Carbon policies may limit shale gas production growth, expert warns

Policies to restrict carbon emissions potentially could inhibit significant production growth from US shale gas formations, an expert warned.

“Fugitive emissions are the biggest issue, and if they are considered too high, it could reverse the potential gains,” said Alan Krupnik, senior fellow and director of the Center for Energy Economics and Policy at Resources for the Future.

His remarks came during a Nov. 28 RFF seminar, “The Future of Fuel: Toward the Next Decade of US Energy Policy,” as panelists considered possible impacts for nuclear, coal-fired, and renewable power, and energy efficiency in addition to oil and gas.

Krupnik said for natural gas, most of the regulation still occurs at the state level, where it can vary significantly. “Several are playing catch-up, even states like Texas where gas has been produced for a long time,” he said. “They generally rely on command-and-control requirements, such as specifying how far a well has to be from a river or stream. Local governments are also crying foul and challenging states’ authority to site wells.”

Another panelist, Frank A. Verrastro, a senior vice-president specializing in energy and geopolitics at the Center for Strategic & International Studies, said pressure to move more oil and gas regulation to the federal level comes as the US tries to move from an atmosphere of scarce supplies and rising demand to one of ample supplies and falling demand.

“There’s a lot of overlap among the fuel groups. Environmental concerns are large,” he observed. “The real dilemma is how we reconcile this large resource base with those concerns…. Unconventional and ultradeepwater resources are expensive to discover and produce. Regulations should be effective, but not overly burdensome. We should seek a balance.”

Areas of uncertainty

Verrastro said despite the apparent abundance of tight oil and gas onshore with multilayered formations and significant ultradeepwater crude oil resources offshore, the US outlook still is far from certain. “Will these resources be produced more efficiently as they are developed? If not, we could blow through them quickly,” he said. “Will the necessary investments be there? Can the Bakken shale success story be replicated over and over?”

The situation is aggravated by major policy questions, he continued. “Government policymakers’ priorities change,” Verrastro said. “Sometimes climate is at the top, sometimes economics, and sometimes energy. That’s what makes it so hard for them to be consistent.”

Krupnik said just how widespread unconventional oil and gas sweet spots are is another big question. “If you start looking at the data, you see how choppy it is. Even a small movement can change these wells’ productivity,” he said. “There’s also a tension as productive sweet spots are drained and producers move to less productive sweet spots.”

He also cautioned against over-optimism about other countries being able to replicate US unconventional production successes. “We need to temper our optimism about international potential,” Krupnik said. “A typical unconventional well in China now is being drilled for $12 million, compared with $1-3 million in the US.”

Verrastro suggested that concerns likely will not destroy the resources’ potential, however. “We’re finding this resource base, and the productivity of these wells, is incredible,” he said.

Other participants at the seminar included RFF President Philip R. Sharp; Michael Schaal, from the US Energy Information Administration; Douglas Arent, from the National Renewable Energy Laboratories; Richard Meserve, president of the Carnegie Institution for Science; Jeffrey R. Holmstead, a partner in Bracewell & Juliani’s Washington office; and Karen Palmer, a senior fellow and research director at RFF.

Contact Nick Snow at nicks@pennwell.com.

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