Christof Rühl and I met three years ago and we shared an appearance in Moscow last month, although unfortunately not on the same day, so we missed each other. Christof is Chief Economist of BP, but unlike many in Big Oil, he long ago understood the multiple implications of the shale revolution. I wish he was taken more seriously by many in his own company who, like colleagues at other oil majors, often still can’t get their heads around shale.
Notwithstanding the popular perception of economists as dismal number crunchers, the best often divine the story the numbers are telling us long before the conventional communicators in PR and journalism
Christof recently posted a series of articles on Linked In, republished at Energy Post, the most recent being “The five global implications of shale oil and gas”. Regular readers know I’m a sucker for this big picture type of thing. Much of what he says has been discussed here over the years, but one section is worth reproducing in it’s entirety.
Before that, in the second section Rühl looks ahead and drops this in:
Our industry is fond of distinguishing “above ground” from “below ground” factors when debating resource access. Below ground is geology, circumstances inherited from nature; above ground lure man-made conditions, such as the political, legal or economic framework.
The role of “above ground” political discussions is likely to reach new heights in determining whether, where and when shale resources will be accessed. These debates will evolve around local, as opposed to big geopolitical, concerns – simply as a corollary of the widespread geographic distribution of shale resources.
Above ground has been dominated by the environmental movement the last few years. The UK Department of Energy and Climate Change are fairly typical of governments most places in being two entirely different departments pushed together by politicians of the past. Now this is like a shotgun marriage for life: They wont’ dare get divorced for the sake of the kids in the Cabinet, but reflecting their real world industries they manage to spend so much time speaking across one another that nothing to the satisfaction of either party ever gets done.
One reason, and I think I speak for the industry here, is that the natural gas industry isn’t getting across a key message. This is the final section of Rühl’s article, where although every word is important, I’ve highlighted those more important than others:
5. A decision point for those of us interested in the environment
Generating a kilowatt-hour of electricity with a modern gas fired power plant leaves about 50% less carbon emissions in the atmosphere than doing the same with coal fired generation. The consequences are stark.
Last year the US, not known for conscious climate policy, not only had the world’s largest increase in oil and gas production, but also recorded the largest decline in CO2 emissions worldwide – because of a massive displacement of coal in power generation with cheaper shale gas. In the EU, in contrast, carbon emissions fell only marginally and only as a result of the economic recession – as shown in the chart below. Carbon intensity – the amount of carbon emitted per unit of energy – rose, as Europe’s economies replaced gas in power generation with cheaper coal, imported from the US.
US coal is being chased into exile by the shale “revolution”: Replaced by cheaper shale gas at home, coal is shipped to Europe, where it replaces more expensive liquefied gas imports in power generation. The foregone gas imports, in turn, move into Asia, where they are wanted at premium prices – among other uses, to substitute for the lack of nuclear power in Japan (you may remember reading about this phenomenon in a previous blog). In this way, European power generation is creating an unfortunate mirror image of the US: In Europe, the share of coal rises and the share of gas declines; in the US, the other way round. The consequences for carbon emissions are obvious.
Think of the sheer order of magnitude. Gas and coal account for about a quarter and a third of global energy consumption, respectively; renewables (without hydro) for a little more than 2%. Inescapably, this leads to the question whether CO2 targets are better served by advocating more global substitution from coal to natural gas, including shale gas, rather than by the gradual and expensive build-up of renewables alone. The argument to make better use of scale and global trade – for example by taking carbon pricing seriously – is strengthened by the efficiency with which the two fossil fuels are traded across borders and even continents, something not yet possible with the wind and the sun.
And so the question arises – what is it going to be, fear of fracking or the conscious advocacy of replacing more coal with natural gas on a global scale, including shale resources? I have my own guess on that one. Fracking is a local problem, carbon emissions are abstract and global. We know how these things tend to end. But for now the point is only that, in much of the environmental debate, the question isn’t even asked.
This concludes the piece on the global implications of shale. Keep in mind, this was based on the – by now – old Energy Outlook, published in January 2013. But it also was done in preparation of its successor, due January 2014, for which you can now sign up for the webcast on January 15th.
The failure to even contemplate the question by many in the environmental movement is matter of frustration to the industry, but it isn’t only down to a failure of them to communicate. Many greens don’t get this message because they do not wish to get the message. Extremist, doctrinaire views have produced nothing apart from Greens driving down a blind alley with their eyes wide open. They support each other so much in self-referential publicity campaigns that they haven’t noticed that the debate is passing them by. They then lash out and blame the media or call everyone except themselves “deniers”, yet another self-destructive behaviour. Green leaders have to reverse out of the blind alley they’ve only put themselves in, or face the fact they will only slowly become irrelevant. It’s their choice and there are many people who want them to remain in the debate. But ultimately, they are the decision-makers at this particular crossroads: Achieve some of what they want, or achieve nothing. The latter would be a great failure for everyone, but is there a single environmentalist of note willing to break with their followers on natural gas? We - the industry, the environmental movement, the world- desperately need some.