September 19, 2008
Natural gas is regaining the acclaim it achieved in the early 1990s. This time the hype is based on more than its environmental benefits. It's also founded on shale-gas beds that could provide energy for decades given today's consumption rates.
The resulting optimism has led to an insatiable desire to boost production. It's already up 9 percent this year, most of which has come from the Barnett Shale underlying the Fort Worth, Texas area. The increased drilling is not just in the Lone Star state but also around the United States and particularly in Louisiana, New York State and Pennsylvania. That has helped force down natural gas prices from an earlier price of $13 per million BTUs to just under $8 per million BTUs now.
"Going forward, I believe U.S. natural gas producers can increase supplies by 5 percent a year for at least the next decade and that assumes there is no more access to public lands and waters than there is today," says Aubrey McClendon, chief executive of Chesapeake Energy Corp. "So that means there is plenty of natural gas to burn to make electricity …"
McClendon has formed a group called the American Clean Skies Foundation, which funded a study performed by Navigant Consulting. The analysis found that production from shale formations provided just 1 percent of this country's natural gas a decade ago but now supplies 10 percent. Its bottom line is that the United States has an enormous natural gas base that can support existing uses as well as provide 20 percent of all transportation needs in the future.
Shale is a sedimentary rock that is less porous than sandstone where traditional natural gas is found. While explorers have always known shale formations are rich with gas, it has only been in recent years that retrieving such resources has been technologically feasible. With horizontal drilling, producers can move laterally beneath cities and neighborhoods to extract the product.
But tons of water and chemicals must be pumped deep down into the wells to loosen it. And that has created concerns among many communities and environmental groups that say the process contaminates the groundwater. Along those lines, such organizations say that they recognize that natural gas is the cleanest burning fossil fuel but that its current appeal must remain temporary until green energy sources are primed.
Environmental Protections
The Barnett Shale was the first major field to be explored around 2001. It now supplies 6 percent of the nation's natural gas. But the Haynesville Shale project in Louisiana and Texas as well as the Marcellus field that stretches from New York State down through Appalachia might be even bigger. Estimates are that 21 shale beds exist in 20 states but that it will take several years to prepare them for development.
"Technology has allowed access to and economic production of a vastly greater resource base," says Richard Smead and Gordon Pickering, directors at Navigant Consulting. "Specifically, improved hydraulic fracturing and greatly improved horizontal drilling have allowed tight geographically diffuse reserves to be developed in large volumes."
In the pursuit to find shale and other unconventional deposits, the two estimate that natural gas drilling will increase by 50 percent by 2020. Their best case scenario is that 842 trillion cubic feet of shale exists in the United States. At today's consumption rates, that is 118 years' worth of supply. Government researchers, however, take a more tempered view and project shale-gas reserves to be 125 trillion cubic feet. They quickly add that those estimates could rise once some of these projects start coming to fruition.
The major challenges to raising production are over whether the aging pipeline infrastructure can handle the increased volumes and whether there are enough engineers on tap to make all these dreams a reality. And then there is the public controversy over land and water rights.
It's all been heightened in New York State where the governor there has recently signed laws that will make it easier for developers to perform horizontal drilling. That has drawn a word of caution from environmentalists who say those rules could potentially create a massive land rush to conduct dangerous and inadequately reviewed activities in ecologically critical portions of the state.
"Horizontal gas drilling carries the risk contaminating the drinking water supply that serves half of the state -- including all of New York City -- with dangerous chemicals," says Kate Sinding, staff attorney for the Natural Resources Defense Council. "The state needs to determine what regulatory revisions are required to establish an appropriate system for regulating the drilling to make sure it's practiced in a way that is environmentally sound and allows for meaningful public participation."
The central point that the defense council is making is that regulators must get better organized before they start freely awarding drilling permits. It's a concern that seeks to protect drinking water supplies. At the same time, the group says that it has not lost sight of another major policy objective -- the need to limit greenhouse gas emissions. While it would prefer greater investment in green energy fuels, it is cognizant of the fact that natural gas releases half the carbon dioxide of coal and 30 percent that of oil.
Energy use is projected to rise in the decades to come. And by extension, the demand for natural gas will also escalate. It will therefore remain inextricably linked to this country's economic progress. Toward that end, the production of rich shale formations throughout the nation will provide an essential stimulus and one that proponents say should stave off future energy emergencies.
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Ken Silverstein EnergyBiz Insider Editor-in-Chief
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