Tag Archives: shale gas

Some natural gas posts worth reading

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Lynne Kiesling

Last week the EPA released a report on the extent of methane release during shale gas drilling; the results indicate that methane release is substantially smaller than previously thought. According to an article in Fuel Fix summarizing the report,

The scope of the EPA’s revision was vast. In a mid-April report on greenhouse emissions, the agency now says that tighter pollution controls instituted by the industry resulted in an average annual decrease of 41.6 million metric tons of methane emissions from 1990 through 2010, or more than 850 million metric tons overall. That’s about a 20 percent reduction from previous estimates. The agency converts the methane emissions into their equivalent in carbon dioxide, following standard scientific practice.

The EPA revisions came even though natural gas production has grown by nearly 40 percent since 1990. The industry has boomed in recent years, thanks to a stunning expansion of drilling in previously untapped areas because of the use of hydraulic fracturing, or fracking, which injects sand, water and chemicals to break apart rock and free the gas inside.

Experts on both sides of the debate say the leaks can be controlled by fixes such as better gaskets, maintenance and monitoring. Such fixes are also thought to be cost-effective, since the industry ends up with more product to sell.

This excerpt reflects my thinking on the leaks — since methane is the product they are extracting to sell and the cost of managing leaks is relatively low (but not zero), the firm has a self-disciplining incentive to reduce leaks (although not eliminate them, since the cost is not zero).

In a post on the EPA report, Walter Russell Mead remarks that

Companies are developing more sophisticated leak detection systems, and unlike many other environmental problems (like, say, power plants’ greenhouse gas emissions), there is a market incentive to prevent these leaks without any sort of green interventionist policy. Every unit of methane released into the atmosphere during drilling is lost profit.

But that’s not stopping misguided greens like Bill McKibben from bemoaning the news. McKibben took this opportunity to stress the need to transition away from fossil-fuels altogether, rather than appreciating the fact that we’re extracting one of the cleanest fossil-fuels more efficiently and with much less environmental impact than ever before. McKibben’s blinders are firmly in place; we’re unlikely to see a revision to a post of his earlier this month in which he suggested that methane leakage might make natural gas worse for the environment than coal.

I’ve never found McKibben’s arguments compelling, and now I realize why: his advocacy for dramatic, fast changes does not reflect how real people in real-world, complex decisions make changes in their behavior. McKibben fails to think at the margin. He does not acknowledge that the long transition to cleaner fuels is already in process. Long transitions are typical in technological change; think about how long it took to transition from water power to steam power — 60 years! McKibben’s argument for sudden, dramatic change does not reflect economic thinking.

Europe is burning more American coal

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Michael Giberson

Natural gas production is booming in the United States. The resulting low natural gas prices are helping the fuel displace other energy sources, most particularly the use of coal to produce electric power. As U.S. demand for coal falls, so has its price and as a result international coal buyers are increasingly turning to U.S. suppliers. One big buyer: Europe.

Ironies abound in this Washington Post report on growing European use of coal. The EU has elaborate and costly greenhouse gas regulations while the U.S. has failed to implement any systematic federal greenhouse gas policies. European nations like Germany, Spain, and Denmark are frequently cited as models for their support of renewable energy. And, with these policies in place, greenhouse gas emissions are falling in the United States and Europe is burning more coal. Apparently good intentions are not enough. The Wall Street Journal had a similar report yesterday: “U.S. Coal Finds Warm Embrace Overseas.”

One more point: All that “good news” about reductions in U.S. greenhouse gas emissions is mitigated a bit by tracing through the economic logic. We’ve displaced some coal consumption by increased gas consumption, but much of that coal is simply being burned in Europe or China or elsewhere. U.S. coal production has been relatively flat for two decades, but U.S. coal exports have doubled since the 2006. (See EIA data here.) So we’re cutting emissions, but there will be essentially no climate change pay-off from the cuts. This same consequence would have arisen had the U.S. shifted from coal to natural gas because of carbon taxes or an effective U.S. cap-and-trade scheme (except in that scenario we pay more for energy rather than less. Technological improvements rule!).

The federal government’s natural gas R&D breakthrough

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Michael Giberson

In the recent edition of The American magazine, the on-line journal of the American Enterprise Institute, Michael Shellenberger and Ted Nordhaus write in defense of the President’s State of the Union address claim of federal government credit for the shale gas revolution. (For those of you not keeping score at home, (1) I commented on a related Shellenberger and Nordhaus op-ed in two posts back in December 2011, here and here, and then (2) followed with a comment in response to the State of the Union remark in late January 2012, here.)

