Bulls Beating Bears in Shale Gas Inquiry

As the resource gets increased and more sophisticated scrutiny, natural gas from shale looks increasingly like a revolutionary force in energy markets. Most recently, the Washington-based environmental and energy think tank Resources for the Future (RFF) rolled out a serious analysis of the new method of developing gas, and the issues it presents. The preliminary results look very positive for gas.

Economist Alan Krupnick, director of RFF’s Center for Energy Economics and Policy, put the issue on the table at a November meeting describing the preliminary results of the group’s inquiry into the future of gas from shale. "Is this the rock that can power the world?" Krupnick asked. "Should it power the world?"

Krupnick outlined the areas of contention surrounding shale gas: How much gas can be found? What are the economics of production? What are the impacts on the environment from developing the gas? What are the impacts on the climate from burning the gas? Does this national resource fundamentally change U.S. natural security and dependence on foreign oil?

So far, the results of RFF’s inquiry are largely positive or neutral. There appear to be no show-stoppers for shale.

Sheila Olmstead, whom RFF hired from the Yale economics faculty to direct its study, explained the origin of the inquiry, "Managing the Risks of Shale Gas: Identifying a Pathway Toward Responsible Development." RFF, she noted, has a $1.2 million grant from the Alfred P. Sloan Foundation for an 18-month project digging down into the issues surrounding shale. The purpose, she noted in economics lingo, is to examine shale’s "externalities" as a guide for public policy.

In analyzing the tension between the gas "bulls" and "bears," the optimists and pessimists about the results of applying horizontal drilling technology and hydraulic fracturing to produce gas where it has not been produced before, Krupnick first looked at the issue of how much gas is available. The optimists seem to have a grip on the truth, according to Krupnick. The earlier flap involving Energy Information Administration (EIA) resource estimates and those of the U.S. Geological Survey, which appeared dramatically at odds, is a result of confusion of terms, not of resource magnitude. The two agencies, he noted, "are essentially measuring the same thing" but "using different methods and data." Indeed, he added, the EIA data are more recent; the two estimates are actually additive, not in conflict. Since the uproar last summer and fall, the two agencies have agreed on a common resource definition that establishes that the shale gas resource is enormous, Krupnick said.

Additionally, said Krupnick, the gas industry is on a steep learning curve that will bring more gas to market faster, and in wells that produce longer than original estimates. Using data from Chesapeake Energy, one of the major shale gas players, Krupnick said companies are now drilling longer "laterals," the horizontal shafts that yield gas from the tight shale, up from 2,000 feet to over 8,000 feet. Wells are coming into production faster, down from 80 days to 20 days. Two years ago, according to Chesapeake, yields were running about 4.1 billion cubic feet per well. Today, said Krupnick, the Chesapeake wells are yielding 7.1 bcf.

All that means that natural gas prices are under pressure to fall, not rise. In 2009, the EIA’s forecast for the Henry Hub natural gas price in 2030 was in excess of $9/million Btu. Last year, the EIA’s 2030 Henry Hub estimate was just over $6.

Assessing Environmental Effects

Then there is the environment. What about those pictures in the activist documentary Gasland of flaming water taps resulting from gas released to water tables by hydraulic fracturing, or fracking? There is nothing new here, nothing to blame on fracking, according to University of Texas petroleum engineer Mukul M. Sharma, who told the RFF meeting that areas where natural gas seeps are common—including areas in Pennsylvania featured in the movie—have long had water contaminated by natural gas. "Gas in home water supplies has been known to occur in water wells due to natural gas seeps much earlier than hydraulic fracturing was ever used," said Sharma. "There are famous examples of natural gas seeps in Pennsylvania and New York that burn naturally or can be ignited on the surface."

According to Jim Saiers, a hydrologist and associate dean of Yale’s School of Forestry and Environmental Studies, methane in drinking water was common well before fracking arrived on the scene. Of 91 water wells sampled in Tioga County, Pa., in 2004 to 2005, 49 had methane contamination. Sources include abandoned gas wells from old conventional drilling, underground coal mines, subsurface gas storage reservoirs, and native shallow gas deposits. Nor is methane in water harmful in any way, noted Saiers at the RFF meeting. Methane, he pointed out, is "non-toxic and non-caustic."

