Navigant Research Blog

Should We Worry About Carbon Dioxide Emissions From Natural Gas Surpassing Coal?

— September 13, 2016

Smoke StacksAccording to the US Energy Information Administration, in 2016, CO2 emissions from natural gas are expected to surpass coal emissions in the United States for the first time since 1972. As CO2 emissions from natural gas increase due to growing natural gas consumption in the energy sector, major concerns have developed among environmental groups and others about natural gas becoming a threat to climate change. However, to generate the same amount of power, natural gas emits only 55% of the CO2 compared to coal. As natural gas displaces coal, CO2 emissions that could have come from coal will be cut by half. As long as the growth of natural gas is at the expense of coal consumption, it will help the fight against climate change.

It would be ideal if both natural gas and coal could be replaced with renewable energy such as solar and wind. However, when the sun doesn’t shine and wind doesn’t blow, electricity still needs to be generated. Even with cutting edge technology on energy storage, demand-side management, and energy efficiency, the need for stable electricity generation from reliable sources cannot be fully eliminated. Natural gas is by far the best option for such a reliable source due to its affordability and abundance in the United States. Besides the benefit of fewer  emissions, the price of natural gas is also competitive with coal. The United States is also the largest natural gas producer in the world thanks to the boom of shale gas. In general, as more renewable generation capacity will be added than fossil fuel capacity this year (and likely in the next few years), natural gas is essential as a backstop for grid operators to address the intermittency of renewable energy.

The Problem of Methane Leakage

Nevertheless, natural gas is not perfect. The methane leakage problem could seriously undermine the climate benefit of natural gas. At the same time, the US Environmental Protection Agency is making crucial progress in setting regulations on restricting methane leakage. With proper regulatory incentives and continuing technology improvement, the effects of methane leakage can be contained to make natural gas a viable complement to a lower carbon future.

 

Is Natural Gas a Key Solution to China’s Air Pollution Problem?

— January 12, 2016

The recent air quality Red Alert issued by Beijing on December 8, 2015 has again drawn everyone’s attention to China’s notorious air pollution caused mainly by burning coal. As a cleaner alternative to coal, natural gas has become a focus of China’s energy reform. In 2014, the Chinese State Council  announced an ambitious target of increasing natural gas consumption from around 6% to above 10% of the total energy mix by 2020. Despite China’s determination, the road to a natural gas boom will likely be bumpy due to the risk of timely supply development and the challenge of forming a competitive market.

Supply Development

To support the projected growth of natural gas consumption, China is counting on its unconventional shale gas resource. China has the largest shale gas resource in the world (almost twice the size of shale resources in the United States), but development has been slower than expected. By the end of 2015, the production capacity of Fuling shale gas—the only shale gas field under commercial development in China—had just reached 0.48 bcf/d (billion cubic feet per day), less than 3% of the country’s total natural gas consumption. China also lowered its 2020 shale production target by half to 2.9 bcf/d. Even with a lower target, to increase the shale gas production sixfold in 5 years will require tremendous investment and innovation that will need to equal or exceed the shale gas revolution in the United States. Whether shale gas will become the main driver for natural gas consumption in China is still uncertain.

In addition to domestic production, China also needs natural gas imports through pipelines and liquefied natural gas (LNG). China currently operates two pipelines that import natural gas from Central Asia and Myanmar. The China-Myanmar gas pipeline has been severely underutilized since it began operation in 2013. The Central Asia Gas pipeline has also experienced frequent winter supply disruptions. Although a new pipeline from Russia will increase the import capacity, the lack of stable pipeline import will likely persist due to the geopolitical uncertainty. On the LNG side, since the regional LNG price is currently linked to oil prices, high price volatility will be a constant challenge to Chinese buyers. The current low LNG prices also pose challenges for LNG suppliers looking at serving the Chinese market. In general, cost and supply reliability are the two major factors that serve to place a cap on future levels of natural gas imports in China.

Chinese Market Development

The lack of a competitive market is perhaps the biggest challenge to China’s natural gas industry. Unlike in the United States, where natural gas prices are determined by the market, Chinese natural gas prices are determined by the national government. Since the natural gas prices do not promptly reflect market dynamics, natural gas sellers often have to operate at a loss while natural gas consumers sometimes prefer cheaper alternative fuels. In addition, China also needs a robust natural gas transportation system that can distribute natural gas in a timely and efficient way across its vast area. Currently due to the limited access to pipeline gas and lack of storage facilities, gas shortages are common. The recent gas supply crisis in Beijing highlights the vulnerability of the natural gas system. Whether China can boost gas consumption will depend on infrastructure development and market maturation.

2015 marked China’s slowest growth rate of natural gas demand in more than a decade, casting further questions on the prospect of achieving the country’s national target by 2020. Unless immediate actions are taken to address the challenges on both the supply and demand side of the Chinese market, the role of natural gas to fight air pollution might yet prove some ways off in the future.

 

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