavailable for economic or environmental reasons, we could see sub-$6 gas for the rest of the decade," he said.
 
Wood added that the current landscape looks like the 1990s with historically low prices with normal seasonal variations. That impacts the hedge value renewable had when natural gas prices spiked earlier this decade.

So it looks like challenges for renewable energy remain, especially if policy support is slow to develop.

The editorial staff at RenewablesBiz.com is passionate about exchanging ideas and dedicated to promoting ongoing conversation about renewables and sustainable energy issues. We invite you to join and contribute to our online community. If you have an idea for an article or editorial contribution, please contact me via email, bopalka@energycentral.com, or phone, 860.633.0090.

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Comments

Gas, Gas, Gas

Good article Bill. 

There is one big thing the oil and gas industry is not talking about.

Shale gas wells typically capture less than 10% of the methane gas in ground which is evidenced by shale gas well depletion rates of up to 85% within the first 24 months of operation. This results in repeated fracking operations using even more water to continue to go after ever more diminishing gas per well. This has been fully documented in Barnett Shale gas operations in Texas and in Colorado.

New York State has recently banned all shale gas drilling until water usage issues are fully understood. The severe summer heat wave throughout the county and in the US northeast in particular has government officials and interest groups making it tough for shale gas drilling to go on unabated.

The key lies in the rapid depletion rates and incredible amounts of fresh water these fracking operations are using. The water destruction is immense in highly populated areas such as the Northeast so its just a matter of time before the water demands add significantly to the cost of shale gas.

The "Shale Gas Boom" is less than 5 years old. Like all fossil fuel energy "booms" its being overplayed, overhyped and barely understood.