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Implications of Shale GasDevelopment for Climate Change

Richard G. Newell Director, Duke University Energy Initiative and Gendell Professor of Energy and Environmental Economics,

Nicholas School of the Environment, Duke University

Workshop on Risks of Unconventional Shale Gas Development, National Academy of Sciences May 31, 2013 | Washington, D.C.


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Context

Richard Newell, NAS Shale Gas Workshop, May31, 2013 2

This presentation is part of larger workshop on the risks ofshale gas development, covering issues relating to water, air,

health, ecology, community, climate, and other impacts. This presentation focuses only on the greenhouse gas

impacts of shale gas development.

Comprehensive analysis should consider the array of risksrelative to other energy sources, as well as the benefits ofshale gas development.


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What questions are at play?


Greenhouse gas (GHG) accounting Aggregate level. What are the total lifecycle GHG emissions of natural gas

use, including both combustion and upstream non-combustion emissions?

Sectoral technology level. What are the relative GHG impacts oftechnologies that use natural gas for electricity generation, transportation, andbuildings, compared to competing technologies?

Decisions by producers, policymakers, equipment

manufacturers, and corporate and individual purchasers Which technologies are advantageous to promote/develop/market/purchase

taking into account GHG impacts?

What issues need to be addressed to improve the GHG profile of technologiesbased on natural gas?

How does natural gas abundance change the baseline outlook for GHGemissions and domestic and international policy responses?


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Overview


U.S. natural gas use and shale gas development

Understanding the potential implications of increased natural

gas use on the climate Aggregate effects on U.S. energy and economy

Non-combustion GHG emissions from natural gas

Sectoral impacts: electricity, residential and commercialbuildings, transportation, and industry

International implications

Policy interactions and implications


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Relevant existing evidence


Baseline statistics Emissions accounting (EPA, industry, academia, NGOs)

Energy data (U.S. Energy Information Administration (EIA), industry)

Technology lifecycle analysis Various studies (source list at close of presentation)

Energy modeling projections EIA Annual Energy Outlook 2013

Reference case: current policies High oil and gas resource case (note also increases oil) Low oil and gas resource case (note also decreases oil)

International Energy Agency World Energy Outlook 2011 and 2012 New Policies case Golden Age of Gas case

Other modeling studies


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U.S. natural gas use and shale gasdevelopment



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7

Image source: U.S. Energy Information Administration, Annual Energy Review 2012.

Richard Newell, NAS Shale Gas Workshop, May31, 2013

trillion cubic feet in 2011

U.S. natural gas production, distribution, and use


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Natural gas was about 26% of total CO 2 and

CH 4 emissions from U.S. fossil energy in 2011

8

Data source: U.S. EPA Greenhouse Gas Inventory 2013.


US GDP

Energy8%

CH4 4%

Oil CO239%

Coal CO 233%

Natural gas CO 224%

2011 fossil energyCO 2 and CH 4

emissions5,553 Tg CO 2e

Natural gasCO 2 and CH 4

1,469 Tg CO 2e(26%)


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Shale gas is a globally distributed and abundant

resource

9

Image source: U.S. Energy Information Administration.



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North America has thus far been the focus

for shale gas production

Image source: U.S. Energy Information Administration.

10Richard Newell, NAS Shale Gas Workshop, May31, 2013


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0

5

10

15

20

25

30

35

1990 1995 2000 2005 2010 2015 2020 2025 2030 2035 2040

Alaska 1%

U.S. shale gas production has surged and is

expected to growth further U.S. natural gas productiontrillion cubic feet per year

Data source: U.S. Energy Information Administration, Annual Energy Outlook 2013, Reference case.

Non-associated offshore

EIA Projection

Associated with oilCoalbed methane

Non-associated onshore

Shale gas

2012

10%5%

7% 6%

16%

34%

7%

6%

6%

50%

4%

Tight gas24% 22%


History


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Current and projected U.S. natural gas prices have

declined Henry Hub spot price2010 dollars per million Btu

Data source: U.S. Energy Information Administration, Annual Energy Outlook 2008 and 2013, Reference case.


