In order to prepare for the topic this week, I have included some information of the current gas energy outlook, discussed very briefly on technologies then provided views from both proponents and opponents of the shale gas development activities. I ended with some of the questions and hope the bloggers will answer/comment to address the shale gas challenges.

 Energy Outlook

The Annual Energy Outlook 2012 (Ref. 1) published by DOE reported a modest growth in demand for energy over the next 25 years and increased domestic crude oil and natural gas production, largely driven by rising production from tight oil and shale resources. As a result, U.S. reliance on imported oil is reduced; domestic production of natural gas exceeds consumption, allowing for net exports; a growing share of U.S. electric power generation is met with natural gas and renewables; and energy-related carbon dioxide emissions remain below their 2005 level from 2010 to 2035, even in the absence of new Federal policies designed to mitigate greenhouse gas (GHG) emissions.

Shale gas production increases from 5.0 trillion cubic feet per year in 2010 (23 percent of total U.S. dry gas production) to 13.6 trillion cubic feet per year in 2035 (49 percent of total U.S. dry gas production).

Shale Gas Technology

Shale gas is a natural gas produced from shale. It is part of what is described as ‘unconventional gas’ (versus ‘conventional gas’ as gas sourced from discrete fields or pools localized in structural stratigraphical traps by the boundary of gas and water) and is obtained from low permeability reservoir in coal, tight sands formation, and shale. The accumulations of gas tend to be diffuse and spread over large geographical areas. As a result, it is much more difficult to extract (Refs. 2, 3). The shale gas production has accelerated due to advances in horizontal drilling and hydraulic fracturing technologies.

How it works: Wells are drilled vertically to intersect the shale formations at depths that typically range from 6,000 to more than 14,000 feet. Above the target depth the well is deviated to achieve a horizontal wellbore within the shale formation, which can be hundreds of feet thick. Wells may be oriented in a direction that is designed to maximize the number of natural fractures present in the shale intersected. These natural fractures can provide pathways for the gas that is present in the rock matrix to flow into the wellbore. Horizontal wellbore sections of 5,000 feet or more may be drilled and lined with metal casing before the well is ready to be hydraulically fractured.

Hydraulic fracturing (Fracking): Beginning at the toe of the long horizontal section of the well, segments of the wellbore are isolated, the casing is perforated, and water is pumped under high pressure (thousands of pounds per square inch) through the perforations, cracking the shale and creating one or more fractures that extend out into the surrounding rock. These fractures continue to propagate, for hundreds of feet or more, until the pumping ceases. Sand carried along in the water props open the fracture after pumping stops and the pressure is relieved. The propped fracture is only a fraction of an inch wide, held open by these sand grains. Each of these fracturing stages can involve as much as 10,000 barrels (420,000 gallons) of water with a pound per gallon of sand. Shale wells have as many as 25 fracture stages, meaning that more than 10 million gallons of water may be pumped into a single well during the completion process. A portion of this water is flowed back immediately when the fracturing process is completed, and is reused. Additional volumes return over time as the well is produced.

Jobs and US Manufacturing

After years of high, volatile natural gas prices, the new economics of shale gas are a “game changer,” creating a competitive advantage for U.S. petrochemical manufacturers, leading to greater U.S. investment and industry growth. America’s chemical companies use ethane, a natural gas liquid derived from shale gas, as a feedstock in numerous applications. Its relatively low price gives U.S. manufacturers an advantage over many competitors around the world that rely on naphtha, a more expensive, oil-based feedstock. Growth in domestic shale gas production is helping to reduce U.S. natural gas prices and create a more stable supply of natural gas and ethane.