Nor are the fluids used in drilling fracking an environmental or public health problem, according to both Saiers and Sharma. Aside from water and insoluble "proppants" designed to keep the fractured rock as rubble, which make up 99.66% of fracking fluid, Sharma says there are found water-soluble chemicals used in most fracking: polyacrylamide (a non-toxic polymer); a "cross-linking agent (a metal ion that cross-links the polymer and a breaker that breaks the gel); biocides to kill bacteria in the water that are often associated with iron contamination; and corrosion inhibitors. "Service companies should disclose these chemicals to regulators and the public," says Sharma, "but this process should not be onerous." He noted that "such regulation was recently passed in Texas." Sharma commented, "There have been over 1 million wells fracked in the U.S. To my knowledge there have been no documented cases of groundwater contamination due to fracking."

More recently, in mid-December, Colorado passed a law requiring disclosure of fracking chemicals that has been described as "the most comprehensive in the country." It requires disclosure of all chemicals used in the process and their concentrations. In addition to Colorado and Texas, Pennsylvania, Arkansas, Montana, and Wyoming require various forms of fracking fluid disclosure.

Gas Replacing Coal

If gas is plentiful and production doesn’t harm water resources or public health, is increased shale gas a good strategy for dealing with greenhouse gas emissions, or a new threat? Burning methane rather than coal clearly reduces carbon dioxide emissions from power plants. On that, there is little disagreement. As RFF’s Krupnick noted, the EIA’s lifecycle estimate shows that gas is 50% lower in carbon emissions than coal, while a more recent study by Carnegie Mellon University puts the CO₂ lifecycle savings at 40%.

But last spring, a study from Cornell University ecologist Robert Howarth argued that substantial amounts of "fugitive" methane escaping from shale wells means that the climate impact of the new gas resource is greater than burning an equivalent amount of coal (see POWER’s September issue). Methane is a more powerful greenhouse gas than CO₂. Howarth admitted that his data were thin. The study has come under thorough subsequent debunking.

At the RFF meeting, Krupnick observed that the Cornell study relied on data primarily from the Haynesville formation in Texas, a "handful of wells." Howarth used data drawn from IHS Global, an energy consulting firm. IHS has subsequently said Howarth misread its data. Several analysts have noted that methane that is not captured in wells is mostly flared, producing CO₂, not the more persistent methane. Karlis Muehlenbacks, a geochemist at the University of Alberta, told the RFF meeting that the fugitive emissions issue calls out for more use of isotope data "fingerprinting" of methane, which would also help distinguish gas from legacy and abandoned wells from gas released from newly developed shale wells.

Suggestions for Policymakers

Production of hydrocarbons from shale formations has not yet begun at any scale in North Carolina, and current geological maps do not indicate that it is a likely venue for development. Nonetheless, there has been interest in the state in the subject. So researchers at Duke University’s Nicholas School of the Environment have come up with guidance for state policymakers that might be useful. Their recommendations:

• Line up baseline data on groundwater both before and at each stage of drilling.
• Plan water withdrawals from area supplies that will result from production.
• Implement safety rules to minimize risks of spills and contamination from human error and equipment failure.
• Think seriously about options for disposing of wastewater, including water treatment options.
• Assess impacts on air quality, assuring attainment of federal ground-level ozone standards.
• Require some level of disclosure of chemical used in fracking fluids.

New Energy Policy

If shale gas is cheap, abundant, and environmentally more benign than coal, what does that mean for U.S. energy and national security policy? For the power sector, said Krupnick, gas represents a "narrow bridge" to a low-carbon future. Plentiful gas puts pressure on electric generating companies to retire old, inefficient coal-fired plants, which leads to reductions in CO₂ emissions. But cheap gas also makes it difficult for new renewables and nuclear to gain market traction.

When it comes to "energy security," the picture is even less clear, as little oil is used to generate electricity in the U.S. For shale gas to have an impact on imports of foreign oil, it will have to substitute for transportation fuels. In that case, says Krupnick, the best market for new gas is to supplant diesel fuel in heavy-duty trucks. That will require use of liquefied natural gas (LNG), not the compressed gas now used in some trucks and cars, and the development of a new fueling network, the familiar "chicken and egg" problem facing new transportation technologies, including electric vehicles.

For heavy-duty trucks, says Krupnick, LNG technology yields a truck that is $70,000 more expensive than a conventional diesel truck (costing up to $150,000 today). But LNG, at current gas and compression costs, would be $1.50/gallon cheaper than diesel in the U.S. The average truck runs 125,000 miles per year and gets 5.1 miles/gallon. At an estimated discount rate of 31%, that means a payback for the LNG truck of three years. As a result, he notes, Chesapeake is putting $150 million into 150 LNG truck fueling stations along major interstate highway corridors, with 3 to 4 million gallons per station each year. The bottom line, says Krupnick, is "weak energy security benefits for now."

—Kennedy Maize is MANAGING POWER’s executive editor.