A free-market energy blog
Random header image... Refresh for more!

Category — Natural gas

Fractured Fairy Tales: Why Not Liberate Energy Technology for the 100%?

The anti-industrial “green” movement, which once played nice with natural gas, is at war against hydraulic fracturing (fracing). Peak gas fears may be gone, and parasitic wind energy would crash without gas-fired generation to fill in, but an anti-energy agenda rules. What should be good news is parlayed into bad by the enemies of modernism.

Technology Jump–Societal Benefits

Horizontal drilling and hydraulic fracturing have boosted shale gas production from zero a few years ago to 10% of all U.S. energy supplies in 2012, observes energy analyst Daniel Yergin. Fracing has also increased U.S. oil production 25% since 2008 – almost all on state and private lands, and in the face of more federal land and resource withdrawals, permitting delays and declining public land production.

In the process, the fracing revolution created 1.7 million jobs in oil fields, equipment manufacturing, legal and information technology services, and other sectors. It will generate over $60 billion this year in state and federal tax and royalty revenues, reduce America’s oil import bill by $75 billion, and save us $100 billion in imported liquefied natural gas, concludes a new IMF Global Insight analysis. [Read more →]

October 30, 2012   7 Comments

America’s Gift: High Technology and Lower Prices (peak gas not!)

In a raft of articles on this blog and elsewhere, the surge in U.S. gas production–due mostly to rapidly increasing output from shale formations–has been touted as a key savior of domestic drillers and consumers.

At the same time shale gas has been more than a headache for LNG exporters and pipeline monopolists, for some it threatens to become a nightmare – softening prices, competing with pipeline supplies, driving LNG demand to spot markets – generally making a pain of itself, from the viewpoint of the gas industry’s would-be GOPEC.

By providing a plentiful alternative source of supply for the world’s largest gas market, the U.S., shale gas has reduced wellhead netbacks throughout the Atlantic Basin.  International reverberations have been dramatic. Even the Russian Bear, feeling the hot breath of the market, is softening its pricing terms for international gas sales.

“A Republic, if You Can Keep It”

At the close of the U.S. Constitutional Convention in 1787 a woman asked Benjamin Franklin, as he was leaving what we know as Constitutional Hall: “Well, Doctor, what have we got—a Republic or a Monarchy?”  Franklin replied:   “A Republic, if you can keep it.”  For natural gas, we can paraphrase Mr. Franklin – a market, if you can live with it.

In the U.S. and throughout the world the bounty of shale gas has created significant opportunities for consumers to save money on energy, and clean energy at that.  Most of these benefits are available only to countries where the market determines gas prices. [Read more →]

June 22, 2010   1 Comment

The Bear Growls a Bit More Softly Now: New Adventures in Pipelinestan

In the wake of the BP well blowout in the Gulf of Mexico and the attempted terrorist bombing of New York’s Times Square, the broadcast media have been full of the sackcloth and ashes crowd pronouncing once more the end of the hydrocarbon era and the vital need for the U.S. to “break our oil addiction” ASAP.

Their soundbites start with a half-truth and end with a fallacy.  We are told that “60 percent of U.S. energy supplies still come from oil and gas,” with the implication that (i) all of that is imported; and (ii) the pittance that we produce domestically all comes from offshore facilities.

 It is true that 60 percent (actually 62.5%) of our energy comes from oil and gas.  But the portion that comes from natural gas, about 24% of total U.S. energy supply, is 85 percent domestically sourced.  With oil and liquids, about 45% is domestically sourced.  Sure, we use a lot of oil and gas, and most of it, more than 60%, comes from the U.S.  More than two-thirds of that domestic production comes from onshore production facilities.

The fallacious recommendation that emanates from the incomplete data is that the U.S. has no chance to remain a viable society and economy if we continue to rely on all this foreign (onshore, Alaska, ethanol, Saudi Arabia, Russia, what’s the difference?) and offshore supply.  “Therefore, we have no alternative but to turn to  .   .   .   wind, solar, biomass?”  The agenda pushers never want to let a good crisis go to waste.  But very quietly, mostly out of sight of the energy policy crowd in Washington, we have seen the emergence of major new sources of domestic energy production – natural gas from coalbeds and shale formations.  So great has been the rise in domestic gas production that it has weakened gas prices worldwide, benefitting users in homes and industry.

