Are you fracking crazy?

The global debate on fracking continues to dominate much of the world’s energy press.  The US is currently benefitting from a boom in shale gas production which some commentators claim is one of the biggest reasons the American Eagle is still managing to dominate the Chinese Dragon.  In just a few years the US has gone from being a net importer to net exporter of gas.  This cheap liquefied gas is driving Brent crude prices down and breaking the US’s reliance on the OPEC countries output and price controls.  The US is currently opening up more than 10,000 new fracking wells each year and gas prices are three and half times lower than in the UK.

Fracking is far from new technology, Canada has been doing it since the 60’s and Germany since the mid 70’s.  France and Bulgaria have banned it, but the Netherlands and China are actively pursuing it.  China’s addressable reserves are claimed to be 50% higher than the current largest production centre, the US.

lng

Some large scale shipping companies have started to convert their fleets to gas engines

The debate in the UK is fierce with many doubters claiming that the sheer physical difference between the landscapes of the US and the UK mean that a revolution of this scale is simply not feasible.  Many of the suitable fracking sites will be in urban centres or near potential vulnerable areas such as rivers.  However, cheap, instant energy, is a hard argument to resist, indeed PM David Cameron has already gone from stating that renewables are the way forward for the UK’s energy requirements, to fracking being the new solution, in less than a year.

As usual, all is not clear, the endorsement in the UK reeks of biased corporate interest with many of the Governments advisors having strong links in the burgeoning fracking industry, Lord Browne, ex Chief Exec of BP and now chairman of Cuadrilla, one the largest operating fracking companies in the UK, being the most prominent.  Is it a coincidence that The Royal Academy of Engineering had Lord Browne as its president while producing the final report on shale gas extraction, which is used as the backdrop to justify the safety of fracking, by the UK government?

US Fracking

Fracking on the Pinedale Anticline formation in Pinedale, Wyoming, where there are serious water shortages being reported

However, the current US gas prices are a big incentive unfortunately, there is no guarantee that the UK’s prices will follow the same pattern, or that the trend in the US is even sustainable.  Indeed, some researchers claim that the US bubble is already bursting.  Michael McElroy, who writes for Harvard Magazine, states that: “the economic momentum of the shale-gas industry can be sustained for the long term only by decreasing production (ultimately causing prices to adjust—a process that may be under way…) or by increasing sales of its product”.  Veteran Petroleum Geologist, Arthur Berman, wrote in 2011: “Facts indicate that most wells are not commercial at current gas prices and require prices at least in the range of $8.00 to $9.00/mcf to break even on full-cycle prices, and $5.00 to $6.00/mcf on point-forward prices. Our price forecasts ($4.00-4.55/mcf average through 2012) are below $8.00/mcf for the next 18 months. It is, therefore, possible that some producers will be unable to maintain present drilling levels from cash flow, joint ventures, asset sales and stock offerings.”

Do low gas prices provide an opportunity to reduce Carbon emissions?  Most claims, that shale gas will significantly reduce US carbon emissions in the future, are not currently based on any solid facts but rather on a certain amount of wishful thinking. That’s because those claims assume natural gas is replacing coal only, rather than replacing some combination of coal, renewables, nuclear power, and energy efficiency — which is obviously what will happen in the real world.  A separate study released this week from the International Energy Agency found“low natural gas prices will hamper the U.S.’s incentive to continue spending on energy-efficiency projects.”

Stanfords_model

A new study, from Stanfords energy modelling forum, “Changing the Game? Emissions and Market Implications of New Natural Gas Supplies Report.” suggests that use of Shale gas will have little or no effect on the reduction of CO2.

Is the lure of cheap natural gas just too great to resist and should it be pursued at the cost of other more sustainable technologies?  Is this the start of a sustainable movement towards better use of our natural resources or simply another boom and bust gold-rush to be exploited?

Matt Willis is Terviva’s Director, International Markets.

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