The Role of Natural Gas in a Carbon Constrained World

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1 The Role of Natural Gas in a Carbon Constrained World Sergey Paltsev Massachusetts Institute of Technology IEFE, Bocconi University, Milan, Italy April 15, 2011 Questions or comments? Contact: Sergey Paltsev paltsev@mit.edu

2 Motivation Carbon content: coal 24.7 MtC/EJ, crude oil 19.3 MtC/EJ, gasoline 18.4 MtC/EJ, natural gas 13.7 MtC/EJ. Gas is only 55% of coal emissions (add efficiency numbers cited as low as 30%). Shale gas hype Is gas a big player in a carbon-constrained world? MIT Future of Natural Gas study Focus on impacts on the U.S., but world reserves and trade are important Model: MIT Emissions Prediction and Policy Analysis (EPPA) 2

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7 MIT Future of Natural Gas Study 7 Overarching Conclusion Abundant global resources, expanded use, especially electricity Increasing share in US, with key role for unconventional resources Larger share with CO 2 emissions constraints; but with very stringent constraints, role of all fossil fuels limited without competitive CCS Global gas markets can change dramatically to

8 System Studies of Gas Futures 8 The economic models (EPPA and USREP) Strengths Limitations Interactions and uncertainties Gas Resources (High, Mean, Low) Greenhouse gas mitigation Technology cost International gas markets global) (3 scenarios) (Sensitivity tests) (Regional vs. 8

9 Remaining Recoverable Natural Gas Resources (Excludes unconventional gas outside North America) 9 Tcf of Gas 9

10 Gas supply curves Global U.S. 10

11 U.S. Gas Use, Production, Imports & Exports No New Climate Policy 11 11

12 U.S. Gas Use, Production, Imports & Exports Price-Based Policy (50% by 2050, No Offsets) $/Mcf 13.3 $/Mcf 12

13 Coal Gas 13 Price-based mitigation 50% by 2050 No offsets Electric sector Gas Total energy 13

14 14 Renew Gas Regulatory mitigation 25% RES % coal retire Electric sector Gas Total energy 14

15 International Market Evolution $/Mcf 13.3 $/Mcf 5.7 $/Mcf 11.4 $/Mcf Regional Markets Global Market 15

16 Case for U.S. gas exports? U.S. Producer s Perspective: floor on U.S. gas prices U.S. Consumer s Perspective: prices would be higher U.S. Strategic Perspective: exports today = imports tomorrow? (look at UK example) Investment Perspective: price differential between Henry Hub and long-term contracts, competition with lower cost suppliers 16

17 Regional Gas Markets in 2030 (Tcf) 17 17

18 Global Gas Markets in 2030 (Tcf) 18 18

19 Global natural gas use (Tcf) Nat gas study 2030 EPPA reg 130 Tcf EPPA gl 160 Tcf IEA new pol 152 Tcf IEA cur pol 159 Tcf Exxon 172 Tcf BP 169 Tcf Shell 160 Tcf 19

20 Cornell Uni - Howarth Natural gas generation is twice GHG-intensive as Coal. Low gas generation efficiency 28% (other numbers provided in the table but not in the headlines). GWP 20 years vs 100 years. Legitimate questions about uncertainty. But: 28% - efficiency of a peaking gas unit. Gas in NGCC 40-54% efficiency, Coal 30-35%. GWP compare near-term impacts with longer-term impacts (20,100,500-years; need for damage function, but it is highly uncertain). Leakage from production can be reduced. Recalculating using 100-year GWP and efficiency gas generation has 50% less GHG than coal. 20

21 Bridge to where? TkWh Year Reduced Use Renew Hydro Nucl Gas_CCS Gas Oil Coal_CCS Coal A more stringent CO2 reduction, say 80%, would probably require the complete decarbonization of the power sector. This makes it imperative that the development of competing low carbon technology continues, including CCS for both coal and gas. 21

22 Main Points Abundant supplies of natural gas in the world. Many supplies can be developed and produced at relatively low cost. The role of natural gas is likely to continue to expand as a result of its availability, its utility, and relatively low cost. In a carbon-constrained economy, the relative importance of gas is likely to increase even further, as it is one of the most cost-effective means by which to maintain energy supplies while reducing GHGs. In the U.S., natural gas sets the cost benchmark against which clean power sources must compete. Stringent carbon constraints would require decarbonization. 22