America Has Got Natural Gas!

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WASHINGTON – A Recent, (November 14, 2010), segment of the popular CBS TV program 60 Minutes was devoted to the discovery and exploitation of new US based natural “shale gas” deposits, until recently believed to be non recoverable, because gas was trapped in rock formations buried very deeply underneath the earth surface. Well, in recent years human ingenuity managed to overcome this huge technical obstacle. By drilling first vertically and then horizontally and by injecting water and other chemicals via a process known as “hydraulic fracturing”, energy companies can now extract and sell this gas.

Enormous gas reserves

But in all this the truly big news is that this “shale gas” deposits are enormous, covering a large percentage of the US, from Texas to California, with a major concentration in Pennsylvania, the state that harbors most of a huge deposit known within the industry as “Marcellus Shale”. Indeed recoverable shale gas, added to other known deposits, doubles US total gas reserves, making the US a giant producer by world standards, outclassing Russia. In an energy starved country, this should be good news.

TV show did not highlight the strategic implications of a major energy find

And yet the

    60 Minutes

piece did not even try to put all this in context, offering a serious reflection on the incredible strategic implications of this major discovery for America. Instead the piece focused primarily on human interest “rags to riches” stories of poor farmers who made it big, just because their land happens to sit on all this gas. The piece went further, examining the environmental pitfalls, the accidents caused by exploration, the sneaky attitude of energy companies and so on.

While the story mentioned incredible data indicating that the US has as much gas as Saudi Arabia has oil, this earth shaking piece of information was offered in passing, buried in a story focusing mostly on a polemic between industry and environmentalists in which the only new real beneficiaries of these discoveries seem to be a few lucky farmers and not America as a whole.

Abundant gas changes the entire picture

This recent news program, along with fragmented information provided by other media, is a wasted opportunity to present this story of shale gas for what it is: the most fundamental change in the US energy equation in many decades. Consider the broader picture. America is slowly running out of oil. True, we have plenty of coal. But coal can be used only for power generation and not as transportation fuel; while natural gas can be used for both. Besides, coal is dirty and technologies aimed at making it clean are still in their infancy and quite expensive. Renewable energy, (wind, solar, bio-fuels), is important; but it is still mostly in the future. At the moment there is not much of it and it is not truly competitive without significant subsidies. Yes, we are seriously trying to introduce electric cars; but they are an expensive novelty that cannot possibly become dominant for a number of years. And electricity is still produced mostly with dirty coal.

Domestic gas: cheaper and cleaner than either oil or coal

And here we have the transformative news: we have natural gas, lots of it. In fact in enormous quantities and most of it is located in densely populated states. This means proximity to markets and millions of users. And natural gas can be used for both power generation and for transportation. It is cleaner than coal and gasoline. And most of all, for a country that spends a fortune –about $ 1 billion a day, every day–buying abroad 60 per cent of all the oil we consume, the ability to use domestically produced gas instead of gasoline made with imported oil is an incredible bonanza, a real help for a balance of trade perennially in the red; not to mention a way to diminish a serious strategic vulnerability caused by dependence on distant energy sources in proverbially unstable regions.

But, strangely enough, we do not hear much about any of this good news.

Is it because of the uncertainties and environmental concerns related to the new drilling technologies and the potential environmental damage that may be caused by this new way of getting gas to the surface? I have no problem believing that in this new gold rush there are plenty of unscrupulous energy companies that may indeed cause environmental damage in the pursuit of their economic interests. Still, given the magnitude of these reserves and their vast strategic implications, I am confident that the Government can lead –in fact should lead, starting now–by creating and enforcing strict safeguards aimed at protecting the environment and public health.

But, assuming that we can safely continue to exploit all this energy, what can all this gas do for America?

Well, here is the story.

What are the implications of these discoveries?

“I drive a converted Chevy Tahoe that runs on natural gas from my home, and I can assure you it feels great to refuel my vehicle at $1.00 per gallon with a clean fuel that is made in America and creates American jobs. My goal is to make sure all Americans one day have the opportunity to enjoy that same great feeling”.

Think of that: cleaner fuel for your tank at almost 70% less than gasoline! Well, these are the words of Chesapeake Energy CEO Aubrey McClendon. Chesapeake Energy, www.chk.com, is one of the largest natural gas producers in the United States. But is this notion of driving a natural gas fueled vehicle that can be refilled at about 1/3 of the cost of regular gasoline just hype to promote the company’s main product?

Well not so. Given the extent of US gas reserves, millions of vehicles, after appropriate retrofitting, could be fuelled by inexpensive, relatively clean, domestically produced natural gas.

America is the Saudi Arabia of natural gas

Indeed, as indicated, it is estimated that the known natural gas deposits, to which we added in recent years the enormous shale gas fields, are the equivalent in natural gas of the 200 billion barrels of Saudi Arabian oil. The US has now more gas than Russia. At current rates of domestic consumption, America has gas supplies for about 200 years.

Come again? 200 years of an energy source that translates into transportation fuel costing about 1/3 the pump price of gasoline? Yes. And gas pollutes a lot less than gasoline. And, let’s repeat it:

    It is right here, in America

. It is not imported. And, to the extent that we start using it on a large scale, it will progressively displace millions of barrels of imported oil, with significant savings for a country that sends abroad about 1 billion a day to make up for its oil deficit”.