0

1

2

3

45

6

7

8

9

10

1990 1995 2000 2005 2010 2015 2020 2025 2030 2035 2040

2008 EIA projection

2013 EIA projection

Historical prices


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Understanding the potentialimplications of increased natural gasuse on the climate



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Natural gas abundance has both direct and

indirect effects on GHG emissions and climate


Increasednatural gasresources

andproduction

Lowernatural gas

prices

Lower overallenergy prices

Netclimateimpact( +/- ?)

Decreasedrenewables & nuclear

consumption (-)

Decreased oilconsumption (-)

Increased natural gasconsumption (+)

Fuelsubstitution

Increased

overall energyconsumption(+)

Policy

Decreased coalconsumption (-) CO 2

CH4


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Aggregate effects on U.S. energyeconomy



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Natural gas is an important energy source, but is only

13% of all U.S. energy expenditures and 1% of GDP

16

Data source: U.S. Energy Information Administration Annual Energy Review 2012.


US GDP

Energy8%

Natural gas 1%

2010 US GDP $15 Trillion

Energyexpenditures $1.2 Trillion

Natural gasexpenditures $159 Billion


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Effects related to fuel substitution are likely to

dominate effects on aggregate energy demand


Aggregate energy demand is driven primarily by Population growth

Overall economic growth and stage of economic development Composition of GDP (e.g., share of services, manufacturing)

Price changes have much bigger effects on fuel substitutionthan overall energy demand

Economists summarize this responsiveness through demand elasticitiesmeasuring the % increase in consumption with respect to a % decrease in price

EIA modeling, e.g., which embodies numerous such relationships has:

very low elasticity of aggregate energy demand with respect to natural gasprice changes (


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Greater U.S. shale gas leads to lower gas prices,

more energy use, slightly higher GDP, and slightlylower GHG emissions in EIA projections


Scenario(for 2040)

Natural gasprice

$2011 at Henry Hub

Total energyuse

Quadrillion Btu

GDPTril lion $2005

Cumulativeemissions2010-2040*

billion tonnes CO 2e

Reference 7.83$/mmBtu

108 $27.3 179

Percent difference relative to Reference case

High oil/gasresource -45% +3% +1% -0.4%

Low oil/gasresource +32% -1% -0.1% -0.8%

Data source: U.S. Energy Information Administration, 2013 Annual Energy Outlook.Notes: *CO 2e emissions computed by augmenting EIA CO 2 emission estimates for coal, oil, and natural gas by3.3%,1.5%, and 12.7% respectively to account for non-combustion CO 2 and CH 4 emissions, based on EPAGreenhouse Gas Inventory 2013.


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Non-combustion GHG emissions fromnatural gas



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0

20

40

60

80100

120

140

160

180

200

1990 2005 2007 2008 2009 2010 2011

Non-combustion emissions from natural gas are

variable, but have fallen in the past several years

21

Data source: U.S. EPA Greenhouse Gas Inventory 2013.


million tonnes CO 2e

Field processing

Processing

Transmission/storage

Distribution

CH4

CH4

CH4

CH4

CO 2CO 2


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0

2

4

6

8

10

12

01

2

3

4

5

6

7

8

9

10

1990 2005 2007 2008 2009 2010 2011

Upstream non-combustion GHG emissions have

fallen per unit of natural gas production

22

Data source: U.S. EPA Greenhouse Gas Inventory 2013 and U.S. Energy Information Administration.


tonnes non-combustion CO 2e per million cubic feet of gross withdrawals

-11%

grams CO 2e per megajoule


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0

50

100

150

200

250

1990 1995 2000 2005 2006 2007 2008 2009 2010 2011

EPA estimates of methane emissions from natural

gas systems have changed over timemillion tonnes CO 2e per year

2010 inventory

2011 inventory 2012 inventory

2013 inventory+120%

-33%

Data source: EPA Greenhouse Gas Inventories 2010, 2011, 2012, and 2013.



