"Get ready, little lady. Hell is coming to breakfast."
In 1995 I built my first home. It was a two story in Anne Arundel County. I was able to use the latest materials and employ the newest heating technology available using what BG&E told me would be the best and cheapest fuel ever: Natural gas. I bought a Trane furnace and A/C unit and it truly was a marvel. I enjoyed cheap fuel for a while-until demand for gas went up. Then I was stuck with that gas furnace for a long time no matter what happened to the price of gas.
A recent article in Harvard Magazine details the ups and downs of the fracking craze overtaking this country. Soon, even forward-looking Maryland could take a step backwards (and look like Pennsylvania) if outgoing and grenade-wielding Martin O'Malley gets his way.
From the story: Production and consumption of natural gas in the United States were in approximate balance up to 1986. Production then lagged consumption during the following 20 years; the deficit was made up largely by imports from Canada, delivered by pipelines. The situation changed dramatically in 2006 as companies using new drilling technologies moved aggressively to tap the vast supplies of previously inaccessible gas trapped in underground shale deposits. Natural gas extracted from such sources accounted for 10 percent of U.S. production in 2007, and rose to 30 percent of production by 2010—an enormous, swift change in our huge market. There are few signs that the trend is likely to reverse in the near future.
George here: As we know, in an open market, the cheapest fuel or commodity will get the public’s money. Look at Walmart, the cheap goods on their shelves are like poison to a rat (this is only my opinion, of course), but inexplicably the consumption never ends. But pay attention, as the story continues – and as it was with my first house - the trend will reverse and always does.
Back to the story: Partly as a result of that surge in supply, domestic natural-gas prices are now lower than at any time in the recent past. The spot price for natural gas traded on the New York Mercantile Exchange hit a record low of $1.82 per million British thermal units (MMBTU) last April 20—down 86 percent from a high of $12.69 in June 2008. Even at recent, somewhat higher prices, natural gas is now significantly cheaper than either diesel fuel or gasoline on an energy-equivalent basis: a little more than one-tenth the wholesale, spot prices of about $3 per gallon for those liquid fuels.
Lower-priced natural gas has had important consequences for the U.S. economy. Approximately one-quarter of primary energy (mainly coal, gas, oil, nuclear, and hydro) consumed in the United States in 2011 was supplied by natural gas. Electricity generation accounted for 31 percent of total natural-gas demand, followed by consumption in the industrial (28 percent), residential (19 percent), and commercial (13 percent) sectors. Natural gas is used as an industrial energy source in manufacturing products ranging from steel and glass to paper and clothing. It is the raw material for fertilizer, paints, plastics, antifreeze, dyes, photographic film, medicines, and explosives. More than half of all commercial establishments and residences are heated using gas, which is widely deployed as well for cooking and as fuel for water heaters, clothes driers, and other household appliances. Consumers have benefited directly from lower gas-utility bills, and industrial customers have benefited by switching fuels—as have chemical and other processors that use gas as a feedstock. Abundant, cheap natural gas has been of general benefit to electric-utility customers as power suppliers have substituted it for coal to fire their generators.
George here: It is worth pointing out the positives. Gas has helped reduce the CO2 levels to records not seen in more than 20 years. Less coal is being used to generate electricity. This brings down the amount of mountain top removal, sulphur and more importantly mercury in the oceans, including a host of other chemicals that will give a grown man nightmares. But will this last? Will the low prices persist?
Back to the story: Shale in different regions are characterized by variable combinations of hydrocarbons. As the story tells it, the hydrocarbon mix matters, because the break-even price for profitable extraction of natural gas from a dry shale well is estimated at about $5/MMBTU—about one and a half times the spot-market price in October. The bulk of the natural gas produced from shale today is derived from wet sources: marketing of the liquid products (which command higher prices) justifies the investments.
That means that the economic momentum of the shale-gas industry can be sustained for the long term only by decreasing production (ultimately causing prices to adjust—a process that may be under way as drilling diminishes at current prices) or by increasing sales of its product.
George here: So the only way to make this natural gas viable is to have consumers willing to pay the higher price needed. Just as with cigarettes, alcohol and gambling -get them hooked and your business plan is golden. Those who want to promote gas and fracking are making bets on gas driven police and ambulances here in the states and exporting to other countries such as Europe and to that retail nemesis of the American public, China.
The story has a great primer for fracking novices, but my readers are savvy and I will spare them the time. Go to the link below for the whole story.
But it is worth looking at this part: As many as 25 fracture stages (per horizontal leg) may be involved in preparing a single site for production, each requiring injection of more than 400,000 gallons of water—a possible total of more than 10 million gallons before the well is fully operational. A portion of the injected water flows back to the surface, heavily contaminated with the fracking chemicals and others it has absorbed from the shale. Depending on the local geology, this “return water” may also include radioactive elements.
Drillers developing a well must take exceptional care to minimize contact between the wellbore and the surrounding aquifer—often the source of nearby residents’ fresh water. Serious problems have arisen in the past from failures to isolate the drilling liquids, including cases where well water used for drinking became so contaminated that human and animal health was threatened. It is essential that monitoring be in place to ensure the continuing integrity of the seal isolating the well from the aquifer even after the well has been fully exploited and abandoned.
Finally, careless drilling and production from fracked wells can result in fugitive emissions of methane from the shale below. Such inadvertent releases of methane could more than offset the advantages otherwise realized by reducing emissions of CO2 through substituting natural gas for other fuels.
George here: It is no secret where I stand on this argument. As a long time promoter of Solar and Wind Energy for electricity to fuel our lives and vehicles, it is hard to me to think of a Maryland with frackers in our mists. Just like the outlaw Josie Wales best said it, "Get ready, little lady. Hell is coming to breakfast."
Back to the Harvard Magazine story: A recent study by the National Renewable Energy Laboratory (NREL) suggests that with suitably targeted investments, emissions of CO2 from the U.S. power sector could be reduced by as much as 80 percent by 2050. The dominant source of electricity as envisaged in this analysis would come from a combination of wind and solar, with gas-fired plants called on to provide backup whenever the intrinsically variable source of power from wind and solar might not be sufficient to meet peak demand (on a hot summer evening, for example). Coal would be replaced initially by gas, continuing the trend observed over the past several years. Successful implementation of this strategy will depend critically, however, on future trends in relative prices for electricity generated using coal, gas, wind, and solar.
George here: Electricity from wind is staying competitive thanks to the production tax credit PTC currently in place. If natural gas prices go up as is needed by that industry than wind will continue to beat gas. But if coal becomes cheaper than gas and wind than we could slide back to coal. It will be necessary to keep PTC's in place to make sure that wind and solar can at least beat coal. Just in case gas continues to stay cheap.
The entire story can be read at Harvard Magazine. Here is the link.