Moreover, the US example is setting off emulation in Australia, Canada and China, as well as Europe, promising still further major gas production increases.  Without this production the major conventional gas powers – Russia, Qatar, Algeria, Iran, Libya, Nigeria – would be able to garner ever-increasing market share, and with that monopoly rents and political power. [Read more →]

May 7, 2010   No Comments

Big Wind: How Many Households Served, What Emissions Reduction? (Part 2)

Press reports in the Financial Times and other news outlets describe a wind project in Oregon with 338 machines of 2.5 MW each, giving a total capacity of 845 MW. The project sponsors claim that they will provide enough energy to serve 235,000 households and reduce CO2 output by 1.5 million tonnes annually.

Part I demonstrated that the served-household claims is fanciful. In reality, no more than 49,000 households could be “supplied”, and these with only a minimal degree of assurance. Indeed, the wind project is more costly than a diesel backup scheme that would actually be capable of supplying reliable power to several hundred thousand households. The wind project is also three times more costly than a replacement of just 211 MW of older coal capacity with new technology that would provide a similar reduction in emissions, while supplying firm power to the NW Power Pool’s customers.

Opportunity-cost economics, anyone?

The key to wind’s providing some degree of fuel and emissions savings is its ability to deliver reliable electricity without shadowing or backup by hydrocarbon-using plants. These shadowing/backup requirements in the Northwest (NW) Power Pool may be able to take advantage of existing surplus hydro capacity in that region during off-peak periods (spring and fall), thereby permitting the proposed plant to reduce hydrocarbon consumption and emissions somewhat during those periods. It is not reasonable to expect to achieve the claimed emissions savings, but lower figures, less than half the publicized savings, may be possible.

In particular, the addition of wind generation, with shadowing/ backup provided by reservoir hydro, may be able to reduce overall CO2 emissions in California, the ultimate customer for the electricity produced by the GE project during Oregon’s two surplus seasons. But during the winter and summer peak demand periods, less hydro output is available, peak demand is greater and the shadowing backup will be provided by some combination of gas-fired and coal plants. What it is critical to keep in mind is that maintaining stability in the NW Power Pool requires the pool to shadow/backup not only the proposed new project, but the other 6.4 GW of existing wind as well.

Going further, our analysis shows there are less costly and more effective alternatives readily available that rival or exceed the claimed benefits of this wind project. [Read more →]

January 28, 2010   5 Comments

Big Wind: How Many Households Served, What Emissions Reduction? (A Case Study, Part 1 of 2)

In the midst of a bitter winter in North America and Europe, General Electric has announced a large wind project to be built in Oregon. Press reports in the Financial Times and USA Today describe a project of 338 machines of 2.5 MW each, giving a total capacity of 845 MW.

With power grids strained due to heating demand, increments to generating capacity are to be welcomed. But along with the usual hoopla about homes served and CO2 emissions savings, it is time for some “devil’s advocacy” by asking: – how much energy and capacity will this project really create? How much CO2 will be saved? And when the chips are down will consumers and grid operators be pleased that their funds have gone into wind rather than into some other generating source?

We strongly suspect that neither consumers nor grid operators will benefit greatly from this plant. Our brief analysis of this announcement shows that the claims for houses served and carbon saved are not supported, though some incremental, useful energy supply may be possible under some circumstances. All such claims depend on the system operator’s ability to use the wind farms’ output to offset hydro generation, the key generation resource in the Northwest United States (NW). [Read more →]

January 27, 2010   15 Comments

Power Generation Industry Forecast: Natural Gas as Fuel of Choice, Little Change for Other Technologies (Part I of II)

“It’s déjà vu all over again,” said Yogi Berra. The baseball Hall of Famer could easily have been predicting the coming resurgence of new natural gas–fired power plants. A couple of nuclear plants may actually break ground, but don’t hold your breath. Many more wind turbines will dot the landscape as renewable portfolio standards dictate resource planning, but their peak generation contribution will continue be small (and disappointing).

The most interesting story for 2010 is that the dash for gas in the U.S. has begun–again. In Part II or this two-part report, we will explore the challenges facing nuclear, coal, and renewable energy electricity sources in 2010 and beyond.

Business Climate–Energy Demand

As we enter the second decade of the 21st century and a second year of avoiding an economic collapse, the U.S. business climate seems to have become more positive. A growing sense of cautious optimism is appearing. A mid-October survey by the National Association for Business Economics concluded that the largest recession since the 1930s Great Depression is over, and economic growth is likely for the U.S. economy in 2010. The government announced that third-quarter 2009 economic growth hit 3.5%, the first positive growth in five quarters, suggesting an end to the recession (Figure 1).

clip_image002

Figure 1. Electricity growth resumes in 2010. After a two-year contracting market, total electricity consumption in the U.S. in 2010 is expected to increase. Source: EIA, November 2009 Short-Term Energy Outlook

The implications for electric generation are mixed. What gets built depends on a complex stew of credit markets, regulatory responses, economic growth, technology, and national politics. Some of those are leading economic indicators, some lagging, some not clear at all.