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Electricity sector



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0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6conventional

unconventional

Most estimates have 40%-50% lower lifecycle GHG

emissions for electricity from natural gas than coal


life-cycle emissions for power generationratio of CO 2e emission estimates for electricity generation from natural gas relative to coal

Lower per kWh emissions than coal

Higher per kWh emissions than coal

Data source: Listed authors. Notes: 100-year global warming potential (GWP) used unless otherwise indicated. *Howarth doesnot account for differences in combustion efficiency of coal versus gas.

Skone et al(NETL 2011)

Fulton et al(2011)

Alvarez et al(2011)

Burnham et al(2011)

Howarth et al(2011)*

Howarth et al(20 Yr. GWP)*

CO 2

CO 2CH4

CH4


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0

500

1,000

1,500

2,000

Coal Natural gas Nuclear Renewables Petroleum liquids

+470 GWh

2005

2012

+138 GWh

-87 GWh

-12 GWh

-496 GWh

U.S. electric- sector CO 2 emissions have declined

16% since 2005 due to fuel switching


annual net generation, 2005 and 2012gigawatt hours Total net electricity generation

(all sources, gigawatt hours)

2005 4,055

2012 4,054

Data source: U.S. Energy Information Administration.


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Greater shale gas leads to lower prices, fuel switching to gas,

and lower electricity GHG emissions in EIA projections


Scenario

(for 2040)

Naturalgas prices

(deliveredfor elec.)

Averageelectricity

prices

Electricityconsumption

Natural gasconsumptionfor electricity

Coalconsumptionfor electrici ty

Nuclear andrenewables

consumption

Cumulativeelectricity

CO 2eemissions*

2010-2040


10.8/kWh

5,200GWh

1,600GWh

1,800GWh

1,800GWh

71billiontonnes

Percent and absolute difference relative to Reference case

High oiland gas -39% -14%

+4.2%(+200 GWh)

+49%(+800 GWh)

-21%(-400 GWh)

-9%(-200 GWh) -5%

Low oiland gas +26% +7%

-2.4%(-100 GWh)

-34%(-500 GWh)

+4%(+100 GWh)

+19%(+300 GWh) +0.2%

Data source: U.S. Energy Information Administration, 2013 Annual Energy Outlook. Notes: *CO 2e emissions computedby augmenting EIA CO 2 emission estimates for coal, oil, and natural gas by 3.3%,1.5%, and 12.7% respectively toaccount for non-combustion CO 2 and CH 4 emissions, based on EPA Greenhouse Gas Inventory 2013.


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Residential and commercial buildingssector



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Greater shale gas leads to lower prices, more energy use, and

lower GHG emissions in EIA residential and commercial projections


Scenario

(for 2040)

Naturalgas prices

(avg. res/comm price)

Electricityprices

(avg. res/comm price)

Aggregateres/comm

energy*consumption

Natural gasconsumptionfor res/comm

Electricity*consumptionfor res/comm

Cumulativeres/comm

CO 2eemissions**2010-2040


11.7/kWh

21.8QBtu

7.9QBtu

11.8QBtu

67billiontonnes

Percent and absolute difference relative to Reference case

High oiland gas -22% -13%

+5%(+1.1 QBtu)

+7%(+0.6 QBtu)

+4%(+0.5 QBtu) -3%

Low oil

and gas+18% +7% -3%

(-0.6 QBtu)

-4%

(-0.3 Qbtu)

-2%

(-0.2 QBtu)-0.2%

Data source: U.S. Energy Information Administration, 2013 Annual Energy Outlook. Notes: *Does not includeelectricity-related losses. **CO2e emissions computed by augmenting EIA CO 2 emission estimates for coal, oil, andnatural gas by 3.3%,1.5%, and 12.7% respectively to account for non-combustion CO 2 and CH 4 emissions, based onEPA Greenhouse Gas Inventory 2013.


