The natural gas lobby is fighting coal, whose lobbyists “continue to stress the economic advantages of the fossil fuel.” And the coal companies are trashing natural gas in advertisements as having “higher and more volatile prices” (click here).
But even as they lobby hard to prevent passage of comprehensive clean energy jobs and climate legislation, some oil and coal companies are making investments to prepare themselves for a coming clean energy, low carbon future. Purchasing natural gas, they think, may be the way out. Guest blogger, Sarah Collins, an intern with CAP’s Energy Opportunity team, has the story:
Several big energy companies, notably Exelon Corporation and Shell, have joined the United States Climate Action Partnership: “a group of businesses and leading environmental organizations that have come together to call on the federal government to quickly enact strong national legislation to require significant reductions of greenhouse gas emissions.” In February, BP America, a founding partner of the group, and ConocoPhillips left the group because pending climate legislation reduced incentives to switch over from coal to natural gas. E&E News reports:
Both BP and ConocoPhillips wrestled with how they fit in a group that is promoting itself as a solution to U.S. energy independence by using less oil for transportation fuel. “How does an oil company engage and contribute to reducing the use of oil?” Corneli said. “It’s a little bit of a challenge for an oil company.”
Underpinning the oil companies’ exodus, several sources said, is the growing dispute between coal and natural gas, the latter of which is seeing a sharp boost in production due to the use of hydraulic fracture drilling techniques in mid-Atlantic and Northeastern states. U.S. EPA models show that the House-passed climate bill would give large benefits to coal but would lead to flat demand for natural gas, a trend the oil and gas companies would like to see flipped.
On Monday, Consol Energy Inc., the fourth-largest coal producer in the U.S., announced its planned $3.48 billion purchase of natural gas resources from Dominion Resources Inc., making it the latest coal or oil company to make such an investment. The company hopes to close the deal by the end of April.
“Gas is a perfect hedge against draconian moves on coal in the short term,” Consol Chief Executive J. Brett Harvey admitted.
In December, Exxon Mobil Corp. agreed to pay about $30 billion for XTO Energy Inc., a big gas producer. France’s Total SA and Britain’s BP PLC both bought stakes in Texas gas fields earlier this year. On Monday, Petrohawk Energy Corp. said it had sold its interest in a Louisiana gas field for $320 million to an undisclosed buyer.
While this is partially due to the recently declining price of natural gas, which has encouraged coal and oil companies to burn this cheaper fuel instead, that is not the whole story. These companies are becoming increasingly aware of the very possible future of a low-carbon economy and are building up their cleaner energy resource stockpiles in response. This means that tougher standards on greenhouse gas emissions would be less likely to impact the bottom line. WSJ reports:
Consol’s move into natural gas comes even as the gas industry increasingly tries to play up its advantages over coal. Gas producers have argued that switching from to gas from coal to generate power could help reduce carbon-dioxide emissions. The coal industry has fought back, arguing that gas is prone to price spikes. But Mr. Harvey said such battles are short-sighted. “I think there’s a lot of wasted effort fighting with each other,” Mr. Harvey said.
Coal and oil companies are placing their bets on natural gas as the bridge fuel to a lower-carbon future. Horizontal drilling combined with hydraulic fracturing, a technique of extracting natural gas from deep shale sources previously considered unreachable, is also on the rise, making natural gas more readily accessible and available on the market. Natural gas currently is responsible for only about a quarter of electricity generation in the U.S., but this may soon change.
Demand for U.S. gas shale is on the rise on the global market as well, most markedly noted by India’s Reliance Industries, which hopes to partner with Atlas Energy, an independent oil and gas company, to develop the Marcellus shale, which spans from eastern Tennessee to upstate New York. Reuters reports:
U.S. shale looks even more precious as so many other countries lock up their domestic energy reserves. Further, because shale wells typically produce several times more gas than conventional ones, the cost of production falls. Add to the mix that gas shale generates half the carbon emissions of coal. That provides a hedge against tougher climate change rules for the likes of U.S. coal producer Consol.
The demand has driven up prices. The average cost of an acre in the Marcellus shale, for example, doubled in 2009 to $4,000, according to research firm IHS Herold. Mitsui & Co acquired Anadarko’s drilling expertise as part of its deal there, but also stumped up $14,000 per acre. The inflation has come despite the fact that gas prices are still less than half their 2008 peak. Before the economic recovery revives them, globetrotting U.S. oil majors would be well advised to book their tickets home.
Change already appears underway. In 2007, coal generated 49 percent of U.S. electricity, and dipped to 48 percent in 2008. In 2009, coal produced only 45 percent of electricity – a nine percent drop in two years. Meanwhile, generation by natural gas and renewable (broadly defined) increased by 1 percent each from 2007-09, which is a one-third increase for renewables.
According to a Pew poll released Monday, the public overwhelmingly supports a transition to a clean-energy economy, with 52-35 in favor. Big oil and coal, the major contributors to greenhouse gas emissions, know that they will have to clean up their act in the future, so are fastening their seatbelts now. If only they would stop spending millions of dollars to defeat clean energy legislation, which would delay the inevitable clean energy future that they are preparing to meet.
- Game Changer, Part 1: There appears to be a lot more natural gas than previously thought
- Game changer, Part 8: ExxonMobil’s $41 billion XTO deal — A big bet on unconventional natural gas AND on climate change