Shellenberger and Nordhaus begin this recent article:

In his State of the Union address, President Obama invoked the 30-year history of federal support for new shale gas drilling technologies to defend his present day investments in green energy. Obama stressed the value of shale gas—which will create thousands of jobs and billions in profits—as part of his “all of the above” approach to energy, and defended the critical role government investment has always played in developing new energy technologies, from nuclear to solar panels to wind turbines.

The president’s remarks unsurprisingly sparked a strong response from some conservatives (here, here, here, and here), who have downplayed and even attempted to deny the important role that federal investments in hydrofracking, geologic mapping, and horizontal drilling played in the shale gas revolution.

This is an over-reaction. In acknowledging the critical role government funding played in shale gas, conservatives need not write a blank check for all government energy subsidies. Indeed, a closer look at the shale gas story challenges liberal policy preferences as much as it challenges those of conservatives, and points to much-needed reforms for today’s mash of state and federal clean energy subsidies and mandates.

Note that the first of their “here” links is to the first of my two December 2011 blog posts in response to their op-ed, as it appeared at The Energy Collective site (where some of our KP energy-related posts get a second life). As it happens, after the President’s address, the Master Resource blog republished the post as a commentary in response to the President’s natural gas research claim, appending to my title “(December 20 post becomes part of a national debate).”

I want to object to a couple of pretty minor points below, but before I object let me emphasize my agreement with part of what they say about much-needed reforms to today’s state and federal clean energy policies. As they point out late in their article, they’d like to see a reduction or even an end to most current renewable energy production subsidies and direct some of that funding to energy research and innovation. I would completely support such a move, even though I wouldn’t defend the change on the same grounds that they do.

And now two petty objections, both in response to the sentence “The president’s remarks unsurprisingly sparked a strong response from some conservatives (here, ….”

  • First, I am not a conservative. I am pro-dynamism, pro-market, pro-experimentation in many matters both economic and social, and pro-freedom. I don’t want to belabor the point, they probably didn’t mean to offend me, but I am libertarian not conservative.
  • Second, my December 20, 2011 response was not directed at President Obama’s State of the Union address in January 2012, but rather at the mid-December 2011 op-ed by Shellenberger and Nordhaus. (For what it’s worth, I find their arguments more thoughtful and more worthy of a thoughtful response than the President’s  remarks on the topic. So even though my first response to their piece started in somewhat flippant tone, I did try to engage with what they were saying.)

My less minor objections to this new article by Shellenberger and Nordhaus will require a bit more explanation, so I’ll defer them for now. In brief, I still object to how they characterize the significance of the federal role in drilling technology and especially to some of the policy inferences they want to make. In addition, I will want to explain how and why I would support the kind of renewable energy policy reforms they propose even though I disagree with the reasons they give for the reforms.

I should add that their article goes far beyond the first three paragraphs quoted above. You should read the whole thing.

Art Berman spots distress in the natural gas industry

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Michael Giberson

Apparently I’m just a hot-headed, temperamental guy unwilling to sit still and listen to a patient explanation of a contrary point of view. I’ve only read the first paragraph of Art Berman’s new post at the The Oil Drum and already I’m arguing with my computer screen and searching around for data to illustrate my rebuttal.

Here in the first paragraph in question, from a post entitled “After The Gold Rush: A Perspective on Future U.S. Natural Gas Supply and Price”:

On January 23, 2012, Chesapeake Energy announced that it would curtail drilling in shale gas plays in the United States. Subsequently, other operators have followed suit. While the outcome of this announcement is unclear, it is a signal that the industry is in distress. One can argue that this distress stems from a lack of discipline as market price began to decline.

Distressed? Chesapeake Energy is in the oil and gas business. The ratio of oil prices to natural gas prices is at historic highs. Chesapeake announces they are shifting their drilling activities away from natural gas resources and toward oil resources. Since when is responding to incentives a sign of distress?

Jump back six years ago and oil prices (quoted in barrels) were about 6 times the price of natural gas (quoted in million BTU), a ratio that happens to be near the relative energy contents of the two energy resources. Prices of both went up and then down together in 2007 and 2008, oil a little more than gas, but beginning in 2009 oil prices resumed an upward path while gas prices have drifted downward. The current oil-to-gas price ratio is an astounding 40 to 1.

