The shale revolution: Environment and trade implications | International Centre for Trade and Sustainable Development

Leaky methane

Although shale gas supporters tout the climate change mitigation potential of an increased consumption of shale gas – due to lower greenhouse gas (GHG) emissions than those from coal consumption – serious questions do remain about emissions related to exploration, extraction, and transport. During these three processes there can be significant emissions of methane, a GHG long-known to be much more potent than carbon dioxide. As of early February 2014, the range of estimated methane leakage rates in the US was from less than 1 percent to as much as 19 percent.

Important studies by large teams of experts with diverse backgrounds reported in papers such as Miller et al. [Ref 1] have found that US Environmental Protection Agency estimates of national methane fugitive emissions are too low. A study by Allen et al. [Ref 2]and in a series of ongoing studies sponsored by the Environmental Defense Fund and nine energy companies, methane emissions rates were measured directly at more than 500 wells nationwide. Because the nine energy firms participating in the study were voluntary funders, the study was not based on a randomly selected, representative sample of firms. Nevertheless, based on the results from the wells that were studied, plus estimates for other wells not in the study, the total national methane fugitive emissions rate for natural gas was estimated to be 0.42 per cent, slightly less than the previous US Environmental Protection Agency (EPA) estimate of 0.47 percent. However, for certain stages of shale gas production, in particular, the results for well completions were lower than previous EPA estimates, but higher than EPA estimates for valves and equipment leaks. Although this study added significant new data to the discussions, clearly many more studies will be needed before there is a consensus on the methane leakage rates from the shale gas segment of the industry and from the industry as a whole, and other studies are in progress.

Shaking up the energy mix

Over the longer term, a key issue is whether cheap, abundant shale gas will undermine investment in renewable energy sources. Already in the US, with the significant decrease in the price of natural gas and a consequent decline in electricity prices produced in natural gas-fired power plants, the competitive position of wind, solar, and other renewable energy sources has been weakened. The future shares of those technologies in the energy mix are thus also undermined. In some scenarios, therefore, while the substitution of shale gas for coal to produce electricity may yield a net reduction in GHG emissions in the short run, the increasing share of shale gas and concomitant smaller share of renewables may yield a net increase in emissions by deferring deployment of low-carbon energy sources. Yet, cheap natural gas may also indirectly support investment in renewables by lowering the overall price of electricity and thus reducing opposition to renewable subsidy costs. [Ref 3]

When it comes to shale gas’ effect on coal use, thus far in the US, there has been a significant decline in coal consumption for electricity power plants. At the same time, domestic consumption and production of coal have also declined, while coal exports have substantially increased in recent years. For example, 2012 was a record-setting coal exporting year looking at the last half century since 1950, and during the first half of 2013, exports were at about the same level as in the first half of 2012. The implications for climate change, of course, is that declining domestic US coal consumption and thus falling carbon dioxide emissions are at least partially offset by increasing consumption of exported coal and thus higher carbon dioxide emissions outside the US.

Trade implications

When discussing shale gas trade and international price differences, it is also important to understand the differences in the cost of production. Because shale gas production on a commercial basis has thus far occurred only in the US, it is not yet possible to make international comparisons on the basis of actual production data. Even if shale gas deposits in other countries turn out to be as great as or even greater than current estimates, it will be as much as a decade or more before the entire gamut of facilities and skills will make many countries’ shale gas internationally competitive with the US. This is likely to be true even after taking into account changes in exchange rates and their relationship to cross-national differences in inflation rates, together with international transportation costs. Given these conclusions, there are reasons to think that the US will continue to be a low-cost supplier for many years and, therefore, that some industries will experience significant shifts in international patterns of competitiveness.

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