Shale-mad America outpaced by China on renewables

Wind turbine
Source: DollarPhotoClub

“Today, America is closer to energy independence than we’ve been in decades. One of the reasons why is natural gas – if extracted safely, it’s the bridge fuel that can power our economy with less of the carbon pollution that causes climate change”, President Obama said in his State of the Union address in January. Many environmentalists worry that it can be a bridge to nowhere. In today’s article, Bloomberg’s Isaac Arnsdorf demonstrates the data that supports their concerns.

According to Ted Brandt, chief executive officer of Marathon Capital LLC, a Chicago-based energy and infrastructure investment bank, the success of shale drilling undermined political support for tax credits for renewable energy. Federal incentives expired in 2013, and wind farm construction plunged 92 percent, according to data from the Global Wind Energy Council.

The results were quick to show. Combined capacity for solar and wind power expanded 9 percent to 76,326 megawatts in 2013, down from a 30 percent increase in 2012.  And although U.S. clean-energy companies did raise an unprecedented $2.9 billion in equity last year, fossil-fuels companies sold shares valued at more than 14 times as much.

Half of new power-plant capacity in the U.S. last year was natural gas – 6,861 megawatts, according to the Energy Department.

The investors, as always, voted with their feet. While, since 2012, investors added more than $2.3 billion to the Energy Select Sector SPDR Fund, which tracks oil and gas companies, in the same period, they withdrew $32.5 million from the Powershares Wilderhill Clean Energy Portfolio, the biggest exchange-traded fund tied to renewable-energy equities.

One major criticism of renewable energy sources is that they’re still more expensive than fossil fuels. This still holds true, despite encouraging developments showing that the gap might be narrowing. The cost of photovoltaic solar energy dropped 56 percent in the past four years. A megawatt-hour of solar power cost $139.25 last quarter, compared with $84.81 for wind energy and $84.21 for gas, according to Bloomberg New Energy Finance.

Gas prices, on the other hand, are on the up. Natural gas fell to a 10-year low in 2012 because drillers looking for oil came up with gas, too, and created a glut. Since then, gas futures have risen 140 percent to $4.588 per million British thermal units; traders anticipate even higher prices next winter.

It’s true that the American shale revolution took energy markets by storm, sweeping more environmentally-friendly options to the side, but shale energy is also not without problems.

Fracking is more expensive than traditional extraction methods. Shale gas costs between $3 and $10 per million British thermal units to get out of the ground, compared with as little as 20 cents to extract some conventional supplies outside the U.S., according to the International Energy Agency.

One shale well, which bores horizontally through rock, can cost as much as $13 million, compared with as little as $1.5 million for traditional vertical drilling, according to data from Goodrich Petroleum Corp. and Hart Energy LLC. This, combined with the fact that shale wells decline much faster than traditional wells considerably increases the cost of exploration.

Then there are the environmental concerns. Natural gas has been touted as a ‘greener’ option because when combusted, it produces about 45 per cent less carbon dioxide than does coal in producing the same amount of electricity. On the other hand, dry gas – being less valuable than oil and natural gas liquids – is often treated as a by-product and flared in large quantities, increasing CO2 emissions into the atmosphere.

Leaks of methane during extraction and transportation of gas are another big problem, as methane traps 21 times more heat in the atmosphere than carbon dioxide. According to one study, methane leaks are as much as 75 percent higher than the U.S. Environmental Protection Agency estimates, and can happen at almost all stages of the extraction process.

Meanwhile China, even though still heavily reliant on dirty fuels like black coal and lignite, is working hard to diversify its energy sources. According to a BNEF report, China is spending as much as four times more than the U.S. to develop shale gas fields, but without neglecting the renewables sector. In China, wind capacity expanded 21 percent to 91,412.9 megawatts in 2013, on top of 21 percent growth the year before, according to the Global Wind Energy Council. The country’s capacity overtook the U.S. in 2013 and is now second in the world only to Germany. When it comes to investment, Chinese clean-energy companies already raised $1 billion in equity so far this year, 46 percent more than last year and 2 percent more than their U.S. rivals.

“There’s a not very appealing scenario where we in the next decade feel very content with what is happening with shale gas in North America, while other countries, particularly the Chinese, are building up leading technology in renewables,” said Wal van Lierop, CEO of Chrysalix Energy Venture Capital in Vancouver. “And suddenly, in the early 2020s, we in North America may realize that they own the technologies of the future.”

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