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Transportation sector



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0.0

0.2

0.4

0.6

0.8

1.0

1.2

TIAX (2007 for CA) Alvarez et al (2012) AEA (for EU 2011) Burnham et al (2012) Venkatesh et al (2011)

Natural gas passenger vehicles reduce

emissions by 10%-30% relative to gasoline

33

Data source: Listed authors.


life cycle emissions for passenger vehiclesratio of CO 2e emission estimates for CNG relative to gasoline vehicles

Lower emissions per km than gasolineHigher emissions per km than gasoline

CO 2CH4


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0.0

0.2

0.4

0.6

0.8

1.0

1.2

Rose et al(2013)

TIAX (2007 for CA)

TIAX (2007 for CA)

Burnham et al(2012)

Alvarez et al(2012)*

Venkatesh et al(2011)

Climate benefits from natural-gas powered

heavy vehicles are less clear

34



life cycle emissions for transit busesratio of CO 2e emission estimates for natural gas buses relative to diesel

Lower emissions per km than dieselHigher emissions per km than diesel

*in heavy-duty trucks

LNG

CO 2CH4

CO 2

CNG

Up-stream


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Industrial sector



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Greater shale gas leads to more industrial energy use

and slightly higher GHG emissions in EIA projections


Scenario

(for 2040)

Industrialnatural gas

prices

Aggregateindustrialenergy*

consumption

Natural gasconsumptionby industry

Coalconsumptionby industry

Electricity*consumptionby industry

Cumulativeindustrial

CO 2eemissions**2010-2040


28.7QBtu

10.4QBtu

1.6QBtu

3.9QBtu

52billiontonnes

Percent and absolute difference relative to reference scenario

High oiland gas -39%

+7%(+2.1 QBtu)

+18%(+1.8 QBtu)

-3%(-0.05 QBtu)

+2%(+0.1 QBtu) +0.3%

Low oiland gas +28%

-4%(-1.1 QBtu)

-8%(-0.9 QBtu)

-5%(-0.1 QBtu)

-1%(-0.02 QBtu) -1.4%

Data source: U.S. Energy Information Administration, 2013 Annual Energy Outlook. Notes: *Does not includeelectricity-related losses. **CO 2e emissions computed by augmenting EIA CO 2 emission estimates for coal, oil, andnatural gas by 3.3%,1.5%, and 12.7% respectively to account for non-combustion CO 2 and CH 4 emissions, based onEPA Greenhouse Gas Inventory 2013.


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3,000

3,500

4,000

4,500

5,000

5,500

2010 2015 2020 2025 2030 2035

Projections for global natural gas use are rising

38

Data source: International Energy Agency 2011 and 2012 World Energy Outlook and 2011 Golden Age of Gas report.


primary global natural gas demandbillion cubic meters

2011 Golden Age of Gas scenario

2012 New Policies scenario

2011 New Policies scenario

3% lower CO 2 emissions

than 2011 New Policiesscenario in 2035


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Greater shale gas resources lead to lower U.S. coal production

and negligible effects on coal exports in EIA projections

40

Data source: U.S. Energy Information Administration 2013 Annual Energy Outlook.


U.S. coal production and gross exportsmillion short tons

0

200

400

600

800

1,000

1,200

2010 2015 2020 2025 2030 2035 2040

Reference case production

High oil/gas case production

Reference case exports

High oil/gas case exports

-159M tons

+14M tons

LNG tends to ha e higher GHGs than domestic


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0.0

0.2

0.4

0.6

0.8

1.0

1.2

Skone et al (2011 NETL) Venkatesh et al (2011) Jaramillo et al (2007)

NG LNG

LNG tends to have higher GHGs than domestic

natural gas for electricity, but still lower than coal

41



life cycle emissions for electricity generationratio of CO 2e emission estimates for electricity from natural gas relative to coal

Lower emissions per kWh than coal

Higher emissions per kWh than coal


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Policy interactions and implications


H d b d l i i h


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How does abundant natural gas interact with

and affect climate/energy policy?


