Download Unconventional Energy Sources: Lessons from the US?

Unconventional Energy Sources:
Lessons from the US?
Christopher R. Knittel
Director,
Center for Energy and Environmental Policy Research
and
William Barton Rogers Professor of Energy,
Sloan School of Management, MIT
http://mit.edu/ceepr
Goal of my presentation
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Would like to discuss four things
• Fracking has completely transformed US natural gas and
oil industry
• Fracking has led to substantial local economic growth
• Uncertain climate change implications of this
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Underscores our amazing ability to find and use fossil fuels
US fracking experience underscores the need for a
coordinate global policy
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Fracking: The perfect storm
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Why the US?
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High oil and natural gas prices
Strong property rights associated with land owners
Access to water (probably too much access)
Existing oil and natural gas industry
Favorable geology
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Benefits to local economies?
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Benefits to local economies?
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Recent research (Bartik, Greenstone, and
Knittel) estimates the local economic benefits
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We use a unique empirical strategy using geology to
mimic a “natural experiment”
Bottom line, we observe:
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Increases in county-level hydrocarbon production of
$400M
Increases income of 5%, 6% increase in
employment
No impact on net governmental revenues
Main result: 6% increase in housing values
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Example of our empirical strategy
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Benefits to climate?
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Implications for climate change: 3 Effects
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First, the relative price of natural gas (lower CO2) and
oil/coal (higher CO2) falls
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This leads to the previous figure---a shift from coal to natural
gas
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In the longer run, a shift from oil to natural gas
Second, the relative price of natural gas (higher CO2)
and renewables (lower CO2) falls
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This slows the transition to renewables
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Also, reduces R&D in renewables
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Reduces the appetite for renewable subsidies
Third, the relative price of coal and other generation
methods falls outside of the US
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More US NG = More US coal exports
6
Million Tons of Coal Exports
120
5
100
4
80
3
60
2
40
1
20
0
Million Tons of Coal Exports (Country-specific)
140
0
2002 2003 2004 2005 2006 2007 2008 2009 2010
Total (Million Tons)
2011
2012
2013
2014
Germany
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More US NG = More US coal exports
12
Million Tons of Coal Exports
120
10
100
8
80
6
60
4
40
2
20
0
Million Tons of Coal Exports (Country-specific)
140
0
2002 2003 2004 2005 2006 2007 2008 2009 2010
Total (Million Tons)
China
Germany
2011
2012
2013
2014
India
http://mit.edu/ceepr
More US NG = More US coal exports
12
Million Tons of Coal Exports
120
10
100
8
80
6
60
4
40
2
20
0
Million Tons of Coal Exports (Country-specific)
140
0
2002 2003 2004 2005 2006 2007 2008 2009 2010
Total (Million Tons)
China
Germany
2011
Chile
2012
2013
2014
India
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The need for coordinated policy
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The US experience with shale gas underscores the
need for global policy
Much of the discussion has been about increases in US
exports of natural gas
• We are likely to see these exports increase
But, there is an easier way to export our “natural gas”
• Export our BTUs as coal instead
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US Coal exports have fallen since their peak in 2012
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A real transition from natural gas to coal requires
other countries not increasing their coal use
This is where coordination is key
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200
1600
180
160
1400
140
1200
Oil Reserve Growth Rate: 4.6% per year since 1950
2.7% per year since 1980
1000
120
100
800
Gas Reserve Growth Rate: 2.9% per year
600
80
60
400
40
200
20
Oil Reserves (Billion bbls.)
2013
2010
2007
2004
2001
1998
1995
1992
1989
1986
1983
1980
1977
1974
1971
1968
1965
1962
1959
1956
0
1953
0
Proven Natural Gas Reserves (Trillion m3)
1800
1950
Proven Oil Reserves (Billion bbls.)
The world is awash in hydrocarbons
Natural Gas Reserves (Trillion M3)
Source: Covert, Greenstone, Knittel. “Will we ever stop using fossil fuels?”, 2015
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Compiled from BP Statistical Review of World Energy, various years
And, let’s not forget about all of the coal
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Constant battle between demand and technological progress
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Wrapping up
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Two main policy points:
1. There is a lot of talk about zero-carbon technologies
taking over
• The cost of solar, wind, EVs, etc. are indeed falling
• BUT, there is also technological progress for
hydrocarbons
• Climate change policy must realize this
2. Technological advances in one country, absent
coordinated policy, will lead to an increase in
hydrocarbon consumption
• For cheap gas to be good for the climate, we must
leave the coal in the ground
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How important is this?
Total&Temperature&Increase&from&Reserves&and&Resources:&
16.1°F
Total&Temperature&Increase&from&&&&&&&
In9Place&Deposits:&1.5°F&to&6.2°F
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