For some reasons, the positive implications of domestic gas are not discussed

But what is most extraordinary in all this is that “Abundant Domestic US Gas” –as illustrated by the way

    60 Minutes

covered the issue– is not a “Big Story”. Sure enough here and there in the business media there are news account of large deposits and increased investments in exploration. (Most recently Chevron joined the crowd by acquiring a company heavily invested in shale gas exploitation for an amount in excess of $ 3 billion. The Chinese of CNOOC just bought 33% of a shale gas deposit in South Texas from Chesapeake for $ 1 billion).

But so far at least nobody, starting with the US President, cared to put all this together and draw the obvious strategic implications of all this gas. This is a “Game Changer”. In energy starved America, a country that has missed several opportunities over recent decades to reduce its oil consumption and adopt more sober habits in terms of fuel efficient vehicles, now we have geological formations plus technological progress coming to the rescue. But all this is happening almost in silence.

What industry says about the road ahead: start by converting heavy trucks

Sure enough Chesapeake Energy and others have a strong vested interest in convincing you that US produced natural gas is the way to go. But their arguments appear to be credible. This is what the Chesapeake website says about starting a process leading to broader adoption of natural gas as the fuel of choice for transportation:

“The best way to begin breaking this foreign oil addiction is to endorse the NAT GAS Act (H.R. 1835 and S. 1408) now pending in Congress. For details on these bills, please visit www.cngnow.com. These bills would gradually and efficiently introduce clean, American natural gas as the fuel of choice for heavy-, medium- and light-duty truck fleets in the U.S., replacing diesel refined from expensive foreign oil.

Once truck fleets have been converted to natural gas (in the form of liquefied natural gas, or “LNG”) and natural gas refueling pumps have been added to many of our nation’s truck stops, we can then begin converting passenger cars to natural gas (in the form of compressed natural gas, or “CNG”). This conversion process would save American consumers billions of dollars because natural gas is 70% cheaper than oil. Americans also would enjoy the added benefits of cleaner air and water and greater national security”.

So, there you have it. It is much cheaper than oil; it pollutes less; vehicles can be converted so that they can use it and –most importantly– it is produced here, at home. And, as it were, a huge amount of the new deposits are in Pennsylvania, that is right in the middle of the densely populated North Eastern United States, very close to major population centers and thus tens of millions of potential users.

Electricity generation is also very important

And this is not the whole story. There is also electricity generation. 22% of US electricity now comes from natural gas. It would be possible to augment that percentage, using the additional domestic supplies, while shutting down the worst, dirtiest coal fired plants; this way achieving an environmental improvement without diminishing total supply. As Chesapeake puts it:

“The only scalable, affordable alternative to burning dirty coal is to burn clean natural gas. And the best news is that it would be relatively easy to shut down the dirtiest 33% of America’s coal plants (better known at Chesapeake as the “Filthy 100″) and replace their electrical output with natural gas-fired electricity. That is because coal plants generally run about 75% of the time while natural gas power plants only run about 25% of the time. The U.S. has enough natural gas to ramp up natural gas power plants to run at least 50% of the time so that we can decommission the Filthy 100.

Doing so would eliminate the following annual estimated pollution: 600 million tons of carbon dioxide (implicated in global warming concerns); 700,000 tons of nitrogen oxide (exacerbates respiratory and heart diseases); 1.5 million tons of sulfur dioxide (the main ingredient of acid rain); 19,000 tons of mercury (one of the deadliest toxins known to mankind, and nonexistent in natural gas); and millions of tons of particulates (which the American Lung Association says kill 24,000 Americans per year)”.

Environmental concerns

As mentioned above, the technological breakthroughs that allow the economic exploitation of all this “shale gas” that is “imprisoned” in rock formations consists in injecting underground water and other chemicals that break the rock the formation thus “liberating” the gas that can rise to the surface. Much of this still novel technology is controversial. There is legitimate concern about the large use of water and about what will happen to all this water pumped deeply underground, laced with chemicals and what not. Will there be contamination of the water table used for agriculture and human consumption? Will all this mad rush for shale gas eventually come back to hunt us?

Let the Government set the safety standards

The gas companies say that on balance there are no real environmental hazards involved. Well, let the Government, both Federal and State, set the public safety environmental standards that need to be adhered to. But unless it is proven that the hazards are real and threatening the well being of communities across America, this is too big a find not to do our very best to bring it responsibly to fruition.

Again, giving for the moment the benefit of the doubt to industry, thus assuming that the exploitation of these vast natural gas reserves is safe, what is most astonishing is that nobody is articulating the incredibly large implications of the discoveries and how they alter favorably a domestic energy scenario characterized by lack of resources.

No major public policy announcement from Washington

And, even worse, we do not hear a strong voice from the White House making a major pronouncement in terms of energy policy. If indeed the smart way to incrementally switch to natural gas is by converting fleets of large trucks, the United States Government should lead the way, by announcing a program aimed at switching to gas its own fleets of heavy trucks and other suitable vehicles. This would be a powerful signal. “This is indeed a Game Changer. We got it. And we are going to lead the way, encouraging all suitable end users to switch to this cheap, environmentally friendly, domestic resource”.

If Washington gives the right signal, others, starting with State Governments and large truck fleet operators (think of Walmart, FedEx, and UPS) will follow suit.

Gas is not the ultimate solution, but it will help

Now, gas will not take care of America’s energy needs forever. Long term, we shall have to find truly cost effective, non carbon sources. But, for the time being, with a 200 years supply of domestic natural gas that can replace imported oil, I believe that we have cause for celebration. If we have to rely on carbon for a while longer, let’s use our own. It happens to be both cheaper and cleaner.

Time to give the good news and to redraw our national energy plans on the basis of all this gas.

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