White House Executive Order Supporting Development of Unconventional Natural Resources

Posted by John Wittenborn on April 16, 2012

Today the President issued an Executive Order establishing an inter-agency working group to “facilitate coordinated Administration policy efforts to support safe and responsible unconventional domestic natural gas development.” This is a welcomed respite from a series of otherwise misguided federal efforts to over-regulate hydrologic fracturing. By coordinating under the direction of the White House Domestic Policy Council the efforts of 13 federal agencies seeking to study, review or regulate unconventional gas development, and fracking in particular, the White House appears to be backing up the President’s promise in his State of the Union speech to support domestic energy production and particularly development of unconventional natural gas resources.

While long on promises of coordination and consultation, the new Executive Order is short on details. Nevertheless, any efforts to help ensure that the U.S. speaks with one voice on this issue should be welcomed by industry as a means of reducing or eliminating overlapping and superfluous federal regulation. Indeed the American Petroleum Institute was very quick to jump in support of the Executive Order.

Earlier this week, the American Chemistry Council, in testimony at a Congressional field hearing in West Virginia, noted that the ethane-rich shale gas deposits found in portions of the Marcellus Shale could be a game changer for future economic growth in the U.S. ACC projects that a 25% boost in ethane supplies could generate 400,000 U.S. jobs, $132 billion in U.S. economic output and $4.4 billion in local state and tax revenue every year (read the American Chemistry Council's press release here).

Most stakeholders seem to agree that the abundant domestic natural gas supplies made available as a result of unconventional gas resources and hydraulic fracturing techniques may be a “golden goose” for America’s energy future. President Obama’s Executive Order may help ensure that federal over-regulation does not inadvertently kill it.

Fracking - Four Key "D.C." Issues Every Company Should be Watching

Posted by Eric Waeckerlin on January 27, 2012

The controversy over hydraulic fracturing has ushered in an unprecedented wave of scrutiny over the oil and gas industry from nearly every angle—new lawsuits, more state regulations, constant press (often misleading as captured well in this recent Forbes article), local protests, and city council moratoriums. At the same time the President has reeled off a series of positive statements about the future of natural gas (the most recent being his support for tax credits and other incentives to spur natural gas truck fleets), other factions in the administration are undermining the message. Companies trying to make intelligent business decisions and major capital investments—in addition to trying to gauge the whims of the market and project future demand—are being forced to navigate what is quickly becoming an increasingly uncertain and unclear regulatory environment. To try and make sense of what’s going on in Washington D.C., here are four key federal initiatives every company should be watching.

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Influential Leaders Cite Fracking's Critical Role in America's National Security

Posted by Eric Waeckerlin on September 23, 2011

This week a bipartisan group of some of the most influential government and national security leaders of the past thirty years announced the formation of the United States Energy Security Council—and they see a major role for shale gas in America’s future. The Council (whose members include former Secretary of State George P. Shultz, former Secretaries of Defense William J. Perry and Harold Brown, Alan Greenspan, a former C.I.A. director, and two former Senators) was formed around a familiar concept that has been floating around Washington for some time: open the transportation fuel market to competition from sources other than petroleum to weaken the power of foreign oil. The Council argues that America’s foreign policy and economic problems will only get worse the higher oil prices rise (which they say senior oil executives see as inevitable) and the longer the transportation sector is reliant predominantly on petroleum-based fuel. The solution according to the Council: have Congress require that new vehicles be flex fuel, which will unleash pent up investment in domestic alternative fuels production. This is where shale gas comes in. The Council argues that if the economics of natural gas remain favorable due to shale gas extraction (i.e., fracking), widespread use of methanol (which can be converted from natural gas) will play an important role in fueling these new vehicles.

As the Council recognizes, there will be those that decry government interference in the marketplace, as evidenced by the American Energy Alliance’s Thomas J. Pyle’s article on Wednesday. Regardless, the fact so many influential national security and economic leaders have formed this new bi-partisan group speaks to the potential game changing impact newly discovered shale gas resources are having on America's energy and national security policies.  The Council's formation should be welcome news for the natural gas sector and those investors concerned with creating an economically viable, domestic alternative fuels infrastructure.

USGS Dramatically Increases Estimated Natural Gas Resources in the Marcellus

Posted by Eric Waeckerlin on August 25, 2011

The United States Geological Survey (USGS) issued a report this week indicating that the Devonian Marcellus Shale formation holds an estimated 84 trillion cubic feet (Tcf) of technically recoverable undiscovered natural gas (with an additional 3.3 Tcf of undiscovered natural gas liquids). As The New York Times’s Ian Urbina notes, the USGS's estimate is much lower than the approximately 400 Tcf estimated as a recoverable resource by the Energy Information Administration (EIA) in its Annual Energy Outlook 2011 [PDF; see page 80]. Importantly however, the latest USGS estimate is a dramatic increase from the Agency’s pre-Marcellus development estimate in 2002 of only 2 Tcf.

