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In late August the Vancouver Sun ran an article on the bullish prospects for Canadian shale gas. The piece began this way: “What energy crisis? Despite what you may be hearing about a global peak in oil production, waning reserves, and $100-plus oil prices, North America is suddenly awash in fossil fuel.”

The most arresting quote came from Mike Graham of EnCana, a Canadian company that holds dominant positions in British Columbia’s Montney and Horn River plays. “Natural gas will displace coal. It will displace oil. There is no reason North America shouldn’t be energy self-sufficient if we can displace a lot of the oil with natural gas.”

Are we all of a sudden “awash in fossil fuel?” On the road to “energy self-sufficiency?”

You may have your doubts, but when talking with key gas industry insiders, it’s clear they believe shale gas has changed the game. (We’ll explore the topic in depth at the upcoming ASPO conference in Denver, October 11-13th. To register: )

For example, Aubrey McClendon, CEO of Chesapeake Energy, believes the Marcellus shale, which underlies Appalachia, holds as much gas-in-place as the U.S. has used in its entire history. Production from the Marcellus is still negligible, and not all of that gas is recoverable, but the belief that America’s gas future is much brighter than we thought a few years ago is beginning to take root.

Ignoring the ubiquitous hype, let’s presuppose for a minute that increased domestic drilling, combined with large hikes in LNG imports, could lead to big increases in U.S. gas supply. What would be the highest and best use of that new gas?

To reduce the trade deficit and lessen U.S. dependence on foreign oil, you could launch an effort to use compressed natural gas in vehicles. (After decades of half-hearted efforts, there are still way fewer than one million CNG vehicles on American roads, out of a fleet nearing 250 million.) If the goal is to save money and enhance national security, this would be the smartest strategy.

But if the goal is to save carbon, you would use the natural gas to displace coal in the electric sector. This idea seems to be gaining traction. For example, in July Colorado governor Bill Ritter addressed hundreds of natural gas executives at a conference in Denver. A year ago Ritter was in the midst of a bruising battle with the industry, as he championed aggressive new standards for drilling and wildlife protection. Now, facing a tough re-election challenge, he struck a conciliatory note.

“Natural gas is a vital part of the new energy economy – not a bridge fuel, not a transition fuel, but a mission-critical fuel,” the Governor proclaimed. “We can’t begin to address climate change in a meaningful way without using more natural gas.”

In recent months clean energy advocate Robert F. Kennedy, Jr. and former Colorado Senator Tim Wirth have echoed similar sentiments. “Climate disruption is real,” Wirth told the Denver conference. “We are in very deep trouble, the edge of catastrophe. The gas industry must play a major role in saving the world.”

In Colorado, as in China, the question is what to do about coal. Each day 10,000 hopper cars heaped with coal – enough to fill a train 110 miles long – trundle out of the Rockies, bound for power plants as distant as Florida. (One insatiable coal plant near Atlanta owns 35 complete train sets, which trundle incessantly back and forth to Wyoming. That’s necessary since a trainload takes five days to get there, and is burned within eight hours.)

Ritter is one of many governors who have called for a 20 percent reduction in greenhouse emissions by 2020. This is a very tall order, in no small part because his state may add one million people by then. Population is rarely broached in climate discussions, which is unfortunate because growth is a big deal. Reducing emissions while people are increasing is like running down an up escalator. To hit Ritter’s target, all growth in demand would need to be met through conservation and a multi-billion investment in carbon-free wind, solar, or nuclear. Simultaneously, you’d have to retire nearly one-half of Colorado’s coal plants, and somehow replace their output.

Could conservation fill the entire gap? That’s unlikely. The potential for energy saving is enormous but getting it to happen on such a large scale in such a short time would be difficult. Efficiency may be the new apple pie, but the inconvenient truth is that the typical household is using 10 percent more electricity than it did a decade ago, due to the proliferation of air conditioning, plasma TVs, and other gadgets. That leaves burning more natural gas, a lot more, nearly twice as much as the state burns for electricity now.

The politics of fuel switching are difficult, because it would raise electric rates and because coal’s markup rivals that of Fiji Water. Each year, the nation’s utilities spin $40 billion worth of coal into $160 billion of electricity. Thus, although the average coal plant is nearly 40 years-old, there’s no incentive to retire it, even though it produces three times more carbon dioxide than a modern gas turbine. If the nation was really serious about addressing climate change, the “cash for clunkers” program would have targeted those ancient coal plants, not F150s.

Does Colorado produce enough natural gas to support such a strategy? Yes, plenty. One-fifth of the state’s current exports would suffice. The math is much more difficult at the national level.

If the goal was to displace half the coal now burned in the power sector, the U.S. would have to increase its annual gas consumption from roughly 20 trillion cubic feet to 28 trillion cubic feet. That’s a big lift, since U.S. gas production peaked 35 years ago at 21.7 trillion cubic feet, and is today 5 percent lower.

Right now, the Rockies gas industry is suffering through its worst year in recent history. Due to the recession, commodity prices have cratered. Not a single coalbed methane well was drilled in Wyoming’s Powder River Basin in June, welcome news to local environmental groups.

For the next year or two, the nation is likely to indeed remain awash in gas. But if the country were to embrace fuel switching, as it may need to do to reduce greenhouse gas emissions quickly, the glut would disappear and boatloads more LNG and dramatic increases in drilling would be needed.

Indeed, to displace half the coal we now use with gas, we’d need to complete 30,000 to 50,000 new wells a year for decades to come. If that’s our strategy for averting climate disaster, then we’ll need to put somebody like Sarah Palin in charge of drilling.