Fuel possible energy savior

An unlikely source of energy has emerged to meet international demands that the United States do more to fight global warming: It's cleaner than coal and cheaper than oil, and a 90-year supply is under our feet.

It's natural gas, the same fossil fuel that was in such short supply a decade ago that it was deemed unreliable. It's now being uncovered at such a rapid pace that its price is near a seven-year low. Long used to heat half the nation's homes, it's becoming the fuel of choice when building new power plants. Someday, it might win wider acceptance as a replacement for gasoline in our cars and trucks.

Natural gas' abundance and low price come as governments around the world debate how to curtail carbon dioxide and other pollution that contribute to global warming. The likely outcome is a tax on companies that spew excessive greenhouse gases. Utilities and other companies see natural gas as a way to lower emissions and their costs.

In June, President Barack Obama lumped natural gas with oil and coal as energy sources the nation must move away from. He touts alternative sources: solar, wind and biofuels from corn and other plants. In Congress, the energy debate has focused on finding cleaner coal and saving thousands of mining jobs from West Virginia to Wyoming.

But utilities in the United States aren't waiting for Washington to jump on the gas bandwagon. Looming climate legislation has altered the calculus that they use to determine the cheapest way to deliver power. Coal might still be cheaper, but natural gas emits half as much carbon when burned to generate the same amount of electricity.

Today, about 27 percent of the nation's carbon dioxide emissions come from coal-fired power plants, which generate 44 percent of the electricity used in the nation. Just under 25 percent of power comes from burning natural gas, more than double its share a decade ago but still with room to grow.

But the fuel has to be plentiful and its price stable, and that has not always been the case. In the 1990s, factories that wanted to burn gas instead of coal had to install equipment that did both because the gas supply was uncertain and wild price swings were common.

It's a different story today. Energy experts think that the huge volume of supply now will ease price swings and supply worries.

Gas now trades on futures markets for about $5.50 per 1,000 cubic feet. While that is up from a recent low of $2.41 in September as the recession reduced demand and storage caverns filled to overflowing, it's less than half what it was in the summer of 2008 when oil prices surged close to $150 a barrel.

Oil and gas price trends since have diverged because of the recession and the growing realization of just how much gas has been discovered in the past three years. The introduction of horizontal drilling technology has unlocked stunning amounts of gas in what were before off-limits shale formations. Estimates of total gas reserves have jumped 58 percent from 2004 to 2008, giving the United States a 90-year supply at the current usage rate of about 23 trillion cubic feet per year.

The only question is whether enough gas can be delivered at affordable prices for the trends to accelerate.

The world's largest oil company, Exxon Mobil Corp., gave its answer last week when it announced a $30 billion deal to acquire XTO Energy Inc. The move will make it the country's No. 1 producer of natural gas.

Consider Progress Energy Inc., which scrapped a $2 billion plan this month to add scrubbers needed to reduce sulfur emissions at four older coal-fired power plants in North Carolina. Instead, it will phase out the plants and redirect a part of those funds toward cleaner burning gas-fired plants.

Nevada power company NV Energy Inc. canceled plans for a $5 billion coal-fired plant early this year. That came after Majority Leader Harry Reid made clear he would fight its approval and executives' fears mounted about the costs of meeting future environmental rules.

"It was obvious to us that Congress or the EPA or both were going to act to reduce carbon emissions," said CEO Michael Yackira, whose utility already gets two-thirds of its electricity from gas-fired units. "Without understanding the economic ramifications, it would have been foolish for us to go forward."

Even with an expected jump in demand from utilities, gas prices won't rise much beyond $6.50 per 1,000 cubic feet for years to come, said Ken Medlock, an energy fellow at the James A. Baker III Institute for Public Policy at Rice University in Houston.

Such forecasts are based in part on a belief that the recent spurt in gas discoveries might only be the start of a golden age for gas drillers.