Dirty shale gas = lower gas prices = oilsands boom = double-barrelled emissions increase

For a generation that’s supposed to start cleaning up its energy mix, I find it disturbing that the big money is flowing toward dirtier and dirtier sources instead. Take the case of shale gas, which is plentiful and now economical to develop in North America. Shale gas, at the point of combustion, is no cleaner or dirtier than conventional natural gas, and a heck of a lot better than coal.

But it’s the way we get the shale gas that’s the problem. The hydraulic fracturing process used to release methane from shale rock formations disrupts and pollutes local water tables by contaminating them with a nasty chemical cocktail. Now, as recently reported in the news (and what you’ll hear more about from me tomorrow), there’s rising concern that the methane leaks that result during shale-gas development are substantial and that this makes shale gas just as bad, or worse, than coal with respect to its climate impacts. But the picture gets a whole lot worse.

Let me explain: Because shale gas is plentiful and an increasing amount of it is filling market demand for natural gas, it has kept natural gas prices low. This is expected to be the case for the foreseeable future. By 2035, shale gas will represent nearly half of all U.S. natural gas production, according to the U.S. Energy Information Administration. The low prices are great if you’re a business or consumer, and wonderful if you’re an oilsands developer. That’s because natural gas is the single-largest operational cost for many oilsands projects, particularly steam-assisted gravity drainage (SAGD) projects and other in situ developments that require enormous amounts of the gas to make steam.

In fact, it’s never been so good for them. Gas is about $4.50 per million BTU and oil is at about $106 a barrel right now on NYMEX — that’s a 24-1 spread! Now think about the spread at the height of the 2008 oilsands boom. Oil peaked at $147 a barrel and gas bounced between $11 and $12 per MBTU, giving a spread of 13-1.

So what am I getting at here? Oilsands developers are more profitable than they’ve ever been, and as a result there has been a burst of development activity likely to lead to a sustained boom. (I get into more detail in this story I wrote for MIT Technology Review). I’m also hearing that things are so good that oil companies are starting to throw more money into shale oil development. We’re going down a dirtier path, folks.

Bottom line: a dirty form of natural gas is helping spur development of a dirty form of oil.

5 thoughts on “Dirty shale gas = lower gas prices = oilsands boom = double-barrelled emissions increase”

  1. “Oil Sands” oil is only 4-5% more dirty than the cleanest oil in terms of well to wheels, which is what actually counts. It all gets burned!
    The oil sands production means less oil comes from the rest of the world, that’s all. The oil will still come from somewhere but not from Canada.
    This low gas price is great news for Alberta and Canada; it helps the Oil Sands greatly. I for one welcome more Oil Sands development in the most environmentally safe manner possible.
    What would you say if the Oil Sands were in Ontario? Honestly, answer that question.

  2. Rob, it’s not good whereever it is — Alberta or Ontario. It wouldn’t change my view, the only difference is that I’d be ashamed of my home province instead of Alberta. BTW: the 4 to 5 per cent more dirty is certainly one figure fed to you by CAPP, but it’s not consistent with EU and US DOE findings and many other studies. The low gas price is actually hurting Alberta, which is seeing royalties from conventional natural gas plummet. Sure, the cheap gas benefits consumers and businesses if they use it for home/building heating, but the only thing it benefits in the oil sands is benefit the oil companies (and jack up their profits).

  3. How many mBTUs does it take to realize a BBL of oil from the Tar Sands? That’s a very important factor.

    1:1
    1,000 bbl @ $106 minus $4,500 = $101,500
    1,000 bbl @ $147 minus $11,000 = $136,000

    10:1
    1,000 bbl @ $106 minus $45,000 = $61,000
    1,000 bbl @ $147 minus $110,000 = $37,000

    The parity point seems to be a little over 6:1. Regardless, cheap energy is good for the world. It improves our quality of life and our ability to adapt to what nature throws at us. Malthusians and alarmists aside, the cost/benefits are in our favour. With man’s ability to innovate when necessary and the current resources at our disposal we really don’t have anything to worry about for many a millennia.

    MrC

  4. Innovation, nothing to worry about mr malthus. The problem is what are you spending your money on innovating. Carbon capture for Alberta and Sask in the billions that is decades away vs battery technology in the barely millions. Keep innovating in the wrong direction Alberta…

  5. I love how economic idealists complain about policy criticism as unscientific, and in the same breath dismiss resource exhaustion or environmental degradation as irrelevant by claiming on faith that ‘man can always innovate’.

    Nobody’s “innovated” the grand banks cod back into existence. I wonder how we will ‘innovate’ crabs, mussels, and corals into growing shells in carbonic acidified oceans.

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