[Ok-sus] Natural gas: Plentiful, cheap, American, easy on climate? Maybe not.

Robert Waldrop bwaldrop1952 at att.net
Mon Mar 25 05:39:35 UTC 2013

Very interesting article surveying developments in the natural gas supply 

Got a super insulated house with passive solar gain during the winter?

If not, mebbe think about getting ready for a doubling in natural gas prices.
 Bob Waldrop, Oklahoma City
http://www.ipermie.net -- How to permaculture your urban lifestyle


Sunday, March 24, 2013
Will the final blow for America’s shale gas ‘revolution’ be high prices?

As U.S. natural gas prices flirt with the $4 mark, some skeptics of the 
so-called shale gas revolution think prices are headed much higher. Such a move 
would, not surprisingly, seriously undermine the official story that the United 
States has a century of cheap natural gas waiting for the drillbit.

Several years ago when natural gas began flowing in great quantities from deep 
shale deposits beneath American soil, it seemed to be the beginning of the end 
of America’s troubled journey into dependence on energy imports—a journey marked 
by frequent worry, occasional war and enormous expense.

But, to some people this supposed solution to America’s energy needs has begun 
to seem as costly to the environment and human health as the country’s 
dependence on imported energy has been in terms of mental distress, money and 
blood. It turns out that this new kind of natural gas requires the 
industrialization of the countryside in order to extract it. And that, say those 
closest to the action, risks tainting air, land, and drinking water and 
compromising the health of humans and animals alike.

Well, at least we can say that shale gas is plentiful, cheap, American, and much 
easier on the climate than coal or oil. It didn’t take too long before people 
started looking into whether shale gas really was that much easier on the 
climate. A Cornell University researcher came to the conclusion that shale gas 
was probably worse for climate change than coal. His conclusion hinged in part 
on what are called “fugitive emissions”—unintentional, but unavoidable releases 
of unburned methane into the atmosphere during the hydraulic fracturing 
operations performed to extract the gas. Methane is some 20 times more potent 
than carbon dioxide as a greenhouse gas.

Naturally, the oil and gas industry responded vigorously to the researcher’s 
findings with its usual ad hominem attacks. But, it also highlighted 
uncertainties that are always part of any scientific study. This industry is, of 
course, the same one that has consistently denied the existence of climate 
change and continues to spend millions trying to convince the public that 
climate change either isn’t happening, or if it is, it won’t be that bad or if 
it is, it may actually be good for us.

The industry’s response to the study has, not surprisingly, been met with 
skepticism. That is befitting an industry that, having spent the last two 
decades denying climate change, now suddenly embraces it as a reason to produce 
more natural gas. So, despite the industry’s best efforts, the meme that shale 
gas is worse than coal is out there and being repeated again and again by 
opponents of shale gas drilling.

Well, at least we can say that shale gas is plentiful, cheap and American. But, 
then came the industry campaign to end federal limitations on the export of 
natural gas. What had been touted by the industry as a fuel that would help lead 
America to energy independence would henceforth be treated as just another world 
commodity seeking the highest bidder—even if that bidder is in China, Japan or 
Great Britain. The industry’s aim, of course, is to get higher prices for its 
product than customers in the United States can provide. As noted above, natural 
gas trades at around $4 per thousand cubic feet (mcf) in the United States. That 
compares to about $17 per mcf for liquefied natural gas delivered to Japan. The 
price in Europe is around $12.

Well, at least we can say that shale gas is plentiful and cheap. As natural gas 
prices declined from double digits in 2008 and the shale gas boom proceeded 
apace, the industry convinced Americans that cheap, plentiful natural gas was 
the country’s future for a century to come. And, when natural gas prices plunged 
briefly to $1.82 per mcf last April, even the oil and gas industry began to 
wonder whether cheap natural gas was really such a great thing. At that price or 
anything below about $2.50 really, almost no wells were profitable.

Last year independent petroleum geologist Art Berman, while reviewing the 
financial wreckage of the once flourishing, but now fallen shale gas drillers, 
noted that the industry was based on:

    an improbable business model that has no barriers to entry except access to 
capital, that provides a source of cheap and abundant gas, and that somehow also 
allows for great profit. Despite three decades of experience with tight 
sandstone and coal-bed methane production that yielded low-margin returns and 
less supply than originally advertised, we are expected to believe that 
poorer-quality shale reservoirs will somehow provide superior returns and make 
the U.S. energy independent. 

As Berman noted back then: “Improbable stories that great profits can be made at 
increasingly lower prices have intersected with reality.” The industry proceeded 
to abandon shale gas plays in favor of tight oil plays which have proven to be 
profitable with oil prices consistently crisscrossing $100 a barrel in the last 
two years.

Apparently, price does matter when it comes to natural gas. And so, it seems 
natural gas won’t be endlessly cheap in America after all. As Berman foretold in 
an earlier piece, prices would have to rise to between $5 and $6 to make 
currently paid-for leases profitable from this point forward and between $7 to 
$8 to make new leases worth pursuing. For comparison, back in the heyday of 
cheap natural gas, the decade of the 1990s, the average annual U.S. price was 
$1.92 per mcf, according the U.S. Energy Information Administration.

So what exactly has happened to U.S. natural gas production as reality has set 
in and companies have withdrawn drills to await prices that might actually be 
profitable? The answer ought to be troubling to those who are counting on 
endlessly escalating supplies large enough to displace the majority of oil and 
coal used in our economy. To wit, U.S. marketed natural gas production has been 
flat for the last two years.

The trend is so ominous that two industry insiders I know believe that U.S. 
natural gas production could actually start declining soon and send prices 
soaring. They say drillers have fallen so far behind that it will be impossible 
to make up for production lost from existing shale gas wells. Those wells 
typically see production decline rates of 85 percent after two years. 
(Translation: Some 85 percent of existing production from shale gas wells must 
be replaced every two years BEFORE production can grow.)

The future is, of course, unknown to us. But, the present and the past suggest 
that the so-called shale gas revolution is about to be laid to rest. Yes, shale 
gas might prevent total American natural gas production from dropping off a 
cliff even as conventional natural gas production continues to decline. And, at 
some point shale gas might even allow U.S. production to rise modestly above 
current levels. But, two things are now abundantly clear: It won’t be easy and 
it won’t be cheap.

Kurt Cobb is an author, speaker, and columnist focusing on energy and the 
environment. He is a regular contributor to the Energy Voices section of The 
Christian Science Monitor and author of the peak-oil-themed novel Prelude. In 
addition, he writes columns for the Paris-based science news site Scitizen, and 
his work has been featured on Energy Bulletin, The Oil Drum, OilPrice.com, Econ 
Matters, Peak Oil Review, 321energy, Common Dreams, Le Monde Diplomatique and 
many other sites. He maintains a blog called Resource Insights and can be 
contacted at kurtcobb2001 at yahoo.com.
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