Energy / Regulation / Uncategorized

Natural Gas — All Systems GO!

Natural Gas has dominated energy conversation this week. The EIA Energy Outlook, an annual report summarizing the United States energy consumption level via estimated Greenhouse Gas emissions, secular trends in energy consumption, and various other reservoirs of data, suggested notable trends in terms of forecast of 2012 production, emission, and shifts in energy data for the coming year.  The relevancy of this data stems from these estimates providing some of the most unbiased estimates of current supply, demand, and projection of continued, current trends; this data tends to most accurately portray current trends in data under current domestic rates offering an honest portrait of how this year should develop energy-wise. In conjunction with this, the Brookings Institute organized a conference on the Prospects for Natural Gas Exports from the United States. This realized the implications of the EIA’s projections, and almost seemingly built upon this seminar, even citing the same data set.

Dr. Gruenspecht lead the EIA Energy Outlook Conference, and opened the conference by linking the economic depression to the slowing of energy growth during 2012. This being said, he continued by exploring the optimistic future to be seen in the coming years. He explained international crude oil production will find an increase: in 2011, 5.1 million barrels of oil were produced, whereas secular trends suggest production to increase to 5.5 million barrels by the end of 2012, with projected increases in production until 2020 (~6.7 million barrels). Most of this increase in production is seen due to increase of production of OPEC reserves.  Domestically, though, this should not cause that great an impact; as a share of the total liquid demand, petroleum products peaked at 60% in the past century, and has been declining ever since (49% in 2010, and with current estimates, a suggested figure of approximately 35% in 2020, assuming the US continues current trends in biofuel, fuel efficiency, and continues to maintain the same mitigating drivers of demand, especially with the projected production trend of natural gas to oil into 2025). With increased biofuel, natural gas, and cellulosic ethanol production rates and lower demand for petroleum resulting from increased efficiency of motor vehicles (in 2012, it is estimated new vehicles will be averaging 38 mpg), one should expect further reduction of petroleum in this total liquid demand. 2012 Carbon Emissions (specifically CO2) should maintain at levels below the 2005 levels, and should even dip more, considering recent trends in climate change policy. A 10% increase in total energy by 2035 should be expected using the current rates, with 8-15% growth expected in renewables, with 1/3 of this replacement occurring from replacement of carbon with hydroelectric possibilities. This renewable revolution as well as increased energy efficiency causes for a reduction of the carbon levels seen in emissions, reduction of energy necessary per-capita, and a reduction of domestic necessity of foreign energy supply despite increased total energy necessity to account for a growing population. Energy independence potential seemed nearly the forefront thesis of this report.

Gruenspecht continued with more optimistic news of this replacement; he expressed the necessity of movement toward this energy independency, and even becoming a global supplier of Natural Gas through the refining process. The EIA reported a reduction of overall natural gas in comparison to the 2011 figures, yet still a heavy improvement over past estimates of how much actually exists. All other gas reserves (proven and estimated) remained fairly constant. The impact of this shale really impacts the global economy based on increasing US exports. By increasing the supply of this shale to meet an increasing world demand post-Fukushima, the US could capture a larger market share in the short term, and with mitigated drilling costs, the US would further reduce the dependency on foreign energy dependence.

To build off these implications, the Brookings Institute offered a prospective on the recent data. The Supply and Demand considerations were both explored throughout this conference. The topic was specifically the Marcellus Shale, found to increase Natural Gas Deposits of the United States to induce sustainability for nearly 100 years or even more. These deposits have nearly twice the amount of viable resource as the rest of the world, and maintain a valuable untapped quantity. Why, one might ask? The natural gas deposits are quite low in resale value. Yet as gasoline prices continue to creep upwards and with production costs lowering, the marginal benefit of this shale development is beginning to offset the cost, thus making shale energy a more viable alternative. The other major consideration are the public health benefits resulting from this refinement. Specifically, with more water production necessary for the hydrofracking process (and therefore proper waste-water disposal techniques and increased methane levels), state and local regulatory policy need to work in conjunction with the EPA to properly assess the demand of such action, and the impact on potential stakeholders. The Demand is nearly inexplicable. The lowering of electric costs and potential for moderate petroleum replacement are two direct measures resulting from increased domestic refinement. Mitigation of energy costs for a variety of stakeholders were included in the power, industrial, transport, and residential arenas.

So why more Natural Gas now? Brookings posted three timely answers: 1) The widening of the Panama canal allows for more transport of economically worthwhile quantities of Natural Gas (whereas 0% of barges could go through pre-construction, post-construction allows for over 80% of freights to pass through the former barrier), 2) with Asian countries up in arms post-Fukushima, alternative energy reserves, such as national gas, are in heavy demand, since..3) there are problems in foreign feasibility of export and refinement, specifically in Asian countries.  These three variables, as well as the ability of the US terrain to offer “relatively safe” practices for extraction offer this as an ideal time to drill. The Brookings Institute concluded, based on current cost-benefit estimations, that the domestic and international demand for natural gas not only weight the fear of production costs, but also would allow the US to fill a vital niche in the area of energy production.

This being said, two major questions arise. First, what are the hazard elements of fracking? With the EPA still researching primary concerns of human and environmental exposure, the cost production of natural gas still is not even known. Suggested by Citizens Campaign for the Environment:

“Radioactivity (a physical characteristic of Marcellus shale), hazardous chemical injection, air pollution from diesel engines, compressor stations, and flaring, brine production (this brine product is 5x saltier than seawater), and  hazardous liquid and solid waste storage on-site, transported on public roads, and disposed of at municipal landfills or sewage treatment plants” 1

Without EPA’s review of these potentially toxic problems, the process of fracking still remains a questionable pioneering for otherwise willing companies to explore potential in this energy revolution; costly RCRA or CERCLA actions may cause a stifling of the actual cheap domestic cost. In conjunction with these public health dilemmas, questions of actual reserve quantities, and fickle markets also could play roles in the actual recovery of benefit from potentially undervalued cost. “Drill, baby, drill” may have been the mantra of the meetings, but until the actual cost-benefit have been amounted through conclusion of EPA analysis on potential toxic waste production, it is debatable whether companies can afford these promising enterprises on the horizon.

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