The following EIA chart is from May 2011, but it shows that the oil and gas industry as a whole has been quite reasonably switching from natural gas drilling to oil drilling as the relative price differences began to change. The trends shown have continued over the last several months.

U.S. oil rig count overtakes natural gas rig count (Chart)

U.S. oil rig count overtakes natural gas rig count. Source: EIA (Link to EIA analysis and supporting data.)

If anything, to the extent Chesapeake stayed with natural gas drilling even as the oil-to-gas price ratio was shifting against gas, it signals one of three things: (1) their gas operations were exceptionally profitable, at least relative to their oil opportunities, but now prices have tipped their calculations toward oil, (2) they had contractual obligations that kept them in gas drilling longer than they would have preferred, given the way prices developed, or (3) they irrationally stuck to natural gas drilling well after incentives should have pushed them to oil, but they’ve recently regained their senses. Which of these three options reveal an industry in distress?

The reality is simpler. A few moments searching Google news turns up stories from 2011, 2010, and 2009 in which Chesapeake has said it was shifting from gas to oil drilling. Chesapeake has been slowly shifting from gas to oil drilling over the past few years just like the rest of the industry, perhaps the only change in the most recent announcement is that the company is increasing the pace of its shift.

Okay, later today I’ll have time to read the rest of Berman’s post. Maybe reading the rest of his reasoned analysis will enlighten me, will calm me down a bit.

Will the gas boom go bust?

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Michael Giberson

Over at the Oil Drum appears an article under the heading, “Gas Boom Goes Bust.” The author compiles many data charts – big picture, close-up, long run and short, etc. – quotes a few other writers and a few headlines, and eventually arrives at this conclusion:

The bottom line is that natural gas is a cyclical industry which recently enjoyed a very large boom. As night follows day, a bust is sure to come. Based on the information presented above, I would humbly submit that it has just arrived.

Among all of the charts and graphs, I take the essential points to be that some natural gas developers, including some important ones, have employed financial strategies enabling them to avoid the harmful consequences of low gas prices so far, but gas prices are now so low and projected to stay low for so long that these strategies are no longer available. The author expects to see some developers in bankruptcy court this year – evidence of the bust.

But this diagnosis seems to confuse the fortunes of a few (or even many) businesses with the outlook for the market. The natural gas boom was never about the fortunes of individual natural gas developers, it was about the ample supplies of natural gas coming into the market.

Companies may well go bust, but the gas boom itself continues.

Giberson calls for one-year moratorium on hospital admissions pending analysis of risks associated with nosocomial infection

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Michael Giberson

I read recently that as many as 99,000 deaths per year in the United States are linked to nosocomial infection (also known as hospital-acquired infection).

I’m outraged, obviously, and relying on the precautionary principle I am calling for a minimum one-year moratorium on hospital admissions so the healthcare industry can bring an end to nosocomial-linked deaths and engage in further scientific study. Answers to the questions about the human and ecosystem health impacts involved will only come from scientific research.

The following statement is made available to news and media outlets:

“When it comes to hospital admissions,” Giberson said, “our guiding principle for public policy should be the same as the one used by physicians: ‘First, do no harm.’ There is a need for scientific and epidemiologic information on the health impacts of hospital admissions. Frankly, no one should admit even one more more patient before we have the scientific facts. There are health care needs in our communities that must be met safely. The reality is that the healthcare industry has not done nearly enough to finance the needed research effort.”

[Yes, I am mocking this announcement, see news story here. N.B., I'm not mocking their concerns for potential health issues, I'm mocking the idiotic recommendations. -MG]

Natural gas is too cheap and too plentiful

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Michael Giberson

Russel Smith thinks we should use government power to limit natural gas production in order to boost gas prices. Why? Because he is the executive director of the Texas Renewable Energy Industries Association and cheap and plentiful gas is cutting into the business opportunities of renewable energy companies.

“The price is so low, there’s so much being produced, and it’s perverting the effort to move renewables into the marketplace,” he said.

He continued:

With the addition of shale gas to the marketplace and continuing low gas and power prices, Smith said renewables have been unable to gain the traction that was anticipated a few years ago.

“Because prices are so low, the momentum to bring large-scale solar and wind, especially solar, to the market has been somewhat stymied,” he said. “The differential in the price of natural gas and solar wasn’t there five years ago as momentum was building.”