Renewable generation has not made a convincing economic case in the market. But politically it has the upper hand. Coal and nuclear continue to take a political battering at the hands of the renewables advocates. The politics of energy is being upended by new implications for natural gas. The political and regulatory landscape is a dog’s dinner (a Britishism for an undigested mess).

The need for new generation to supply load appears less urgent than in previous years. According to the EIA, demand for electricity has fallen since the economy tanked in 2008. The demand down-tick is the first since the EIA has accumulated these statistics in 1977.

Facing a sluggish economy, consumers have reduced thermostats, cut off air conditioning, and dialed down appliances, leading to the decline in electricity demand. A cool 2009 summer in most of the U.S. helped to reduce air conditioning load. Net electric generation dropped 6.8% from June 2008 to June 2009. That was the 11th consecutive month that electric generation slid downward, compared to the same month in the prior year.

Analysts say they expect the declining demand trend to reverse when economic growth shows up at the beginning of 2010 or thereabouts. But they have been wrong before and may be wrong again. The EIA, the U.S. Department of Energy’s statistical agency, says it suspects the decline in demand will continue into early 2010, despite what appears to be a bottoming-out of the recession.

Many electric power company long-term capital spending plans have been built on the dire forecasts of the past decade, particularly from NERC. For years, the conventional wisdom in the generating industry was that the U.S. was running out of generating capacity. Year after year NERC had the same message: It’s time to build baseload, particularly nuclear and coal, and make major investments in high-voltage transmission.

Maybe not. Intermediate-load and peaking units, suggesting new gas plants, may be the ways to hedge big investment bets on future baseload units. A recent Washington Post article quoted anonymous sources as saying that new nuclear plants aren’t economical until natural gas prices are above $7/mmBtu. That’s more than double the current price. [Read more →]

January 13, 2010   2 Comments

Dear Tom Friedman: Don’t Want You to Die Off … Just Get Well!

In the New York Times editorial page’s latest excursion into shrill climate alarmism, foreign affairs correspondent Thomas Friedman accuses those opposing the current cap-and-tax bill as wanting a few people, say 2.5 billion to die off.  And us bad guys are just grasping at straws. “. . . you will notice that the drill-baby-drill opponents of this legislation are now making two claims,” he says. “One is that the globe has been cooling lately, not warming, and the other is that America simply can’t afford any kind of cap-and-trade/carbon tax.”

Gosh, Tom, I suppose that the pace of global warming has accelerated in the last decade, and hurricanes are getting more frequent and stronger too. And those emails from the alarmist in-crowd that the climate world (and general public!) are reading about right now–those are the good guys, the real disinterested scholars at work.

So, Tom, you claim that cap and tax opponents are calling forth a mass plague–a modern Black Death–that will wipe out 2.5 billion people sometime between now and 2050. (Well, I guess this simply extrapolates what John Holdren is postulating by 2020–a possible billion deaths!)  In your world that is an inevitable result of modern living using hydrocarbon fuels.

Unlike his imaginative colleague Maureen Dowd, what Tom Friedman writes actually matters.  Many people believe that he is proficient about energy and climate. So I must again call this charlatan to task. [Read more →]

November 21, 2009   6 Comments

The Bear Growls, The EU Grovels: Adventures in the European Gas Market

Among those hoping that global warming is real we should now count the EU.  As winter approaches there is, quelle surprise, the initial hint of yet another gas supply crisis between Russia, Ukraine and Russia’s EU customers.  The problem is that those pesky pipelines have to go through somewhere to reach the market and that somewhere happens to be the Ukraine (unless it’s Poland, more on that later).

Source: US DOE, for better map resolution

All those red lines running Northeast-to-Southwest carry gas from Russia to the EU countries.  There is just no getting around the Ukraine for most of the transits; it is big and (if you are Russian) in the wrong place.

Gas: The Great Green Hope for Europe

As noted previously, gas use in Europe is roughly the same as that of the US, a bit over 20 tcf annually.  Unlike the US, gas production in Europe is falling not rising, with net imports currently at about 10 tcf/year and going up by 0.5-1 tcf annually.  Russia provides about 80% of Europe’s imported gas (about 80%), with the remainder mostly arriving in the EU as LNG.