The American Chemistry Council (ACC)’s new report (Ref. 4), Shale Gas and New Petrochemicals Investment: Benefits for the Economy, Jobs and US Manufacturing, claimed an opportunity for shale gas to strengthen U.S. manufacturing, boost economic output and create jobs. The ACC report analyzed the impact of a hypothetical, but realistic 25 percent increase in ethane supply on growth in the petrochemical sector. It found that the increase would generate:

. 17,000 new knowledge-intensive, high-paying jobs in the U.S. chemical industry

. 395,000 additional jobs outside the chemical industry (165,000 jobs in other industries that are related to the increase in U.S. chemical production and 230,000 jobs from new capital investment by the chemical industry)

. $4.4 billion more in federal, state, and local tax revenue, annually ($43.9 billion over 10 years)

. A $32.8 billion increase in U.S. chemical production

. $16.2 billion in capital investment by the chemical industry to build new petrochemical and derivatives capacity

. $132.4 billion in U.S. economic output ($83.4 billion related to increased chemical production (including additional supplier and induced impacts) plus $49.0 billion related to capital investment by the U.S. chemical industry)

Another report published by PricewaterhouseCoopers, LLP in Dec 2011 (Ref. 5) shared similar views:

. Energy affordability: Lower feedstock and energy costs could help US manufacturers reduce natural gas expense by as much as $11.6 billion annually through 2025

. Demand growth: In 2011, 17 chemical, metal, and industrial manufacturers commented in SEC filings that shale gas development drove demand for their products, compared to none in 2008.

. More jobs: US manufacturing companies could employ approximately one million more workers by 2025 due to the benefits from energy and demand for products used to extract the gas.

Inhibitors or Barriers

However, there has been a growing perception that the shale gas production has polluted the air and consumed too much land and water, and the hydraulic fracturing is a significant threat to drinking water (Ref 3). According to a report from the Chatham House (Ref. 6) two factors could threaten continuing and expanding shale gas production in the United States. The first is the current low domestic gas price, which means that the economics of all gas operations are looking very weak; a fact reflected in the collapse in the rig count, which measures the number of rigs being used for drilling gas wells. In May 2012, this was down over 30% on an annual basis. However, history suggests such low prices will not continue.

The second threat to shale gas operations in the United States is growing concern about the negative environmental consequences of fracking, expressed in growing opposition from local communities and NGOs. The 2005 Energy Act explicitly excluded fracking from the Environmental Protection Agency’s (EPA) Clean Water Act, a clause that has become known as the ‘Cheney-Halliburton Loophole’. A further environmental issue is that water recovered from fracking operations may contain materials from the surrounding rocks. These can include radioactive materials and heavy metals and need to be treated or properly disposed of to avoid contamination of water supply. This is another example of the need for proper regulation to minimize damage from fracking.

Another environmental concern that has surfaced relates to the role of shale gas and climate change. Given the greater energy required to produce shale gas, it might be expected that CO2 emissions would be higher than for conventional gas.

When writing this, some questions were circulating in my head and I listed them below for your food of thoughts. So for next week I hope you write-in and share your thoughts to stimulate further dialogues. I truly believe your ideas/inputs/comments/feedbacks are very critical to address our energy and manufacture challenges.

Food/Questions for Thoughts

Would shale gas R&D effort help toward reducing dependency on coal production?

Would shale gas R&D effort cut into the efforts of renewable energy research?

In a bigger picture, how would shale gas play in the energy security for the US?

Would shale gas projected production create jobs as claimed?

Are there other employment opportunities created to address the environmental concerns of shale gas?

What are the unintended consequences or wild cards of shale gas production?

Are the legal frameworks still playing catch up with technology development?

Could the environmental regulations keep up with technology development?

Would the current political environment change the dynamics of the development?

References:

1. Annual Energy Outlook 2012 with Projection to 2035, DOE, June 2012

2. The National Energy Technology Laboratory (NETL), DOE, March 2011

3. Chemical Engineering Progress, August 2012

4. Shale gas and New Petrochemicals Investment: Benefit for the Economy, Jobs, and US Manufacturing, American Chemistry Council, March 2011

5. Shale Gas, A Renaissance to US Manufacturing? PricewaterhouseCoopers, LLP, Dec 2011

6. The ‘Shale Gas Revolution’: Developments and Changes, Paul Stevens, Energy, Environment and Resources, August 2012, Chatham House