The article said Smith initially suggested the idea of regulating gas production to spark discussion during a conference panel. (Reminds me of the Adam Smith quote on business gatherings: “People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices.”)

If he can’t convince regulators to limit gas production, Russel Smith suggested that government could do more to boost demand for natural gas: exports, LNG for long-distance trucking, anything that might help boost the price of the competition. Such moves would, said Smith, “improve the situation for natural gas and everyone else.”

Not quite everyone else, right?

NYT editor on shale gas skeptic article: we should have done better

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Michael Giberson

As mentioned here a few weeks ago, links below, the pair of New York Times articles giving voice to shale gas skeptics were badly done. (I called them no more than “an impressive collection of shale skeptic sound bites.”) I was far from the only critic, and the paper itself received a lot of complaints. The Times‘s reader ombudsman investigated and has published an assessment: “Clashing Views on the Future of Natural Gas.”

The report included a somewhat amusing interchange between the ombudsman, the reporter and the editor for the story (links are in the original, bolding added for emphasis):

I also asked why The Times didn’t include input from the energy giants, like Exxon Mobil,that have invested billions in natural gas recently. If shale gas is a Ponzi scheme, I wondered, why would the nation’s energy leader jump in?

Mr. Urbina and Adam Bryant, a deputy national editor, said the focus was not on the major companies but on the “independents” that focus on shale gas, because these firms have been the most vocal boosters of shale gas, have benefited most from federal rules changes regarding reserves and are most vulnerable to sharp financial swings. The independents, in industry parlance, are a diverse group that are smaller than major companies like Exxon Mobil and don’t operate major-brand gas stations.

This was lost on many readers, including me. Michael Levi, a senior fellow for energy and the environment at the Council on Foreign Relations, wrote that the article “repeatedly confuses the fortunes of various risk-hungry independents with the fortunes of the industry as a whole.”

He told me he hadn’t realized that the report was focused on independents and read it more broadly, adding, “If I didn’t know they were talking about certain independents, then Times readers — who don’t know what an independent is — they aren’t going to know what they are talking about either.”

This confusion stems from the language in the article, which near the top referred to “natural gas companies” and “energy companies.” The term “independent” appeared only once, inside a quoted e-mail.

LINKS

The stories: “Insiders Sound an Alarm Amid a Natural Gas Rush,” the focus of the discussion above, and from the next day, “Behind Veneer, Doubt on Future of Natural Gas.”

Notable among objectors to the NYT’s articles was the panel that put together the MIT study on The Future of Natural Gas, released about two weeks before the newspaper stories.

The Council on Foreign Relation’s Michael Levi, quoted in the excerpt above, has an article in The New Republic on the natural gas fracking industry’s public perception problems.

My posts in response to the articles, which include links to some of the other reactions:

 

In search of reports that confirm or support the New York Times stories on shale gas skepticism

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Michael Giberson

After following the reactions to the New York Times stories on shale gas skepticism for a day or two, I began to get tired of all of the complaints (“pretty poor quality,” “sensationalistic … false,” “poorly done piece of work,” “mislead its readers,” “approaching yellow journalism“) and so started searching for supportive reactions, for someone to say “right on,” “good work,” or “that Ian Urbina should win a Pulitzer for his mind-blowing investigative work on display in these articles.”

Here is what I found: a claim that “the New York Times’ ongoing ‘Drilling Down’ series … has been providing groundbreaking coverage” followed by the observation that three more articles had appeared. From that statement, then, we might infer that the author meant to suggest these new articles in the series also constituted “groundbreaking coverage.” That’s about as close as I came to finding a supportive remark. (Source: the NRDC Switchboard blog.)

On the other hand, even at the Huffington Post we find less than complimentary views of the Times‘ work. Raymond Learsy writes:

Quite incredibly, for two days running including a two column headline on this Sunday’s front page, “Insiders Sound Alarm Amid a Natural Gas Rush“, and again on Monday, “Behind Veneer, Doubt on Future of Natural Gas“ The New York Times descended into a realm approaching yellow journalism: reportage of freighted opinion presented as news often with only the flimsiest attribution, often undated or old enough no longer to be germane given the explosive developments in the field, repeatedly out of context and clearly selected to substantiate a predetermined point of view. In doing so, offering a selection of documents “including hundreds of industry emails, internal agency documents and reports by analysts” imparting the New York Times’ imprimatur to documents whose “names and identifying information have been redacted to protect the confidentiality of source, many of whom are not authorized by their employers to communicate with the Times.” Documents presented without context nor permitting the reader in too many cases to be able to ascertain the who, why, and motivating factors. Is this the new world of newspaper reporting?