It is too early to know the exact reason for the large discrepancy. For one, the precise methodologies and assumptions made by the USGS and EIA in their respective calculations are not fully understood. For example, it is unclear whether “technically recoverable undiscovered” gas described in the USGS report is the same as the “recoverable resources” noted in the EIA report. The answer to this question needs to be explored and may very well help explain the difference. Regardless, the EIA report makes abundantly clear that the estimates of shale reserves are riddled with uncertainty and assumptions “starting with the estimated size of the technically recoverable shale gas resource.” The EIA report goes on to note that the conclusions are best estimates (due to numerous uncertain technical and economic variables) and "embody many assumptions that might prove to be incorrect over the long term."  Yet, the NYT's article fails to note these statements, or acknowledge that these types of estimations are difficult, inherently uncertain, and perpetually dynamic. Indeed, EIA has already indicated it will revisit and update its estimates in light of the USGS report.

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Fracking - An Indisputable Economic Engine

Posted by Eric Waeckerlin on June 28, 2011

The events surrounding the regulation and enforcement of hydraulic fracturing (fracking) in natural gas (and oil) operations have been rapidly evolving over the last year. While this blog has focused primarily on covering those issues, it is worth noting that much also has been happening in the economic and market arena during the same time. And in the end, it may be economic forces, including the long-term supply and price of natural gas, which will play the most important role in determining whether natural gas will truly become the oft-discussed “bridge” fuel that transitions the United States’ economy to a cleaner, more renewable- and domestic-based energy portfolio.

Recent discoveries of unconventional shale resources in this country have been an economic boon to several states—Pennsylvania and Texas in particular. Recently, the Marcellus Shale Coalition reported that a staggering 48,000 new people have been hired in jobs related to drilling for natural gas in Pennsylvania in the past year, and the numbers for the first quarter of 2011 are nearly double from the same time last year. On June 8, 2011 ExxonMobil announced a $1.69 billion purchase of 317,000 acres in the Marcellus Shale from Phillips Resources, Inc. and TWP Inc—a further indication of the promise the majors see in the Marcellus play.

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Can Calm and Reason Prevail in the Fracking Debate?

Posted by Eric Waeckerlin on April 21, 2011

Andrew Revkin, of the New York Times, has written a short, but very reasonable and worthwhile piece on the ongoing public debate/controversy/vitriol/rhetoric surrounding the shale-gas boom, and the use of hydraulic fracturing (fracking) (which as many do, and should, point out, is a process used to drill for natural gas and oil in certain geologic formations, is not new, and does not, without more [e.g., a spill, broken well casing etc.], cause environmental or public health harms). Revkin argues that inherent human predispositions toward certain outcomes make objective and calm scientific debate difficult, citing global warming as exhibit A. His thesis and plea for reason should be welcomed in the ongoing and nascent fracking debate—which has already seen its share of outlandish claims from all sides. Perhaps Revkin sums up best how to achieve a rational debate in the following statement -

In the absence of data comes spin and overstatement - and a reliance on advocates of one stripe or another, including scientists staking advocacy positions. None of this is a good thing.

The ball is in the industry’s court to acknowledge that there are bad actors and to move toward far deeper transparency and accountability on methods, or it will justifiably lose public faith and the prospect of stronger regulation. The shale gas rush (and a similar oil rush under way in other regions) is clearly in it[s] frontier days.

What is the Future Role of Natural Gas?

Posted by Eric Waeckerlin on February 28, 2011

The recent and significant discoveries of abundant unconventional natural gas resources across the United States has sparked a debate about what role natural gas will play in America’s future energy portfolio. The United States Energy Information Agency estimates that while shale gas accounted for 14 percent of U.S. Natural Gas production in 2009, it is expected to reach 45 percent by 2035. The U.S. currently has 2,552 trillion cubic feet (Tcf) of natural gas resources for which shale gas represents 827 tcf (approximately 33%) of this estimate. In its 2011 Energy Outlook, the U.S. EIA nearly doubled the amount of estimated shale gas reserves, given that advances in technology (horizontal drilling and fracking advances) have made once unrecoverable reserves economical.

At the same time these shale reserves are being discovered, the price of natural gas has continued a steady decrease to its current price, which is hovering around $4.00 per thousand cubic feet. While a low  price may be good for consumers, including potentially attracting more electric utilities shifting to gas generation, it may prove to be too low to make widespread shale extraction economical or spur the development of advanced biofuels like gas-to-liquids. With so many variables at play, including the price of oil as impacted by world events, and legislative and regulatory pressure (both fracking-specific and climate change measures), the question of natural gas’s future role is a difficult one to answer.

For an optimistic outlook (not only in this country, but worldwide), see commentary by Jack Barnes: "Shale Gas Revolution Is Changing the Politics of Energy."  For an opposite viewpoint, see this blog post "Don't Count on Natural Gas to Solve US Energy Problems," and for a more middle of the road take see this New York Times article by Beth Gardiner "Is Natural Gas Good, Or Just Less Bad?"