A gradual shift in the supply-and-demand balance for natural gas and increasing shipments of LNG will bring the prices back up, while the risks of fracking continue to be debated
Gas well in the shale country of Pennsylvania. Click to enlarge.Photo Credit: Philly Workers Voice
In many parts of the country and for many applications, natural gas is considered a panacea to our energy challenges.
Comprised mostly of methane, natural gas is clean-burning, with just a tiny fraction of the particulates, nitrous oxides, and other pollutants that are emitted from burning coal or oil. Because the ratio of hydrogen to carbon is higher with natural gas than with longer-carbon-chain fossil fuels like coal and oil, less carbon dioxide is generated when it is burned. At the point of combustion, natural gas releases about 500 grams of CO2 per kilowatt hour (kWh), compared to about 900 grams for coal. That’s good news in terms of climate change.
And the dramatic upsurge in natural gas production made possible through hydraulic fracturing, or fracking, has cut prices dramatically over the past five years. These low prices have contributed to utility companies replacing some of the nation’s dirtiest coal-fired power plants with advanced, natural gas plants—and this has lead to rather significant reductions in our nation’s carbon dioxide emissions over the past few years.
Natural gas seems like a winner. What’s not to like about it?
The dramatic growth—both today and projected—in shale gas, relative to other natural gas sources. Click to enlarge.Photo Credit: U.S. Department of Energy
Natural gas supply and demand
A glut of natural gas floods the domestic market currently, and that’s a boon for consumers and many segments of the U.S. economy. It has led to a fairly rapid shift away from oil and coal toward natural gas. Nearly all of the new power plants built in the last few years have been natural-gas-fueled. With transportation, some large fleets, such as UPS and FedEx, are converting from diesel or gasoline to compressed natural gas. So are some urban bus fleets—at great benefit to urban air quality.
But as these conversions continue, the buyer’s market for natural gas will gradually end as demand inevitably catches up with supply. Natural gas prices will rise.
That shift can’t come soon enough for natural gas producers. In a June 2012 presentation to the Council of Foreign Affairs, Exxon Mobil Chairman and CEO Rex Tillerson noted that the wellhead prices being paid for natural gas—then about $2.50 per thousand cubic feet (Mcf)—were far below the cost of production.
“What I can tell you is the cost to supply is not $2.50,” Tillerson told moderator Alan Murray of the Wall Street Journal. “We are all losing our shirts today. You know, we’re making no money. It's all in the red.” (Since then wellhead prices have risen to about $3.30/Mcf in the U.S.—probably high enough for about a third of shale-gas wells to break even.)
The international market will also affect natural gas pricing. In Europe and Asia the wellhead price of natural gas is three to more than five times higher than in the U.S. Natural gas isn’t stored and transported as easily as petroleum, so the pricing tends to be more regional.
As technologies and facilities improve for compressing or liquefying and transporting natural gas, prices internationally are likely to equilibrate to a significant extent—in our increasingly global economy. As many as 15 liquefied natural gas (LNG) terminals are in the works. If approved and built, these could export as much as 21 trillion cubic feet (Tcf) per year—80% of the current U.S. domestic consumption (26 Tcf).
If just a fraction of these LNG terminals are built—as the conversion from coal to gas continues in the utility sector and from diesel to CNG continues in the transportation sector—natural gas prices can be expected to rise significantly. I will be surprised if we don’t see natural gas above our historical highs (over $10/Mcf in mid-2008) well within ten years.
How fracking works. Click to enlarge.Photo Credit: Al Granberg, Political Climate
Shale gas and fracking
The surge in natural gas production in the U.S. and the low prices over the past six years have been driven by shale gas extracted through fracking. In mid-2007, shale gas production in the U.S. totaled less than 5 billion cubic feet per day; by the end of 2011 that production had risen to nearly 30 billion cubic feet per day.
With fracking, water, sand, and chemicals are injected under very high pressure into wells up to several miles deep and extending horizontally up to several more miles. Controlled explosions fracture the 350-million-year-old shale, followed by the injection of fluid under high pressure that extends fractures into the rock. Next, sand or a like material (“proppant”) is injected to “prop” open those fissures so that natural gas can flow out into the pipe and be extracted.
Along with the water and proppants, various chemicals are injected that serve as lubricants, viscosity agents, and anti-bacterial agents to aid in the process. Much of this frack fluid is pumped to the surface, along with highly saline water and various toxic elements from the rock (including barium and arsenic) and must be disposed of. That which doesn’t get pumped back out remains underground. There is very little transparency by the industry on exactly what chemicals are being used and what quantities.
Dramatic growth in shale gas from different formations. Click to enlarge.Photo Credit: U.S. Department of Energy
Along with the considerable environmental concerns about fracking, there is concern among some experts that just as gas extraction rates increase rapidly with fracking, those production rates will also drop off very quickly. A June, 2011 article in the New York Times raised concern that depletion of fracked gas wells occurs more quickly than with conventional gas wells.
According to petroleum geologist Arthur Berman, Associate Editor of the American Association of Petroleum Geologists Bulletin and director of the Association for the Study of Peak Oil, the annual depletion rate in the Eagleford Shale (which he calls “the mother of all shale plays”) is over 42%.
Fugitive methane emissions
Then there’s the issue of fugitive methane emissions from gas drilling—and particularly fracking. Natural gas is a far more potent greenhouse gas than carbon dioxide, and some experts suggest that as a result natural gas’s contributions to climate change are significantly greater than the CO2 releases during combustion would suggest—though the widely publicized claim by a Cornell University scientist that the greenhouse gas impact of natural gas is greater than that of coal has largely been dismissed.
Converting to natural gas
I would like to be 100% behind natural gas as the fuel of the future. Indeed, I am hopeful that the current low price of natural gas will result in the shutdown of more coal-fired power plants.
Drilling in the Marcellus Shale Formation. Click to enlarge.Photo Credit: Heyl & Patterson
But I can’t help worrying that when we pump undisclosed chemicals into the ground (“trust us, they’re safe”) and break up geologic strata in ways that alter the flow of groundwater and gases, we’re unleashing a Pandora’s box of problems that our children and grandchildren will have to deal with at a cost of hundreds of billions of dollars—for an energy return that proves fleetingly brief.
My hope is that the low-cost natural gas we enjoy today will continue to spur the transition away from coal while buying us enough time for the truly clean, nearly greenhouse-gas-free, renewable energy sources like wind and solar to gain the foothold needed to usher in a lasting green and safe energy future.
Alex is founder of BuildingGreen, Inc. and executive editor of Environmental Building News. In 2012 he founded the Resilient Design Institute. To keep up with Alex’s latest articles and musings, you can sign up for his Twitter feed.