Is natural gas the new next big thing? It is called a revolution in energy and a game-changer. Daniel Yergin claims that “the rapidity and sheer scale of the shale breakthrough—and its effects on markets—qualified it as the most significant innovation in energy so far since the start of the twenty-first century.” The President has proclaimed that the United States is “the Saudi Arabia of natural gas.” It is “the energy equivalent of the Berlin Wall coming down,” says Robin West, CEO of PFC Energy.
They may be right. Over the course of the next several years, we are likely to witness a dramatic evolution in energy. It will not be overnight, but it is likely that there will be steady movement away from coal and petroleum and towards natural gas.
Natural Gas Supplies are Up Dramatically
The statistics are intriguing. From 1990 to 2010, global proved reserves of natural gas have increased by 49 percent. Because of changes in technology, more can be expected to be found. The U.S. is one of the world’s top five producers with large reserves in New York, Pennsylvania, Texas, Montana, and North Dakota. It is likely the U.S. will become a net exporter of natural gas early in the next decade—a possibility that was inconceivable only a few years ago.
This increase in natural gas supply has put pressure on prices. In early 2011, MIT professor John Deutch noted that, “…oil is three times as costly as natural gas for a given amount for energy, and that is almost double the ratio that has prevailed over the past twenty years.” In early 2012, the U.S. Energy Information Agency predicted that with increased production, average prices will remain below $5 per thousand cubic feet through 2023.
Technical Innovations
Two innovations are responsible for much of the increase in natural gas supply: Horizontal drilling and hydraulic fracturing (or fracking). These developments have allowed drillers to economically harvest gas that was difficult and too expensive to obtain. While these are not new technologies, they have become vastly more cost effective and much more widely utilized in the past decade.
• Horizontal drilling achieved commercial viability during the late 1980s. Horizontal drilling is the process of drilling a well that begins vertically or on a slant and then angles to a target location.
• Hydraulic fracturing (or fracking) is a technique that was first used in the 1940s. It injects large amounts of water, under high pressure, combined with chemicals and sand, into shale. This fragments underground rock, creating pathways for otherwise trapped natural gas to flow through to a well.
Potential Benefits and Concerns
Increases in the supply and use of natural gas present both benefits and concerns.
Benefit—Improved Air Quality and Reduction in Greenhouse Gases. The use of natural gas—particularly as a replacement for oil and coal—has compelling environmental advantages. Compared to coal-generated electricity, natural gas reduces nitrogen oxide emissions by 80 percent. Natural gas emits about 29 percent less carbon than oil and 453 percent less than coal. As a transport fuel, natural gas emits about 20-30 percent less lifecycle carbon than oil. In electricity generation, compared to coal, natural gas reduces emissions of sulfur dioxide by 100 percent.
The MIT study, “The Future of Natural Gas,” concluded that “substitution through increased utilization of existing combined cycle natural gas power plants provides a relative low-cost, short-term opportunity to reduce U.S. power sector CO2 emissions by up to 20 percent, while also reducing emissions of criteria pollutants and mercury.”
Concern—Drilling. Natural gas recovery has been widely criticized for the impact that drilling has on the environment. These concerns fall into three basic categories: Polluted waste water, the potential for earthquakes, and the risk of contaminating drinking water.
• Polluted wastewater. The fracking process generates large amounts of dirty water. Water is forced underground, along with sand and chemicals, to free natural gas for extraction. These waters are then extracted. This is a significant concern and waste waters need to be handled properly and disposed of safely. “Some operators have conspicuously misbehaved and some regulators have fallen short,” says the Rocky Mountain Institute’s Amory Lovins, “making fracking controversial even in normally drilling-friendly places like Texas and western Colorado.”
• Earthquakes. Earthquake concerns are raised both from the fracking process and from disposal of waste waters pumped underground. A Washington Post editorial suggests that “more study and probably more regulation will be needed” as more experience accumulates. But they note, “Of the 144,000 storage wells of this type in America, only a tiny fraction have been linked to earthquakes.”
• Contaminated drinking water aquifers. Critics warn that fracking is contaminating drinking water aquifers. Methane has been found in water wells in gas producing regions, but, according to Yergin, this could occur for a number of reasons (improperly sealed wells or naturally occurring shallow layers of methane, for example). The industry argues that fracking occurs a mile or more below drinking water aquifers and is separated from them by thick layers of impermeable rock. Further, they note, there are more than a million wells where fracking has been employed in the United States dating back six decades.
An MIT study concludes, “The environmental impacts of shale development are challenging but manageable. Research and regulation, both state and Federal, are needed to minimize the environmental consequences.” Not everything is known about these issues; they require continued scientific monitoring and research. As more experience and knowledge is attained, more regulation and oversight may be necessary.
Benefit—Energy Security. Increased utilization of natural gas may reduce our dependence on imported oil from unfriendly sources. While this is not a total solution, “the past image of the US as helplessly dependent on imported oil and gas from politically unstable and unfriendly regions of the world no longer holds,” (says) John Deutch.
Benefit—Impact on the Economy. There can be little doubt that a significant reduction in the export of U.S. dollars to foreign nations to pay for energy imports will be a positive development. It is likely to reduce the nation’s trade deficit and enhance the value of the dollar. It is likely that new jobs and investments will develop in the creation of enhanced energy infrastructure to support growing utilization of natural gas. In Washington, there are several examples developing:
• WaterTectonics is an Everett-based company that specializes in water cleaning systems including electrocoagulation treatment, chemical treatment, and automated pH adjustment. The company has seen significant growth in the treatment of flowback and produced water in natural gas extraction.
• World CNG is a Kent, WA-based company specializing in the aftermarket conversion of light- and medium-duty passenger and cargo vehicles to use compressed natural gas instead of conventional gasoline or diesel.
• HotStart is a Spokane Valley company that creates engine heating devices in markets including oil and gas. Much of the company’s growth has been in delivering large pipeline pump engine heating solutions that significantly reduce wear and tear.
Concern—Alternative Energy. Juliet Eilperin of the Washington Post wrote recently, “Perhaps the biggest force working against not just Solyndra but clean energy in general is this: Because natural gas has gotten so cheap, there is no longer a financial incentive to go with renewables.” Investor interest, at least for the moment, is moving in a new direction.
Conclusions
Is natural gas the next big thing? There are few certainties in forecasting, but natural gas looks big. Overall, this is a good thing, albeit with legitimate concerns. There are three reasons to move to new sources of energy: Environmental, economic security, and national security. Natural gas may be environmentally beneficial. It is certainly an improvement to U.S. economic and national security. If it can ultimately provide a bridge to a cleaner, more efficient energy future—and is regulated appropriately—it will indeed be a boon to the world.
