Hydraulic Fracturing or what some refer to as ‘fracking’ is strongly opposed by a number of individuals, organizations and politicians. Opposition to the fracking technology used to recover natural gas from shale formations is due to concerns or fear of adverse environmental impacts. Possible environmental impacts include ground water contamination, methane greenhouse gas fugitive emissions, waste water handling, and even potential earthquakes. Those who believe that shale gas cannot be produced without risking the environment advocate directionally shutting down all production if possible. What would the impacts of shutting down all U.S. shale gas production be on overall natural gas supplies and markets, the economy and carbon emissions?
Recent Growth of Shale Gas Production – The development of U.S. hydraulic fracturing technologies began over 50 years ago. Successful development of this slowly evolving technology began accelerating at historic rates about 6 years ago. As a result of recent innovations in hydraulic fracturing U.S. shale (natural) gas production has increased 10-fold since the end of 2006. Refer to the following chart.
Figure 1 – U.S. Shale Natural Gas Production
Billion Cubic Feet per Day
Data Source – EIA Natural Gas Weekly Update, Monthly dry shale gas production.
Figure 1 shows that since 2006 the rapid expansion of shale (natural) gas in the Marcellus (PA and WV), Haynesville (LA and TX) and Barnett (TX) areas currently accounts about 2/3’s of total U.S. shale gas production.
Projected Shale Gas Production Growth – The recent increase in U.S. shale (natural) gas production is projected to continue to grow at very large rates over the next few decades, while conventional (non-shale/tight) gas production is expected to continue its long-term decline. Refer to the following chart.
Figure 2 – U.S. Historic and Projected Natural Gas Production
Trillion Cubic Feet per Year
Data Source – EIA AEO2013 Figure 3 U.S. dry gas production by source.
Figure 3 shows that shale (natural) gas production is projected to increase by 2-fold 2012-2040 and supply about 1/2 of total U.S. natural gas production in 2040. Tight gas, coal bed and Alaska (conventional) natural gas are also projected to increase, but at relatively slow rates compared to shale gas.
U.S. Shale Gas Contribution to World Supply – Not only has increased shale (natural) gas production expanded at historic rates to meet growing U.S. needs, but shale gas has become a major source of total world natural gas supply. This growth and contribution towards world supply is expected to increase in future decades. Refer to the following chart.
Figure 3 – World Total Natural Gas Production by Region
Trillion Cubic Feet per Year
Figure 3 shows that total world natural production (and consumption) is projected to increase by almost 70 Trillion cubic feet per year (cf/yr.) or about 60% 2012-2040. Most of this increase is expected to come from Non-OECD countries such as Russia and Middle East countries. A very large part (12%) of increased world natural gas production is projected to come from growing U.S. shale gas production. In 2040 U.S. shale gas is expected supply 9% of total world natural gas supply.
Impacts of Shutting Down All U.S. Shale Gas – About 10 years ago growing natural gas demand and declining production resulted in the U.S. approving and building 11 LNG (liquid natural gas) ‘import’ terminals. Due to recent growth in shale gas, few of these terminals were put into operation. More recently the Federal Administration has approved building-converting four LNG terminals for ‘exports’. The projected increase in shale gas is expected to create an over-supplied market, justifying the export of excess domestic production and allow taking advantage of economically attractive world LNG markets.
If all shale gas production were shutdown due to the claimed environmental risks this excess domestic supply and attractiveness of LNG exports would change immediately. Refer to the following graph.
Figure 4 – U.S. Projected Exports and Required Imports From Shutting Down Shale Gas
Trillion Cubic Feet per Year
U.S. 2012 (net) imports were 1.5 Trillion cf/yr. (6% of consumption). All of these net imports come from Canada; the most secure source of U.S. energy imports. Net imports were projected to decline to zero in 2020 and ‘net exports’ are projected to increase up to 3.5 Trillion cf/yr. in 2040. Figure 4 also shows that if all U.S. fracking operations and shale gas production was shutdown at the end of 2013 that U.S. net imports would immediately increase up to 10 Trillion cf/yr. in 2014 and 13 Trillion cf/yr. in 2040. These levels of natural gas imports represent 40-45% of total U.S. consumption 2014-2040. This level of U.S. natural gas consumption supplied from imports is 2-3 times previous historic highs.
Impacts of Shutting Down All U.S. Fracking and Shale Gas Production – Shutdown of all U.S. shale gas production will dramatically impact domestic and international markets. A loss of all U.S. shale gas will reduce total world supply by up to 9% as previously described. This disruption of available supplies will adversely impact market prices and the economy, energy security, fossil fuels mix and carbon emissions.
