How a Carbon Tax Could Benefit US Natural Gas Producers, But How Much and for How Long?

Abstract

The analyses presented show how a Federal carbon fee could benefit US natural gas (NG) producers while meeting the COP21 goal of avoiding an increase in global temperatures of +2^oC (3.6^oF) above pre-industrial levels. Also addressed are how growth of renewable energy and lower costs of commercial energy storage might impact US demand for NG. The basis of the analysis is a modeled response to a 25-year national carbon fee and dividend (CFD) program beginning in 2025 at $10/metric ton (t) of CO₂ emissions and increasing annually by $10/t. The CFD program, if enacted nationwide, would within a decade begin the elimination of coal usage for electrical power generation while incentivizing carbon capture and storage (CCS) for NG. In theory, US NG producers with a CFD stimulated CCS program could not only attain an 80% drop in US carbon emissions by 2050 (for combined coal and NG usage), they could produce more NG than following a business as usual approach. Because a carbon fee would stimulate more use of renewable energy, the speed at which renewables might replace NG is examined. Present day levelized costs of energy for new commercial-scale solar and wind powered facilities are already competitive with NG facilities. But growth of US renewable energy projected by the Energy Information Administration (EIA) for 2025 to 2050 (~70%) is a fraction of the growth necessary to replace fossil fuel usage by 2050. Assuming the EIA projected growth through 2024 is correct (~80%), the growth in renewable energy from 2025 to 2050 must exceed 700% to completely replace energy produced from NG and coal. This is more than double the maximum growth of renewable energy that occurred between 2004 to 2010 (~300%). Consequently, there will be a need for NG to help fuel the transition to primarily renewable energy by 2050. Also considered, is the competitiveness of commercial- or municipal-scale battery storage versus NG powered peaking plants. Because of the large variability in both the levelized costs of energy from gas peaking plants and storage costs for batteries, predicting when battery storage becomes an optimum source for intermittent energy is problematic. Present-day estimates for low cost battery storage indicate they could replace high cost NG peaking plants immediately after instituting a CFD plan. Whereas a low-cost NG peaking plant may be competitive even 25 years after the initiation of an annually increasing carbon fee.

AAPG Datapages/Search and Discovery Article #90350 © 2019 AAPG Annual Convention and Exhibition, San Antonio, Texas, May 19-22, 2019