On June 6th, Fred Heutte’s presentation to the Northwest Power and Conservation Council Natural Gas Advisory Committee blew away idea of abundant, cheap natural gas like a compressor station blow-down. Through the use of diagrams from places like the Energy Information Administration, Heutte dismisses conventional claims of energy independence; low-cost and production growth of shale gas up to and beyond 2040; liquified natural gas export terminals; and shale gas replacement of coal and oil for both transport and electricity generation.
Image © NW Energy Coalition
Despite shale gas providing the largest source of growth in U.S. natural gas supply, Heutte says the amount of recoverable gas we have in the U.S. is closer to twenty years (or less), despite the industry’s one-hundred-year estimate. The reasons for this gas price variability are related to:
“Short term variability of weather, peak congestion, and relative cost for coal to natural gas switches; upside drivers such as demand growth, industrial use, power plants, vehicles, and imports/exports; “downside drives” such as competition of renewables, supply-chain escalation, and exploration/production; and market price limits.”
The presentation touches on the drivers of gas price trends such as:
“Production cost (land leasing and royalties, equipment, labor, taxes, etc.) and policy (market structure, competition, environmental regulation, and carbon pricing). It also talks about the differences between shale gas extraction before and after hydraulic fracturing or “fracking,” which involves blasting sand, known chemical carcinogens, and water into shale rock to break open fissures in the shale bed in order to release natural gas. Though fracking is efficient and involves a high initial production, it also means quick rates of decline in production and high replacement rates/costs.”
According to Huette, the manufacturing model is misleading because production declines and costs increase over time just like conventional extraction processes. In fact, we’re probably getting close to the point where the number of major limited basins can’t “indefinitely replace” old declining ones, Huette says. For example:
“Lower tiers of production will be commercially viable, but higher tiers will mean a higher cost for not much more gas in the Barnett and Fayetteville Shales.”
Furthermore, the top three frack-able shale plays account for 66 percent of the total production; the top six plays for 88 percent. Only three of these, the Marcellus, Eagle Ford, and Bakken shales show sign of future production growth. The total amount needed to spend on wells in order to offset overall annual decline is over $40 billion and rising.
From what the presentation said, it appears that the recent fluctuation in recent gas prices is attributed to:
“…the post-recession demand slump, subsidies from associated production, and weather. The consequences of this reduced price have been a rebuild in demand over coal and eroding storage levels of shale gas, among others…”
We need to research renewable energy technologies that’ll power our world in the post-fossil fuel age. Fossil fuels will not be around forever and we need to start shifting our economy now. Let’s get on it.