The shale gas revolution may do what Kyoto and Copenhagen have not -- put the US on the road to significant reductions in greenhouse gas emissions as the power sector switches from coal to natural gas, according to a lengthy analysis released this week by Deutsche Bank.
While national policies will have some role in the switch, most of those regulations are already in place and the market -- driven by cheap gas from shales -- will do the bulk of the rest of the work, Deutsche Bank's Climate Change Investment Research team said in a 120-page paper published Wednesday.
"A significant switch by the US electricity sector from coal to natural gas would be the most secure, least costly approach to lower admissions," Deutsche Bank's Head of Climate Change Research Mark Fulton said in his introduction to the report.
Combined with renewables and nuclear power, replacing old coal plants with gas-fired power will reduce coal's share of the fuel mix to 22% by 2030 and make a 17% cut in GHG emissions by 2020 and a further 83% reduction by 2050 -- targets set by President Barack Obama -- achievable, Fulton said.
Switching from coal to gas is possible because huge increases in unconventional shale gas have lowered gas prices and smoothed out the fuel's volatility, "making it a far more economic fuel than in the past," Fulton said.
The key to gas' increased share of the power market is a price band of $4 to $6/MMBtu, Deutsche Bank said, a range made possible by advances in drilling technology and practice.
"Do coal plants collect social security?" Deutsche Bank quipped, noting that 60 GW of capacity is over 60 years old with another 92 GW over 45 years old, meaning about 45% of total current coal-fired power capacity is "inefficient and ripe for retirements."
Another driver for replacing or retrofitting these coal plants is coming with US Environmental Protection Agency regulations that have nothing to do with GHG emissions, instead targeting mercury, sulfur dioxide and nitrogen oxide.
Natural gas-fired plants -- quicker and cheaper to build -- beat newly constructed or retrofitted coal plants at prices up to $8/MMBtu, the investment bank said. At $4/MMBtu, "gas displaces coal across all scenarios," Deutsche Bank said.
Older coal plants that have been paid off and are not retrofitted beat gas at $6/MMBtu, the bank said, but only on the cost of electricity, not the full costs including environmental impacts and fines. Only at $8/MMBtu do coal plants compete with new or old coal-fired power plants, the bank said.
Aiding a switch to coal is the current glut of gas-fired generation already in the market, the bank said, estimating that two-thirds of a switch to gas would be used by already-constructed gas plants, which reduces concerns over the stability of the electric grid.
A secondary effect of switching from coal to gas would be a return to long-term contracts for gas between producers and power companies, which would provide additional price stability to the notoriously volatile commodity, the bank said.
Throughout the study, Deutsche Bank said it assumed that producers would become more efficient and safer with hydraulic fracturing, but noted that while increased regulation at either the state or federal level would lift costs slightly it would also promote better industry practices. Deutsche Bank could not foresee a scenario where regulation of fracking would change the low-cost economics of shale gas.
Another assumption built in Deutsche Bank's models was that energy efficiency measures would slow the growth of US power consumption to 0.5%/year through 2050, half the 1%/year currently predicted by the US Energy Information Administration.
In addition to natural gas-fired plants taking a 35% share of the power market by 2030, up from 23%, Deutsche Bank's model for GHG cuts sees wind and solar doubling their share of the power market in the next two decades, growing from 10% to 20% as utilities meet renewable portfolio standards. Nuclear power will also grow its market share from 19% to 23% in the next two decades, with little in the way of new plant construction but with better designs for reactors being built out at existing plants.
At no point, Deutsche Bank said, does its model for carbon reduction call for a price on carbon.
While national policies will have some role in the switch, most of those regulations are already in place and the market -- driven by cheap gas from shales -- will do the bulk of the rest of the work, Deutsche Bank's Climate Change Investment Research team said in a 120-page paper published Wednesday.
"A significant switch by the US electricity sector from coal to natural gas would be the most secure, least costly approach to lower admissions," Deutsche Bank's Head of Climate Change Research Mark Fulton said in his introduction to the report.
Combined with renewables and nuclear power, replacing old coal plants with gas-fired power will reduce coal's share of the fuel mix to 22% by 2030 and make a 17% cut in GHG emissions by 2020 and a further 83% reduction by 2050 -- targets set by President Barack Obama -- achievable, Fulton said.
Switching from coal to gas is possible because huge increases in unconventional shale gas have lowered gas prices and smoothed out the fuel's volatility, "making it a far more economic fuel than in the past," Fulton said.
The key to gas' increased share of the power market is a price band of $4 to $6/MMBtu, Deutsche Bank said, a range made possible by advances in drilling technology and practice.
"Do coal plants collect social security?" Deutsche Bank quipped, noting that 60 GW of capacity is over 60 years old with another 92 GW over 45 years old, meaning about 45% of total current coal-fired power capacity is "inefficient and ripe for retirements."
Another driver for replacing or retrofitting these coal plants is coming with US Environmental Protection Agency regulations that have nothing to do with GHG emissions, instead targeting mercury, sulfur dioxide and nitrogen oxide.
Natural gas-fired plants -- quicker and cheaper to build -- beat newly constructed or retrofitted coal plants at prices up to $8/MMBtu, the investment bank said. At $4/MMBtu, "gas displaces coal across all scenarios," Deutsche Bank said.
Older coal plants that have been paid off and are not retrofitted beat gas at $6/MMBtu, the bank said, but only on the cost of electricity, not the full costs including environmental impacts and fines. Only at $8/MMBtu do coal plants compete with new or old coal-fired power plants, the bank said.
Aiding a switch to coal is the current glut of gas-fired generation already in the market, the bank said, estimating that two-thirds of a switch to gas would be used by already-constructed gas plants, which reduces concerns over the stability of the electric grid.
A secondary effect of switching from coal to gas would be a return to long-term contracts for gas between producers and power companies, which would provide additional price stability to the notoriously volatile commodity, the bank said.
Throughout the study, Deutsche Bank said it assumed that producers would become more efficient and safer with hydraulic fracturing, but noted that while increased regulation at either the state or federal level would lift costs slightly it would also promote better industry practices. Deutsche Bank could not foresee a scenario where regulation of fracking would change the low-cost economics of shale gas.
Another assumption built in Deutsche Bank's models was that energy efficiency measures would slow the growth of US power consumption to 0.5%/year through 2050, half the 1%/year currently predicted by the US Energy Information Administration.
In addition to natural gas-fired plants taking a 35% share of the power market by 2030, up from 23%, Deutsche Bank's model for GHG cuts sees wind and solar doubling their share of the power market in the next two decades, growing from 10% to 20% as utilities meet renewable portfolio standards. Nuclear power will also grow its market share from 19% to 23% in the next two decades, with little in the way of new plant construction but with better designs for reactors being built out at existing plants.
At no point, Deutsche Bank said, does its model for carbon reduction call for a price on carbon.
