2014: An Interesting Year in the Energy Patch

2014 was an interesting, perhaps pivotal year for hydraulic fracturing (fracking, HF). During the year, the supply of domestically sourced fuel dramatically increased, resulting in a 50% price decrease. Surplus supply of petroleum and natural gas (NG) should be the new normal for at least a decade.

Cheaper fuel should benefit the American economy in general and the industrial chemical industry in particular. Chemists and chemical engineers should see improved employment associated with reshoring of related work. Bloomberg.com reports that $117 billion of new plants fueled primarily with natural gas (NG) will be built in the USA within the next five years.1 This will add $30 billion to America’s GDP, since output from these plants will generally replace imports. The new plants will need to staff for their labs.

A steady stream of reports have shown a general improvement in HF technology and a reduction of environmental fears among consumers. Continued improvements in HF technology have lowered production cost of NG to about $2.00 per million British thermal units (mBtu).2 As recently as 2009, the wholesale price for NG was in the range of $8 to $13/mBtu. With wholesale pricing in the range of $3 to $5 mBtu, there is still strong incentive to increase production.

Liquid fuels will be cheap for some time

In 2014, adding a million barrels/day to national crude production, mostly due to HF, precipitated a 50% decline in retail gasoline price between June and December. In 2015, America expects to output another million barrels per day from HF wells producing primarily liquid petroleum. Thus, the current glut and associated price decline will probably continue, particularly in North America. Supply levels are such that without global increase in consumption, a major producer will have to shut down or take a number of wells offline. 

Businesses; states such as Alaska, Texas and Louisiana; and even countries that depend upon income derived from liquid petroleum products may need to reconsider their revenue and spending plans.3

Regulation

Supply/demand was not the only issue. On December 17, New York Governor Andrew Cuomo, citing environmental and health concerns, announced a statewide ban on HF. The Governor’s message was lean on specifics. Some reporters seemed to generalize the political situation in New York to questioning of HF technology. I was surprised that Governor Cuomo did not enumerate the unique problems with production water from the gas wells producing NG from the Marcellus Shale, a rich source of NG that lies beneath much of New York, Pennsylvania and Eastern Ohio. Production water (brine) from Marcellus Shale wells has a low calcium concentration, but this is offset by high levels of barium. Worse, the water contains radionuclides such as radon and radium from the decay of thorium and uranium deposits. These radionuclides are entrained in the scale that often forms in pipes as the warm production waters they contain cool. This scale is a chemical and radiological toxic waste. In the US, several thousand deaths a year are attributed to exposure to radon and associated daughter nuclides.4 Marcellus production water presents a problem that merits public review. However, radon does not seem to be a problem in natural gas fields in other locations.

Perhaps Cuomo’s moratorium will give us time to engineer a practical solution to the unique problem associated with producing NG from the Marcellus. In a previous blog post,5 I pointed out that the most prudent plan for the Marcellus is to convert the natural gas to electricity at the wellhead so that the production water, radionuclides and combustion products could be contained and reinjected into the producing formation.

The general problem with low energy prices is that they will stimulate consumption, which should add to  the emission of greenhouse gases, primarily carbon dioxide and methane. California has responded with a “cap and trade” carbon tax that should add about $0.10 to the price of gasoline starting on January 1, 2015.6 Fuel for transportation accounts for 40% of California’s energy emissions. The cap amount will be reduced by 3% per year. Should this work, it will be a major contributor to America’s commitment to reduce greenhouse gas emissions.

Alternative fuels for transportation

Alternatives to liquid petroleum products, which are mostly used as feedstocks for petrochemicals and as motor vehicle fuels, face a more difficult future.

For consumers, in terms of miles per gallon, a regular gasoline-powered car averages 32 miles per gallon, while a compressed natural gas (CNG) powered car averages 43 miles per gallon, a 30% difference. Using CNG as a transportation fuel will require a huge infrastructure investment that may take decades, if it happens at all. Several firms, including Toyota, are expected to introduce hydrogen-fueled automobiles in 2015 and 2016. Jumping to hydrogen-fueled cars may make more environmental sense.

Yes, we live in interesting times, but with the help of good science, we can better cope. In particular, production technology needs to be matched with corresponding downstream engineering advances to protect quality of life. If energy is cheap there is no reason not to develop environmentally protective technology, even if it is energy intensive. Separation science will be the key to reducing greenhouse gas emissions.

References

  1. http://www.bloomberg.com/news/2014-06-26/u-s-shale-spurs-record-investments-by-foreign-chemicals.html
  2. http://www.nasdaq.com/article/3-reasons-why-us-natural-gas-prices-will-remain-low-cm410404
  3. http://www.nytimes.com/2014/12/27/us/falling-oil-prices-have-ripple-effect-in-texas-louisiana-oklahoma.html?_r=0
  4. http://en.wikipedia.org/wiki/Radon
  5. https://www.americanlaboratory.com/Blog/129081-Location-Location-Location/
  6. Richman, J. Jump in Gas Prices Looms. Contra Costa Times, Dec 30, 2014, p 1A.

Robert L. Stevenson, Ph.D., is Editor Emeritus, American Laboratory/Labcompare; e-mail: [email protected].

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