President Barack Obama’s first climate change speech of his second term focused on three main points: cutting carbon pollution in America, preparing the U.S. for the impacts of climate change, and leading international efforts to combat global climate change.
Our key takeaway from the president’s speech was natural gas is cited as a “critical bridge fuel” – and rightfully so. Consumers increased their consumption of natural gas every year from 2007 through 2012. Last year, the U.S. market burned 10% more natural gas than it did in 2007, primarily driven by greater demand from electric power generation and industrial sectors, which increased consumption by 34% and 7%, respectively.
For the purpose of this piece, OAG360 will focus on the president’s first point: cutting carbon pollution in America and how the new plan incorporates many positives for the natural gas industry.
Cutting Carbon Pollution in America
During his speech, President Obama said, “Today, about 40 percent of America’s carbon pollution comes from our power plants.” In response, the president is directing the Environmental Protection Agency (EPA) to enact new regulations on new and existing power plants. OAG360 notes that to date, no carbon emission standards for power plants have been regulated at the federal level.
Obama’s plan and details for how he plans to regulate power plant carbon emissions was lackluster at best. The fine details are still unknown. However, OAG360 believes this new wave of regulations should prove beneficial to the natural gas industry.
In addition to backing coal to gas switching in power plants, the administration also plans to encourage the development of a global market for natural gas, encourage heavy duty vehicles to switch to natural gas, and share best practices with the world.
Sourced from the climate change plan, the administration says: “Burning natural gas is about one-half as carbon-intensive as coal, which can make it a critical “bridge fuel” for many countries as the world transitions to even cleaner sources of energy. Toward that end, the Obama Administration is partnering with states and private companies to exchange lessons learned with our international partners on responsible development of natural gas resources. We have launched the Unconventional Gas Technical Engagement Program to share best practices on issues such as water management, methane emissions, air quality, permitting, contracting, and pricing to help increase global gas supplies and facilitate development of the associated infrastructure that brings them to market. Going forward, we will promote fuel-switching from coal to gas for electricity production and encourage the development of a global market for gas. Since heavy-duty vehicles are expected to account for 40 percent of increased oil use through 2030, we will encourage the adoption of heavy duty natural gas vehicles as well.”
In a research note date June 25, 2013, Raymond James research analyst’s Pavel Molchanov and James M. Rollyson said between 2013 and 2016, Raymond James predicts 75 percent of coal power will be replaced by natural gas and 25 percent by renewables”.
What is a Presidential Speech without Contradiction?
While the president addressed the need for natural gas as a bridge fuel in more places than one, his speech was not a full endorsement for the industry, and was contradictory in more ways than one.
Even though we need more natural gas to meet additional demand from coal to gas power plan switching, President Obama said during his speech, “What is true is that we can’t just drill our way out of the energy and climate challenge that we face.” Mr. President, we actually believe we can. Since the shale revolution began with the Barnett shale in 2003 (yes, readers of Oil & Gas 360®, the Barnett is really only 10 years old), the U.S. has seen a reverse in oil production and a seismic shift in natural gas production.
Taking a step further, the president contradicted himself by detailing his plan to phase-out fossil fuel subsidies – which amount to more than $500 billion annually. The administration believes this would lead to a 10 percent reduction in greenhouse gas emissions below business as usual by 2050. President Obama is calling for the elimination of U.S. fossil fuel tax subsidies in his Fiscal Year (FY) 2014 budget, and we will continue to collaborate with partners around the world toward this goal. Here is a story Oil & Gas 360® wrote back on April 9, 2012 about its thoughts on subsidies. The Wall Street Journal published an Op-Ed piece on June 17, 2013, about Wind Farm subsidies. It would take 192,000 acres (roughly the size of New York City), of Wind Farms to produce enough electricity to light a town of 700,000 people. And those windmills would only work about 30% of the time. It would take only a few hundred acres to fuel the same gas-powered electric plant that generates the same electricity load.
President Obama also broke his silence on the controversial Keystone XL Pipeline, a $5.3 billion project that will stretch from Canada to the Gulf transporting crude oil. “Allowing the Keystone pipeline to be built requires a finding that doing so would be in our nation’s interest,” Obama said. “The net effects of the pipeline’s impact on our climate will be absolutely critical to determining whether this project is allowed to go forward.” His decision will be determined on the amount of carbon dioxide the pipeline with emit into the atmosphere, a number that will be developed through what the president’s plan calls “developing actionable climate science.”
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Final Thoughts
It was encouraging to hear the president realize the country needs natural gas as a bridge fuel in more ways than one; however, OAG360 is just not sure the best way to support the industry is to eliminate subsidies and reduce drilling in the United States. Natural gas isn’t a bridge. It’s a soild choice for America as it stretches its collective industrial, consumer and economic muscles and competes, really competes, against China and the rest of the world. Land, education, laws, fuel, innovation and people with good jobs will win the race.
We leave you with a song from Dwight Yoakum that speaks to the nation working together. https://www.youtube.com/watch?v=ivAOLMJaZTg
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