As coal-fired power plants face increasing environmental opposition, and as a new generation of nuclear plants proves difficult to finance and construct European nations have turned increasingly to gas.  Power generation in the EU currently uses about 6 tcf/y, about the same as the US, and the US Department of Energy expects this to rise to the 6.5-7.5 tcf/y range by 2015-2025.

With falling conventional production and limited import alternatives, Russia looks to maintain its key role in EU gas supplies in coming years.  For all of the touted alternative routes and sources – Nabucco, trans-Med pipelines, LNG – the EU remains wedded to Gazprom.  In fact, Russia has made a play for even greater EU dependence with its Nord Stream (Baltic) and South Stream (Black Sea) pipelines.  Completion of those two lines will permit Gazprom to supply Germany, Austria, Italy and others without transiting Ukraine or Poland.

Energy Security or Energy Hardball – Why spend all that money for half-full pipelines?

Russia will invest more than $40 billion in new pipeline capacity without any substantial increase in its gas exports to Europe.  Why?  One view is that it is all about control: [Read more →]

November 6, 2009   1 Comment

Gas From Shale Deposits: A Worldwide Game-Changer? (Part II)

Editor’s note:  This article is the second of two on shale gas production.  The first dealt with the U.S. situation; this one looks at the potential impacts of shale gas production in Europe and China.

Natural gas production in Europe, currently just over 11 Tcf, has been falling rapidly over the past decade.   About three fourths of Europe’s gas is produced in just three countries: the UK, Norway and the Netherlands.  Production peaked in 2003 at 13.5 tcf.

Consumption, on the other hand, continues to rise.  Gas use in Europe stood at 20.5 tcf in 2008 and is likely to increase further as coal-fired power plants retire or are phased out of service for environmental reasons.  Most of Europe’s imported gas comes from Russia (about 80%), with the remainder mostly as LNG.

Conventional natural gas production is likely to continue its decline since the major source of gas production, the North Sea, seems set on a declining trajectory.

A Scramble for Supplies Seems to Be in Order

With the continent increasingly dependent on the state of Russian-Ukrainian relations, and with Russia’s sales prices pegged directly to oil, Europe’s energy future promises to be even more costly than its past.  Recent efforts at diversifying supplies – LNG, Nabucco, pipelines from Libya and Algeria – have proved only partially successful and retain the oil-linked price structure of Russian gas supplies.

Gas from Shale, Ours and Theirs, May Rescue Europe

U.S. shale gas production has already roiled the world of natural gas.  By providing plentiful supplies to the US shale gas production has promoted heavy discounting of natural gas in the U.S. relative to oil. [Read more →]

October 16, 2009   No Comments

The Global Shale Gas Revolution (Dear Renewables: Meet the New Competition for Power Generation)

Editor’s note: This article is the first of two posts on shale gas production and concerns the U.S. situation. The second will look at the potential impacts of shale gas production in Europe and China. While some have interpreted shale gas in terms of coal displacement in power generation, this new competition has profound (negative) implications for the viability of politically favored renewables in power generation.

Shale gas formations have been known for many years. But only in the 1990s did an understanding of hydraulic fracturing technology make production of gas from such formations feasible technically. And it was not until the middle of this decade, with U.S. domestic gas prices consistently above $10/mmbtu, that shale moved from an interesting future resource to a major current reserve.

The U.S. Department of Energy now estimates that recoverable shale gas resources in the U.S. total more than 550 tcf, with conversion of resources to reserves occurring at a rate of more than 1 tcf/year, above production. The production of shale gas and the increasingly economic production processes have reversed the historic decline of U.S. gas reserves, which stood at 293 tcf in 1968 and fell to 164 tcf in 1998. Dry gas reserve estimates for the U.S. as of December 31, 2007, stood at 237 tcf. Production has moved in a similar fashion (with a small lag), peaking in 1973 at 21.7 tcf, then falling to a plateau of about 17–19 tcf throughout the next three decades, until shale changed the domestic U.S. gas supply picture.

What Has the Shale Bonanza Meant for the U.S.?

Large-scale commercial production of natural gas from shales commenced only in the middle of this decade, becoming significant as a proportion of supply only in the last couple of years. In 2005, U.S. gas production stood at just over 18 tcf. In 2008, domestic production had risen to 20.6 tcf, reversing more than a decade of decline, and closing in on the 1973 peak production figure.

‘LNG to the rescue’: Conventional thinking in mid-decade was that only large-scale imports of liquefied natural gas (LNG) could meet the demands of the U.S. gas market. [Read more →]

October 14, 2009   13 Comments