Natural gas is an interesting industry from a climate perspective. It emits, but less than either coal or oil. It has been seen by some as a bridge fuel on the road to renewable energy. In the short term, I think it benefits from emissions controls. In the long term, it suffers - but my guess (and it's a pretty off the cuff guess) is that the long term here is at least 10-20 years.
It's also been in the news a lot. On the one hand, the US has seen recent large growth in available reserves: there's a lot of gas to be had in the US. This means it's selling for incredibly cheap prices at the moment. On the other hand, there's record demand in the UK. The problem here is that natural gas can't be conveniently shipped around the way oil can. So you pretty much have to build a direct pipeline (not very practical from the US to Europe, but this is how Russia gets its gas to the European market) or liquify it and ship it in tanks. The latter option requires special facilities, and to date not a lot of those have been built, although plans are in the works for more as the tension between isolated supply and isolated demand grows. Result: markets for gas are isolated right now. Some specifics:
1) The EU relies heavily on Russia. The three largest holders of gas reserves have historically been Russia, Iran, and Qatar. Geographically, they could all conceivably be linked to the EU by pipelines, but in practice, only Russia has. Iran is too unstable. Qatar is probably stable enough, but is hemmed in by problem states: Iran, Iraq, Syria.
2) Russia also relies heavily on the EU. Once you sink billions into building fixed pipelines to your primary market, you have some serious incentives to play nice (although Russia has still pulled a few stunts.) However, my impression is that Russia would find it somewhat easier to diversify than the EU; it's got a huge potential market - China - on its other border. There have been Russia-China pipeline projects planned in the past, and I haven't fully followed up on them, but they seem to have run into problems and stalled out a lot. I'm not entirely sure why this is, honestly; it seems like a very logical move.
3) Gas is probably a weaker lobby than it could be in the US. If it could export effectively, that would give it markets in Europe and China, as well as strengthening prices domestically. Overall, it'd become a more important and more prominent industry. That could be good for building an emissions reduction coalition - in part because a lot of US natural gas is dealt with by US oil companies. So theoretically this could blunt their commitment to opposing emissions controls. This I'm very unsure about, though. I don't fully understand the structure of the gas market yet.
California footnote: Back in 2001, Enron managed to game the gas market with a phony pipeline shutdown, causing electricity prices in California to triple overnight. They were partly responsible for bringing down Governor Gray Davis and replacing him with Arnold Schwarzenegger, who, coincidentally, had been meeting with Enron officials over the preceding year, probably to reassure them that he wouldn't take action against them (he didn't).
ReplyDeleteThe American Gas Association has a few publications that may be able to help (e.g. "Gas Facts: a Statistical Record of the Gas Industry"), and I know an analyst there if you'd like an introduction. From what I've heard from them, they are talking a good game about the "bridge fuel" and direct use of natural gas replacing electricity in home and gasoline in cars.
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