The articles are shameless in deprecating the standing of institutions that hold differing views than that of the Times. The United States Energy Information Administration is excoriated for its optimistic assessments of shale gas reserves and its potential by inferring their research relies on “outside consultants with ties to the industry”. This from the masters of redacted references.

Energy in Depth, a project of the Independent Petroleum Association of America, also took a dim view of the two articles, essentially accusing reporter Ian Urbina of outsourcing his reporting and writing to long-time shale gas skeptic Art Berman (who is quoted briefly in the article).

In any case, I’d still like to find some support for Urbina’s articles. I thought that at least the Oil Drum would take note of the skeptic viewpoints, but as of this morning the only reference was provided in the comments to a post. Ideally, I’d like support with data (the Oil Drum commenter suggests a test based on drilling at DFW airport). Alternately, maybe one of the anonymous analysts whose email was quoted will step forward and say “that is my quote and I still believe it.” Maybe I’ve missed the outpouring of informed support, or maybe it will just take a little time for supportive analysts to get their data together and then go public. In any case, if you see complimentary remarks for Urbina’s work, please leave a comment here. Thanks.

John Hanger reports the shale gas news too good to print in the New York Times

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Michael Giberson

John Hanger is former head of the Pennsylvania Department of Environmental Protection and former member of the Pennsylvania Public Utility Commission, among other public positions. He was founding president of the group Citizens for Pennsylvania’s Future (PennFuture) which carefully tracked energy and environmental issues in the state. Hanger knows a few things about energy and the environment.

He also knows a cheap, sensationalist, newspaper smear job when he sees one, and on Sunday he read the New York Times article highlighting various shale gas skeptics claims. On his blog Facts of the Day Hanger shot back:

Could anyone imagine more sensationalistic narratives than Radiation, Ponzi, and Enron?

Consistent with this reporter’s method, today’s article uses often anonymous statements to paint a sensational narrative and leaves out or underplays critical information that is inconvenient to establishing the credibility of the dominant anti-gas narrative.

For example, the reader will not learn the following:

1. That 2010 natural gas production in the United States reached the highest levels since 1973 and neared record levels.  Nor will the reader be told that the US produces more natural gas than any nation.
…

4. The reader will not be told that actual large shale gas production has shattered the historic pricing link between oil and gas and now oil prices have gone up while gas prices have gone down

5. The reader will not be told that, while oil prices have spiked up due to supply straining to meet demand, actual shale gas production has caused gas prices to decline.

6. The reader will be told that the alleged shale ponzi scheme could harm consumers, but the reader will not learn that actual shale gas production so far has saved a consumer heating with natural gas about $5 to $8 per thousand cubic feet or conservatively $500 per year.

7. The reader will again be warned that consumers could be hurt by the alleged ponzi scheme, but the reader will also not be told that actual shale gas production has lowered the wholesale price of electricity about 5 cents per kilowatt-hour and saved a residential electric consumer using 10,000 kilowatt-hours per year another $500 per year.
…

9. All the reader is told about the Marcellus is that a Penn State professor reports well production is meeting or exceeding expectations in the Marcellus.  No charts or bar graphs.  No data. Nothing. Why? Very inconvenient facts for the ponzi, enron narrative is the answer.
…

12. The reader is told that improvements in shale gas drilling are lowering costs but no details. The details are impressive and in a separate posting we will discuss them. Again getting into this detail would be inconvenient to the ponzi, enron narrative.

And who are among the victims of the alleged Ponzi scheme?  Exxon, Chevron, Shell, Statoil who all have made substantial investments in the Marcellus shale plays.  They could be wrong.  They could be victims of a crime.  But they are incredibly sophisticated companies that engage in massive due diligence before making big investments.

Hanger continues his post with his view of current industry conditions. Following his Sunday riposte, Hanger has been furiously blogging the shale gas news “not fit to print” in the New York Times because it would undermine their sensationalist tale-telling:

This morning Hanger appeared with the New York Times writer, Ian Urbina, and others on the Diane Rhehm show, a public radio show broadcast in Washington, DC. Podcast available here.