How the natural gas craze will impact renewable energy

A morning chunk of last week’s Wall Street Journal ECO:nomics Conference at the beachside Bacara Resort in Santa Barbara focused on a decidedly less picturesque topic — hydraulic fracking and natural gas.

The conference organizers describe ECO:nomics as a meeting to discuss “profitability, innovation and smarter uses of energy,” and one can’t discuss these areas without acknowledging that a leading vision for a natural gas economy is emerging from major investors like billionaire T. Boone Pickens and top energy CEOs like Chesapeake Energy CEO Aubrey McClendon, both of whom were panelists.

The natural gas vision

That vision goes something like this: While there have been countless revisions to estimates of how much natural gas exists in the U.S., thanks to the massive discovery at the Marcellus shale, it’s a lot more than expected. So much so that folks in the oil and gas industry often refer to the discovery of natural gas in Pennsylvania combined with much better drilling technology that allows explorers to find the source of gas and oil (not just where it’s leaking to the surface) as a black swan event. The Energy Department thinks we have so much that by 2016 the U.S. could become net exporters of liquefied natural gas, with a capacity of over a billion cubic feet day.

These figures approach or begin to exceed the energy equivalent of oil reserves that the Saudis have. Moreover, natural gas is cheap, around 15 percent of the current price of oil. In 1970, 24 percent of oil was imported. Today that number is 60 percent. It’s time to reduce foreign oil dependence and stick it to OPEC.

In fact that last sentence is no exaggeration. In a moment of candor, McClendon said he looks forward to the day he can say “to hell with OPEC.” There’s a patriotic sell to all these arguments, which I confess, I find appealing. I’ve always believed that energy independence is critical to national security. I’d just rather that we start looking to renewable resources, not finite ones like natural gas, and ones that don’t contribute to climate change.

Climate change, what climate change?

What I admire about The Wall Street Journal is that there’s a healthy dose of market realism in all of its dialogue and reporting about cleantech and the energy sector. But in the almost two hours of conversation last Thursday on the merits of moving to a natural gas economy, no one blinked an eye and asked, “What will the impact of a significant move to natural gas be on climate change? Moreover, if we factor the economic consequences of climate change in, what is the true cost of natural gas?”

But all was not lost. Carter Bales, who founded environmentally focused private equity firm NewWorld Capital and who has authored a number of analyses on climate change for McKinsey and Foreign Affairs, stood up and pointed out that  “what we have today is low cost energy [natural gas]….which is good. As a consequence renewables are not likely to develop when energy gets as cheap as you’re making it.” And referencing the accumulation of greenhouse gases, he added, “natural gas is half the carbon of coal. When we are burning natural gas, we are cooking ourselves a bit more slowly, but we’re clearly cooking ourselves.”

And that’s where the rub is. Natural gas is often described as a bridge fuel to get us through the transition from fossil fuels to renewables. But it’s clear that for guys like McClendon and Pickens, it’s not a bridge fuel, it’s an abundant natural resource found on every continent that they hope will dominate the 21st century, as much as oil dominated the 20th century.

The impact on renewables

A likely side effect will be that investment in renewables suffers because there won’t be price pressure, like $4 gas ($8 in Europe), contributing to the drive to develop solar, wind, nuclear and biofuels. Given the rapid growth of fossil fuel consumption in India and China, moving to natural gas may not even cook us “slowly” as Bales puts it, but at the same rate or faster since cheap supply will stoke demand.

President Obama endorsed natural gas in the state of the union, a move that former Democratic Governor Ed Rendell of Pennsylvania, who joined Pickens on the panel, described as “an incomparable victory for the [natural gas] industry.” It’s clear that the natural gas charge is happening (Rendell conveyed that in 2007 drillers applied for 71 permits in Pennsylvania. In 2010 that number was 3316).

So I have one request, one that Bales was alluding to. If the U.S. is going to bet the ranch on natural gas, a fuel that research papers show has similar characteristics to coal in terms of its impact on global warming, then the U.S. should make a similarly big bet on financing renewable energy. Because, otherwise, we’re just kicking the can down the road while we continue to cook ourselves. And however fast we cook ourselves, we’re still cooking.

Question of the week

How do you think natural gas exploration will impact investment in renewable energy?
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Adam Lesser

Cleantech Curator Gigaom Research

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