This is the final part of a three part series. Part 1 can be found here and part 2 here.
Last decade there was a huge push by the coal lobby to legitimise carbon capture and storage technology. The idea sold to the public was that by deploying this technology to capture carbon dioxide emissions at large point sources (e.g. power stations) we could burn cheap, available coal and not contribute to global warming.
Having our cake and eating it too meant we didn’t have to do anything about the energy mix in Australia, since the main issue with generating 80 per cent of our power with coal, the GHG emissions, was going to be fixed by CCS.
Unfortunately, CCS turned out to be a waste of time-from an environmental perspective. From the coal sector’s perspective, it bought a few more years of policy inertia which were very profitable.
CCS may be useful 10-20 years in the future (when the technology is viable) for industrial applications (e.g. cement production, aluminium smelting), however it is very expensive to retrofit to existing power plants, and raises operating costs by around 30 per cent, largely eroding coal’s major competitive advantage – its low price.
What has this got to do with the CSG industry in Australia, and unconventional gas more generally?
A major selling point for gas burning power stations is that they typically produce half the carbon dioxide per unit of energy as compared to coal. Even better, according to the US EPA, they produce negligible levels of particulate pollution, nitrogen oxides, sulfur dioxides and mercury compounds, all of which are present in much larger quantities when burning coal.
So as a bridge from dirty coal to green renewables, natural gas (methane) is the logical choice. And since we have lots of it, we can help the world lower GHG emissions, and build a nice export sector in the process. Winning...right?
Wrong. A growing body of evidence shows that lifecycle unconventional gas GHG emissions aren’t that much better than coal – and in many scenarios worse. How can this be? Will CSG, like CCS, prove to be a false hope for GHG reduction plans?
Roughly speaking, unconventional gas needs around 10 times as many wells drilled for an equivalent amount of gas production over time, compared to conventional reservoirs. The obvious effect of this is far more diesel being used to power rigs, pumps and generators. But the real is issue lies in methane escaping into the atmosphere. Not all methane is captured, transported and burnt. Some, and estimates vary between 1-8 per cent of production levels, escapes.
This matters because methane is a very potent GHG: it is 25 times stronger than carbon dioxide over a 100-year time horizon and 72 times stronger over a 20-year horizon. Modelling by the IEA shows that if 3 per cent of overall (conventional and unconventional) production escapes, gas loses its green edge over coal. Focussing on unconventional gas separately, studies show unconventional gas, with more wells and more pipelines, emits 30-50 per cent more fugitive methane than conventional gas production.
Critics say that methane's warming potential is mitigated because it leaves the atmosphere much faster than carbon dioxide. However, since most warming projections focus on limiting GHG increases to 450ppm of carbon dioxide equivalent by 2050, and the IEA predicts unconventional production will rise from 10 per cent (2010) to 65 per cent (2035) of Australian gas produced, the relevant time frame is 20 years.
In sum, conclusions we can draw about the carbon friendliness of gas are that conventional gas production emits similar or slightly lower amounts of greenhouse gas than coal, and that unconventional gas probably has a worse GHG footprint that coal. In the mainstream media gas is touted as being 50 per cent cleaner than coal for energy production. This is definitely not the case.
CSG is not inherently bad or good. It has some huge advantages over coal, particularly regarding local air quality and flexibility as an energy source. It is an entrenched industry and will continue to provide jobs and export dollars for a long time. However at some point fugitive methane will become a problem for the sector as carbon pricing progresses globally, and more attention is paid to fugitive emissions.
China, various states in the US, India, Europe plus many other countries and jurisdictions have, in some form, put a price on activities which are GHG intensive. Over time such measures will become more effective at targeting big GHG emitters, more entrenched, and more accepted by the public and business. To disagree implies we are heading to a world with lower pollution controls – an absurd idea.
This could be a problem for our CSG industry in the medium-term. There is a double threat of better targeted and higher GHG taxes, combined with more detailed information on lifecycle methane emissions from unconventional production. When this happens, producers will need to clean up fugitive emissions or somebody in the gas supply chain will pay much higher punitive taxes than they currently budget for.
Either way, the cost of gas will go up sharply and renewable forms of energy will be relatively more attractive. Meanwhile, renewable energy continues to get cheaper. At some point the cost curves intersect. There are many variables here but the message is that methane emissions need to be seriously looked into.
If GHG accounting standards change to incorporate fugitive methane, this will completely change the calculus of coal versus gas, and gas versus renewables. This will have a very disruptive impact on the power sector as they try to pick generating infrastructure for the next 40 years.
For now these are small issues, but in the medium-term, growth in gas sales to developed markets (like Japan) could stall because the economics just don't work. Optimists point to surging demand from China and elsewhere. Pulling other way will be increasing environmental taxes, more focus on methane, cheaper alternatives and, if Australia and the US are any guide, lower than expected demand for energy.
The only true ‘low GHG’ energy comes from renewables. This means political risk will continue to grow for Australia's CSG industry because of an increased focus on fugitive methane, and this is on top of the usual raft of environmental concerns about our newest boom sector.
Tim Butler holds a masters in international relations and international law, specialising in energy markets. He is currently working for a drilling contractor in the Surat Basin, developing Queensland's CSG fields.
