Energy Companies Switch to Natural Gas

Written By Brianna Panzica

Posted August 17, 2012

Natural gas prices have been riding at ten-year lows in the U.S. as the shale boom continues to create an influx of the resource.

Henry Hub spot prices were at $2.79 per million BTU earlier this week. In the summer of 2008, just four years ago, this was closer to $11 or $12.

Now, if you’ve been following the shale gas boom to any extent, this isn’t news to you.

But data released this week was a shock to even the best climate scientists in the world.

The carbon dioxide emissions from energy in the U.S. have fallen to lows not seen since 1992. And the leading contributor to this is none other than natural gas.

The thing is, government regulations didn’t try to implement this. No major regulated overhauls occurred to make this happen. And scientists didn’t anticipate it because no U.S. goal called for it.

Companies were simply motivated by their bank accounts.

Since natural gas prices have fallen so low, energy companies have started switching to the abundant resource. They weren’t aiming for a big environmental splash – just reduced operational costs.

But CO2 emissions are down. In fact, while in 1990 they were at 5 billion metric tons and in 2007 they peaked at 6 billion, this year they’re expected to be at 5.2 billion metric tons which, the International Energy Agency says, make the U.S. the nation with the biggest CO2 reduction over the past six years.

From Time:

“There’s a very clear lesson here. What it shows is that if you make a cleaner energy source cheaper, you will displace dirtier sources,” said Roger Pielke Jr., a climate expert at the University of Colorado.

About 98% of U.S. carbon dioxide emissions come from energy. The fact that the sector has been able to reduce emissions so much is enough to have a real impact.

Natural gas is still a fossil fuel. It still creates emissions, so it isn’t a magical, CO2-destroying answer to everything.

But coal-burning plants produce twice as much carbon dioxide as natural gas plants. And that’s not all. They also produce five times as much nitrogen oxide and 90 times as much sulfur dioxide.

Theoretically speaking, switching every coal-powered plant in the U.S. to a natural gas plant could have cut the 2007 high of 6 billion metric tons to just 3 billion metric tons.

After all, just look at the emissions trend (blue line) since the shale boom started. And they’re predicted to go even lower by the end of this year:

CO2 Emissions EPA

But U.S. officials didn’t plan for this type of reduction. In fact, they didn’t even foresee the possibility. Only last year, the Environmental Protection Agency (EPA) agreed on CO2 emissions restrictions for power plants, but they’re not even set to take place until 2014 or 2015, Time says.

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Even the healthcare industry likes this. Because not only does this have promise for the industry and show what a shift to natural gas could do to meet emissions goals, but it also means less pollution in the air.

From Time:

“The trend is good. We like it. We are pleased that we’re shifting away from one of the dirtiest sources to one that’s much cleaner,” said Janice Nolen, an American Lung Association spokeswoman. “It’s been a real surprise to see this kind of shift. We certainly didn’t predict it.”

Gas prices have to stay low, however, for this trend to continue. If prices begin to rise, energy companies may switch back to coal again. It’s all about the price.

And growing economies, like China, are still increasing their CO2 emissions as they try to support the energy demands of the nation.

That’s where exports come in. Cheniere Energy (NYSEAMEX: LNG) is already working to begin liquefied natural gas (LNG) exports at its Sabine Pass, Louisiana facility.

But natural gas production must also stay at high levels to keep prices low. North Dakota’s Bakken shale is increasing production by 15,000 barrels per day every month. Eagle Ford in Texas is set to outpace the Bakken, boasting more prolific wells. And the Marcellus shale in Pennsylvania is growing production as well, set to be one of the nation’s top producers.

Companies like EOG Resources (NYSE: EOG), Marathon Oil Corporation (NYSE: MRO), and Anadarko Petroleum (NYSE: APC) are just some of the major players in these regions. There are many more, both big and small, that are profiting off the boom.

This unexpected drop in emissions may be an indication of what energy companies need to do to meet the EPA’s regulations once they go into play.

The natural gas boom is not over yet. In fact, it’s just starting.

That’s all for now,

Brianna Panzica

follow basic@brianna_panzica on Twitter

Energy & Capital’s modern energy guru, Brianna digs deep into the industry with accurate and insightful updates into the biggest energy companies and events. She stays up to date with the latest market moves and industry finds, bringing readers a unique view of current energy trends.

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