On March 20^th, a group led by major natural gas drilling companies Chevron, CONSOL Energy, EQT Corporation, and Shell announced that they have negotiated a set of voluntary environmental standards for shale gas hydraulic fracturing.  The new coalition includes five environmental groups and two foundations that have environmental interests.  The new Center for Sustainable Shale Development (CSSD) certification will include 15 performance standards for fracking operations.

This effort is encouraging because, until now, the arguments about fracking have been largely based solely on two voices: the drillers claiming that the technology is absolutely safe and the environmentalists claiming it is irreparably flawed.  While the truth is grayer than these positions, the bottom line has been that America’s thirst for energy has trumped any environmental concerns, until politicians get an earful from constituents and ban fracking altogether.  The CSSD standards have been compared to the LEED certification for certifying construction of environmental buildings and are likely to help relieve some of the tension surrounding fracking.

Mostly Marcellus

The CSSD standards are a good first step, but I see a few flaws that are likely to undermine some of their effectiveness.  For the most part, these new standards cover groundwater, the water used for fracking, the flaring of natural gas, and the type of diesel fuel that can be used at drilling sites.  The standards do not seem to make any effort to address the air pollution associated with drilling or the land use.  Most of the time, the air pollution surrounding fracking operations is substantially worse than other areas.  What’s more, the CSSD standards ignore the pollution impact of all the motors running on a drilling site.

Drill motors are almost always considered non-road diesel engines by the U.S. Environmental Protection Agency, and therefore, have different requirements than the diesel trucks that are used on the road.  Natural gas-fueled motors for drilling operations are starting to come into play, but these remain few and far between and the CSSD standards are unlikely to push that front.

Another challenge with the CSSD standards is one of geography: these standards (so far) only apply to the Appalachian area and the Marcellus shale gas region.  Whether they’ll be accepted by drillers in Wyoming and western states remains an open question, though it should be noted that Chevron and Shell both drill in those areas as well.  This geographic limit is likely driven by the number and location of environmental partners in the CSSD, but it gives the impression of more political posturing.

Still, the fact that drillers and environmentalists came together to put together some standards that appear to help reduce the impact of fracking is huge.  So, the billion dollar question is: will voluntary CSSD standards be enough to quell the fracking concerns and stave off additional legislative regulations?  Don’t bet on it.  The Sierra Club has already blasted the voluntary nature of the standards, and the Environmental Defense Fund has come out saying that these should complement, not replace, regulations.  Ultimately the success of these new standards will rest in the court of public opinion, and the public, right now, shows little inclination to limit the natural gas bonanza.

Synthetic natural gas (SNG) has been around for a few decades now, primarily using coal as an input, but SNG version 2.0, being developed in Germany by companies including Audi, is different.  It is not renewable natural gas (RNG), which is made from biogas; SNG is made from the methanation of renewably produced hydrogen.

My colleague Mackinnon Lawrence explains that RNG is produced by collecting raw biogas from anaerobic digesters, landfills, wastewater treatment facilities, etc., then stripping out the CO2 and other trace gases.  This yields pipeline quality, purified methane.  The new form of SNG, on the other hand, uses excess wind power to produce electrolytic hydrogen, which is then combined with CO2 (the methanation step) to produce another stream of pipeline-quality natural gas.

So we have one process of producing natural gas that has as a by-product CO2 and one that requires CO2 to produce natural gas.  Handy! But why could SNG be so important in the coming decades?

Out of Love

Europe is falling out of love with natural gas – at least the stuff that is extracted from the ground and tends to be imported from outside the EU.  However, one legacy of the continent’s 30-year love affair with natural gas is a very substantial natural gas infrastructure.  At the same time the European Commission has stated, without yet forming a concrete policy plan, that the entire 27 nations of the European Union will decarbonize by 2050.

EU GHG Reductions Compared to 1990 (% Reductions; 1990 = 100%):  2005-2050

(Source: Pike Research)

Long term, the European economy could well be hydrogen-based.  A recent report from the H2Mobility grouping in the United Kingdom, for example, shows that there could be 1.5 million hydrogen fueled cars on the road in the United Kingdom by 2015.  But any significant energy transition takes decades to accomplish, and there is no black and white switch approach to this.  We must move step by step and plan for the transitional steps.

Although in 2013 electrolysis is not new technology, the storage of large volumes of hydrogen, in any size and scale, is still tricky.  There are research and pilot schemes to store hydrogen at volume in salt caverns, but the scale of inter-seasonal hydrogen that could be needed to store and balance out seasonal demand is beyond the levels that we can currently achieve – that’s where SNG could come in.  Producing large volumes of hydrogen, cheaply from electrolysis using excess wind power, and then turning this into easy to store and transport natural gas, could well be the key stepping stone from the 2013 fossil fuel-based economy to the 2040 hydrogen-based economy.

Duke Energy’s decision to close the Crystal River nuclear reactor, following on the heels of announced closures for Dominion Energy Resources’ Kewaunee nuclear reactor in Wisconsin and Exelon’s Oyster Creek plant in New Jersey, raises some intriguing questions about efforts to combat climate change.  The list of nuclear shutdowns is likely to grow.

This shift away from nuclear in the United States  is seen by many as a boon to natural gas.  Although natural gas has been touted as a “bridging fuel” to a renewable energy future, and as a flexible resource capable of filling in the gaps when the sun doesn’t shine and the wind doesn’t blow, scientists are discovering that a growing reliance upon natural gas could actually be accelerating global climate change.