Lower natural gas prices make the cost of some policies lowerand other policies higher

lowering the cost of options with relatively low GHG intensity will tend to makeachievement of climate goals less costly

e.g., in current baseline scenarios no new US coal power is built in part dueto low natural gas prices; as a result, regulations that would regulate newcoal plant GHG emissions have no apparent impact

e.g., under an emissions constraint, lower natural prices lower the cost ofmeeting emission targets and (by design) do not affect emissions (e.g., EIA AEO 2013, Jacoby et al. 2011, Brown and Krupnick 2010)

in the context of renewable energy standards, however, lower gas prices will tendto increase the incremental cost of maintaining those standards

With substantial long-term GHG reductions, natural gas wouldneed to incorporate carbon capture and storage at reasonablecost to continue as a competitive option


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Sources


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Sources


Jaramillo, P., Griffin, Michael W., Matthews, Scott H., 2007. Comparative life-cycle air emissions of coal, domestic natural gas, LNG,and SNG for electricity generation. Environmental Science and Technology 41, 6290-6296.

Lu, X., Salovaara, J., McElroy, M.B., 2012. Implications of the Recent Reductions in Natural Gas Prices for Emissions of CO2 fromthe US Power Sector. Environmental Science & Technology 46, 3014-3021.

National Energy Technology Laboratory, 2011. Life cycle greenhouse gas inventory of natural gas extraction, delivery, and electricityproduction. DOE/NETL-2011/1522.

Paltsev, S., Jacoby, H.D., Reilly, J.M., Ejaz, Q.J., Morris, J., OSullivan, F., Rausch, S., Winchester, N., Kragha, O., 2011. The futureof U.S. natural gas production, use, and trade. Energy Policy 39, 5309-5321.

Rose, L., Hussain, M., Ahmed, S., Malek, K., Costanzo, R., Kjeang, E., 2013. A comparative life cycle assessment of diesel andcompressed natural gas powered refuse collection vehicles in a Canadian city. Energy Policy 52, 453-461.

TIAX LLC, 2007. Full fuel cycle assessment: well-to-wheels energy inputs, emissions, and water impacts. Consultant report forCalifornia Energy Commission.

U.S. Energy Information Administration, 2011. World Shale Gas Resources: An Initial Assessment of 14 Regions Outside the UnitedStates.

U.S. Energy Information Administration, 2012. Annual Energy Review. DOE/EIA-0384(2011).U.S. Energy Information Administration, 2013. Annual Energy Outlook. DOE/EIA-0383ER(2013.)

U.S. Environmental Protection Agency, 2013. Inventory of U.S. Greenhouse Gas Emissions and Sinks: 1990-2011. Washington, D.C.EPA 430-R-13-001.

Venkatesh, A., Jaramillo, P., Griffin, W.M., Matthews, H.S., 2012. Implications of changing natural gas prices in the United Stateselectricity sector for SO2, NOx and life cycle GHG emissions. Environmental Research Letters 7.

Venkatesh, A., Jaramillo, P., Griffin, W.M., Matthews, H.S., 2011. Uncertainty in life cycle greenhouse gas emissions from UnitedStates natural gas end-uses and its effect on policy. Environmental Science and Technology 45, 8182-8189.

Weber, C.L., Clavin, C., 2012. Life Cycle Carbon Footprint of Shale Gas: Review of Evidence and Implications. EnvironmentalScience & Technology 46, 5688-5695.

World Coal Association, 2013. Coal Statistics. URL http://www.worldcoal.org/resources/coal-statistics/ .


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For more information


Duke University Energy Initiative

www.energy.duke.edu

[email protected]

919-613-1305

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