I was riding my bicycle to work the other day and a city bus went blasting past me. As it did so, I couldn’t help but see the words “Powered by CLEAN BURNING natural gas!” emblazoned on its rear end. Natural gas is a fossil fuel, it isn’t clean burning, is it? I asked my self this question and also wondered who in a position of authority was keeping an eye on the natural gas spin-doctor. We keep hearing about the “natural gas revolution,” the great news that clean burning natural gas is now in abundant supply and very cheap, so America has a bright new energy future.
The clean burning claim was bothering me, because I know that with the price of natural gas as low as it is, truly clean and renewable energy sources like wind and solar will have to become just as cheap in order to compete─or we will not continue to develop these important renewable sources as quickly as we would otherwise. In checking on the clean burning claim, I found a spot-on research piece from the Flemish Institute of Technology in Belgium analyzing the emissions of actual city buses running on natural gas versus those running on diesel. It found virtually no difference in carbon dioxide (CO2) emissions between the two fuels. Even I was surprised, I thought the natural gas bus would have some CO2 emission advantage. It turns out that the power output of natural gas under real life driving conditions causes the amount of fuel burned, and CO2 emissions released, to be higher than one would expect.
I also looked into the differences between the air emissions of electric generating facilities running on natural gas versus those running on coal. The United States Environmental Protection Agency site summarized what I found nicely, “Compared to the average air emissions from coal fired generation, natural gas produces half as much CO2.”
Natural gas is just cheap; it isn’t clean. And it might not even be cheap.
As you know, natural gas is cheap because the oil industry is aggressively exploiting a natural gas production technique known as fracking, and through this technique the supply of natural gas has increased greatly, which has caused the price to plunge by more than 50%. However, fracking uses a tremendous amount of water and injects hazardous chemicals deep into the ground at high pressure. The water use is an obvious issue and of immediate concern; the chemical injection will require years or decades to determine the real environmental impact. The long-term environmental consequences of these practices are simply not reflected in today’s price of natural gas.
One of the energy sources that natural gas is very likely to crowd out is nuclear, because it has become expensive and complex to build and run a nuclear plant and therefore the price difference between gas fired plants and nuclear is greatest. Nuclear is expensive for many reasons, but two primary reasons are the regulatory system that governs nuclear power production and the money an owner of a nuclear plant has to set aside to properly decommission the plant at the end of its useful life. This governance system is designed to protect public health, safety, and the environment─which are, of course, closely related systems. We do not have a strong regulatory system to govern the production of natural gas and there is no requirement to set aside funds to clean up wells at the end of their productive years. The problems caused by producing natural gas will be dealt with by society at some unknown future date in an unknown manner. There are 450,000 gas wells in the United States, scattered throughout the countryside on top of shale deposits. There are less than 70 nuclear power plants. If one of those nuclear plants has a problem, it is worldwide news. If one of those gas wells starts leaking chemicals into your local water supply, who is going to notice?
So I don’t think that natural gas is as clean or as cheap as we are being led to believe. And I think that the sign on our city buses should be removed.
John Streur is President of Portfolio 21 Investments. He has 25 years experience in the field of investment management.