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U.S. Shale Gas May Erode 'Bridge' to Low Emissions Future

Unconventional shale gas in the United States has proved to be a boon to the domestic economy, but if it's only a "bridge" to a low carbon future, efforts have to be stepped up to "prepare a landing at the other end" -- and that won't be easy, energy economists said in a new report.

In a report published by Massachusetts Institute of Technology (MIT) Joint Program on the Science and Policy of Global Change, economists Henry D. Jacoby, Francis M. O'Sullivan and Sergey Paltsev examined questions that have been raised about the economics of domestic shale resources and the "wisdom of basing future environmental policies" on projected estimates of large shale gas supplies. Models created by the trio suggest that some "concerns are overstated...The shale gas is shown both to benefit the national economy and to ease the task of emissions control."

However, treating shale gas merely as a "bridge" to a low carbon future implies that there will be technologies to "complete the task," they noted.

MIT researchers have collaborated on previous studies that examine shale gas potential (see Shale Daily, June 13, 2011).

In basing the U.S. energy outlook on current shale gas resource expectations, policymakers need to keep a "careful eye on uncertainties in the future of the gas sector in the U.S. and worldwide," said the economists. "First of all, shale gas exploitation is at an early stage, yielding substantial uncertainty regarding future supply conditions, as there is in all the categories of domestic gas supply, including public willingness to accept its environmental side effects," such as those noted in the initial report on hydraulic fracturing issued last summer by the Secretary of Energy Advisory Board Natural Gas Subcommittee by the Shale Gas Subcommittee (see Shale Daily, Aug. 17, 2011).

The potential evolution of the international liquefied natural gas (LNG) market "toward more interregional gas competition, loosening price contracts based on oil as are common in Europe and Asia" also is relevant to U.S. policy, said the researchers. The MIT study issued last year explored that topic, with a global prices differentiated only by transportation cost.

"In such a case the U.S. would, as U.S. gas prices rise, again import LNG originating in still lower-cost sources abroad," said the economists. "Movement in this direction will depend on market forces, supply decisions by major resource holders in the Middle East and Russia, and U.S. policies about import dependence. But even in the face of such a change over decades the influence of the U.S. shale gas would be the same: lowering national gas prices and stimulating the economy and energy demand and facilitating the path to emissions reduction."

North America isn't the only place where big shale resources exist but the "economic potential" for resources overseas "is yet very poorly understood. If, however, preliminary resource estimates prove correct and supplies follow a path like that in the U.S., there will be dramatic implications for global gas use, trade and price, as well as for the geopolitics of energy."

The domestic shale gas bonanza "has important implications for the direction and intensity of national efforts to develop and deploy low-emission technologies," such as carbon capture sequestration (CCS) for coal and gas, noted the economists.

However, "with nothing more than regulatory policies of the type and stringency simulated here there is no market for these technologies, and the shale gas reduces interest even further." More stringent greenhouse gas emissions targets would require CCS and other technologies, "but the shale gas delays their market role by up to two decades. Thus in the shale boom there is the risk of stunting these programs altogether.

"While taking advantage of this gift in the short run, treating gas as a 'bridge' to a low-carbon future, it is crucial not to allow the greater ease of the near-term task to erode efforts to prepare a landing at the other end of the bridge."

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