How? While burning natural gas is cleaner than coal, leaks of methane – which is more than 20 times more threatening to our climate than carbon dioxide – are far more prevalent than previously realized.  And while fracking has been viewed as a godsend, giving rise to a revived U.S. petroleum industry, there is a growing movement to tighten regulations of the controversial shale gas extraction method due to water quality concerns.  If leakage rates into the atmosphere stick to about 3%, the net benefit of natural gas to the climate is a net positive.  Anything higher and the reverse is true; recent samplings suggest in Utah suggested leakage of 9%.  Even among utilities, there is growing concern about over reliance upon natural gas.

Japan Reverses Course

The challenges facing nuclear power mirror those of increasing renewable sources.  They include high up-front capital costs and reliance upon government subsidies. Once externalities are factored in, I believe wind power will be the ultimate winner among carbon free power sources. Evidence supporting this prediction comes from markets such as Australia, where wind power is now cheaper than natural gas or coal, thanks to a recently imposed carbon tax.

Despite the gloom and doom facing the nuclear industry, a ray of hope has emerged for this purported solution to climate change in, of all places, Japan, site of the world’s greatest nuclear mishap.  Almost 2 years after the triple meltdown at Fukushima Daiichi power plant, Japan‘s government is reversing course.  Japan appeared to have ended its heavy commitment to nuclear power when the previous center-left government pledged last year to phase out all of the country’s 50 working reactors by 2040.  The return to office of the conservative government under Shinzo Abe is giving the nuclear industry a second chance.

A new report commissioned by clean-energy VC firm Claremont Creek Ventures gives a hopeful version of the future of energy in the United States.  The U.S. can achieve full energy independence by 2025, the report (carried out by graduate students at the University of Michigan’s Erb Institute for Global Sustainable Enterprise) claims.

“With the right mix of technology, smart policy, and the collective intelligence of talented people – the same principles that got the United States to the moon in the 1960s – we can secure our energy future,” said Nat Goldhaber, managing director of Claremont Creek Ventures.

Getting to the moon was probably cheaper.  As shown in the chart below, this blessed state would be achieved mostly by replacing crude oil imports with natural gas, Canadian supplies of “tight” oil (i.e., shale oil), and the replacement of 10% of the internal combustion engine vehicles on the road today with electric vehicles.

(Source: Claremont Creek Ventures)

That last projection is most unlikely, according to the latest Pike Research report on Plug-in Electric Vehicles.  By 2020, we forecast, sales of all electric vehicles, including hybrids, plug-in hybrids, and battery electric vehicles, will be just over 400,000, or 2% of total light duty vehicle sales.  It will likely take another decade or more for EVs to reach 10% penetration.

As for replacing nearly 5 quads (a “quad” is a unit of energy equal to a quadrillion BTU) worth of crude products with Canadian shale oil, that brushes aside a barrel full of questions around politics and sustainability.  The real question here, though is: Do we really want to be energy independent?

Typically the term “energy independence” is used to mean “totally self-reliant for all domestic consumption of energy; free of imports.”  In both economic and sustainability terms, that is not the ideal state.  What America needs is not energy independence but energy diversity and security.

In purely economic terms, islanding ourselves from the global energy markets would mean we would almost certainly pay more for energy – the price of natural gas is artificially low in this country right now not only because we have abundant new domestic supplies of shale gas, but also because of the price difference between natural gas from fields in Gulf Coast and Rocky Mountain states, and gas from Europe.  Unlike the market for crude oil, the natural gas market is not fully globalized yet, mostly because of the difficulty and expense of compressing or liquefying NG for transport.  This state of affairs is temporary, and that’s a good thing: rational, transparent market structures benefit everyone in the long term, and being the low-cost source of energy is not a recipe for long-term prosperity.  As for crude oil, the price – in political capital, in dollars, in environmental sustainability, and in the opportunity cost of not developing alternative resources – of importing oil from low-cost overseas producers is likely to remain lower than the true price of extracting dirty shale oil and shipping it by pipeline south to Oklahoma and the Gulf Coast.

When people say “energy independence,” what they often mean is “stopping imports from the Persian Gulf.”  It’s important to remember that, as the graph below shows, imports from Saudi Arabia, at about 1.2 million barrels a day (mbbl/d), accounted for less than 14% of U.S. crude oil imports in 2011.  The other top five importers to the United States are Canada (at 2.2 mbbl/d, by far our largest source of crude), Mexico, Venezuela, and Nigeria.

(Source: EIA)

There are reasons of morality, economics, and statecraft to reduce imports from all of those countries, with the possible exception of Canada.  But, speaking plainly, we will pay a financial price for doing so.  And so far, neither politicians nor the American public have shown a willingness to pay that price.

“Even though it may feel good to say that we’re on track to be a net exporter of energy, it has not had the benefits we were promised,” wrote Andrew Holland, a senior fellow at the nonpartisan American Security Project, earlier this year on the release of the Project’s annual white paper, “America’s Energy Choices.” “Our consumers are still stuck paying the global price for oil – set by the whims of speculators and the most recent threat of war in Iran. Our energy supply is still insecure, economically unstable, and environmentallyunsustainable.”

All of those qualities – security, economic stability, and sustainability – are way more important than mere “energy independence.”