1. Market Prices and the Economy – The U.S. has among the lowest average market prices for natural gas compared to other OECD countries. In 2012 average U.S. Residential Household natural gas cost almost $11 per 1000 cubic feet (Kcf). If the U.S. were to shutdown all shale gas production, which would substantial increase imports, U.S. Household natural gas related costs would increase by at least 50%. A 50% increase in U.S. average Household natural gas (related) costs is equivalent to about $5 per Kcf. Based on 2012 average consumption this would increase Household direct and indirect costs by $127 Billion/yr. This would increase the 120 million U.S. Households’ average expenses (direct heating + indirect industrial/power costs) by at least $1000/yr. EU countries’ Households, which typically pay on the order of $20/Kcf (including taxes) would also be subjected to substantially higher natural gas costs due to U.S. competition for limited available world supplies outside North America.
Shutdown of U.S. shale gas production would also have a huge negative impact on employment and the overall economy. Shale gas currently supports over 600,000 workers, and contributes $200+ Billion/yr. to the GDP and $50+ Billion/yr. to State and Federal tax revenues. All these economic benefits would be lost without shale gas and result in paying foreign countries outside North America $100+ Billion/yr. for natural gas imports.
2. Energy Security – In 2012 the U.S. natural gas net (Canada) imports provided 6% of total consumption. If the U.S. were to shutdown all shale gas production net imports would increase up to about 45% of total consumption. Most of these imports would have to come from non-OECD countries such as the Middle East and Russia; the two largest suppliers of current world natural gas trade. This situation would cause an enormous decline in current U.S. energy security. Russia and the Middle East have been trying to develop a new ‘Organized Gas Export Countries’ (OGEC) Cartel for many years. Shutdown of U.S. shale gas production will very effectively remove a major barrier to the successful development of the OGEC Cartel. U.S. and EU energy security will likely be threatened by Russia’s involvement and possible OGEC leadership.
3. Fossil Fuels Mix – Loss of 9% of total world natural gas production from shutdown of U.S. shale gas will have a large impact on world energy mix. The resultant increase in natural gas heating fuel costs will generally result in fuels switching to coal. Rather than coal consumption increases slowing and flattening in 2030-2040 (refer to IEO 2013 Figure 2, World energy consumption by fuel type), reduced natural gas supplies and increased costs will encourage Developing countries such as China and India to further accelerate their consumption of coal. Total World coal consumption could increase by at least 11% in 2040 without U.S. shale gas.
4. Carbon Emissions – Fuels switching from natural gas-to-coal will primarily affect the Power Generation Sectors. On average state-of-art CCGT natural gas power plants are 25% more efficient than modern coal power plants (Re. third graph of a post on this subject). Reducing World natural gas consumption by 9% from lost U.S. shale gas will result in an increase of carbon emissions of at least 2.3 Billion metric tons per year in 2040 (basis: 9% x 1.25 = 11.3% total coal consumption increase) from fuels switching natural gas-to-coal. This is equivalent to increasing total World carbon emissions by 5%. World total carbon emissions would increase up to 220% of 1990 levels by 2040.
Alternatives to Arbitrarily Shutting Down Fracking of U.S. Shale Gas Production – Shutting down all U.S. fracking operations and production of shale gas will have huge negative impacts on future U.S. and World economies, energy security and carbon emissions. Rather than taking arbitrary and potentially destructive regulatory actions towards U.S. energy costs, security and carbon emissions, more rational debate and evaluation of current and past shale gas fracking operations should be pursued. Yes, all hydraulic fracturing operations must be carried out in an environmentally responsible manner and those that truly impact the local environments significantly should be held fully accountable. But, future modifications or changes to existing State and/or Federal hydraulic fracturing regulations should not impose onerous, inefficient requirements that only add costs-barriers to future development or permits, and are based on insignificant or non-existent environmental risks.
Whether you support shale gas production or not, the transition from high carbon coal will require natural gas during an interim period of at least several decades. Currently and in the foreseeable future, natural gas is required for intermediate-peaking power generation capacity required to stabilize power grids as the penetration levels of variable, non-dispatchable wind and solar PV continue to increase. Until Industrial level power storage beyond limited hydropower pumped storage becomes a technological and economic reality, natural gas power generation will be required for properly managing power grids. Without backup natural gas power generation nearly all power grids’ reliabilities will be put at risk. Other power storage-peaking power generation options such as advance nuclear, biomass, geothermal, solar thermal, etc. will also take many decades to build and ultimately displace all coal, and eventually natural gas. Shale gas produced via hydraulic fracturing technology is absolutely essential to providing adequate domestic natural gas primary energy supplies required to feasibly make the transition to zero carbon alternative energy sources in the future.