Henry Jacoby is an emeritus professor of Applied Economics at Massachusetts Institute of Technology’s (MIT) Sloane School of Management, and co-author of an MIT report called, “The Influence of Shale Gas on U.S. Energy and Environmental Policy.”
Host Madeline Brand (MB): It seems like we are in the midst of a natural gas boom. When did that start and why is it happening now?
Henry Jacoby (HJ): It started out six or seven years ago and it’s happening because of the confluence of a set of technical developments that allowed the cracking up of gas that was in shale resources that are located at all around the country. That spread around very, very rapidly and it has led to a revolution in natural gas in the United States.
MB: You’re talking about the advent of hydraulic fracturing or fracking?
HJ: That’s correct. It’s not just the fracking. It’s also the drilling technology that has changed this.
MB: I see. And, what has been the effect of this boom?
HJ: Well, if you go back six or seven years, there was essentially no gas out of the shale into the United States’ economy, and, as of now, it’s about a third of the total United States’ gas supply, which is just a dramatic change. If you go back six or seven years, people were building lots of facilities to import gas into the United States because everybody expected the price of natural gas to rise over time and be high enough to pay for importing gas. Now, all those facilities are sitting empty. So, it has been a huge change.
MB: That’s amazing in such a short period of time. Have you ever seen anything like that before?
HJ: I have been around the business for a while and it is shocking how fast this took place. The sheer scale of the changes in unprecedented.
MB: So that’s dropped the price of natural gas?
HJ: It has. Of course, natural gas prices have been volatile – up and down and up and down – but in terms of what people expected the price to be, it has definitely dropped the price of natural gas.
MB: Natural gas has been touted as a clean energy alternative to traditional petroleum products. What do you think? Do you think it is clean energy? Do you think that it needs to be looked at more carefully in terms of its environmental impact?
HJ: Well gas isn’t really a substitute for oil. Gas is a substitute for coal. Gas is a much cleaner technology than coal, used mainly in electric power, both in terms of what you think of is normal pollutants in urban areas and also in terms of greenhouse gas emission. So yes, it is cleaner.
MB: It’s cleaner for the environment?
HJ: All these technologies have their environmental cost in the production and so there are issues in the production of this gas, just like there are in the production of all other energy sources we use.
MB: Right. There has been a lot of controversy in terms of its effect on ground water, streams and rivers.
MB: So we have this boom in natural gas and what is that doing to other forms of renewable energy? Is it tamping down the interest in creating the other forms of energy because there is so much natural gas?
HJ: Yes. I think it does have the effect of lowering the expectations of the growth of opportunities in renewables. A lot of the renewables that are being done now, solar, wind and such, are being driven mainly by subsidies and by various types of regulations, mandates, and the like, but the potential for investment in these technologies – if you go back some years – was stimulated a lot by the expectation that natural gas prices are going to be rising over time. Now, it looks like they won’t be for quite some time and that makes it less likely that these technologies are going to become competitive without subsidies and regulations in the major use for them which is in electric power generation.
MB: Right because it’s just more expensive to use the other form of energy than natural gas?
HJ: That’s right. They are more expensive than natural gas at the prices we have now. Yes.
MB: What are you talking about? Solar? Wind?
HJ: I’m talking about solar and wind.
MB: So, is this the end of coal?
HJ: No, it’s not the end of coal so long as we have no penalty on greenhouse gas emissions from power plants. We’ll continue to use coal until have we some real concern about CO2.
It also is the case that even though United States' use of coal has gone down over time, because the cost difference is so great now with these lower gas prices. These gas prices aren’t going stay at this level for long periods of years and as the gas price gradually crawls back up to a more competitive level without all of this excess overhanging the market, then some of that coal will come back in the U.S. system. So, it’s not the end of coal in the absence of a climate policy.
MB: So, where do you see the United States in ten, 15, 20 years in terms of its energy makeup?
HJ: I think gas will continue to play a big role in the electric power system more than it’s played in the last 20 or 30 years.
MB: Even though there has been this incredible push for renewables and the prices have dropped precipitously over the past few years?
HJ: Yes, because even though the prices have dropped, the renewables are not necessarily economically competitive against other sources, mainly of electric power. So, the prices have dropped and they are growing rapidly, but the problem is they start from such a very low scale -- wind and solar is only like two to three percent of the total production of the country -- so even if you have a rapid rate of growth, which we do, it doesn’t displace the rest of the system in that short of period of time.