Natural Gas Disinformation

Here is a copy of  a letter I sent to our local paper in which I commented upon a proposal to open natural gas filling stations in Jackson:

 

 

Natural Gas for Transportation in Jackson?

 

Energy independence for the US is a hoax. Whoa Pard. Aren’t you coming on a little strong? Even the President has told the country we have 100 years of natural gas supply from its reserves? With numbers like that shouldn’t Jackson be converting its vehicle fleet to NG? Were it true, a case could possibly be made to do so. But it is not true. To start with, the US is nowhere near energy independent in Oil or Natural Gas(NG) even now with the glut  of the past 3 years. The US as of last year still had to import 12.7% of its NG. For the previous 20 years, that average was 15.7%. Doesn’t sound like energy independence to me.  It is essential that as citizens we understand the terminology of energy. Obama was confusing reserves with resources. To be a reserve, the energy must be commercially producible. A Resource may have production potential at some price, if it’s there. A resource is subdivided into 3 categories of probable, possible, and speculative. The US does not have 100 years of reserve NG. It has somewhere between 11 and 23 years of reserves at current consumption.  It may have 90 to 100 years of NG resources, but Resources are emphatically not Reserves. Remember to be a reserve it must be commercially producible. US production of NG peaked in about 2009 and has been flat ever since. Most of the traditional gas fields in the US with the exception of Louisiana and the insignificant Marcellus Field in PA are in decline, and that includes Wyoming which accounts for only 8 % of US production. US rig counts as reported by Baker Hughes are in decline as well. There are several reasons for this chiefly the very low price for NG for the past few years hovering between $2 and $4 which for most fields is way below break even. Goldman Sachs a few years back made a presentation trying to lay out the profitability of rapidly depleting Frac Gas fields and concluded that depending on the field, a minimum price of $6 to $8 was the level of profitability. A major reason why frac gas is still being produced is because the companies have shifted their rigs to the fields having both tight oil and tight gas. The oil is still profitable and the gas is merely a by product of oil exploration and drilling. In a few places like SLC, a driver can buy gas for the equivalent of $1.25/gallon but if gas prices return to a profitable level that price will likely be at parity with gasoline. Do the math and see if that $5 or $10,000 conversion cost makes economic sense to you or to your commercial fleet. If you get say 20 mpg and drive 12000 miles a year, you will use 600 gallons/yr. At current gas prices in Jackson just below $3/gal, you spend $1800/yr. If you pay $1.50 for tax free NG, that would be $900/yr. Looks like payback is around 10 years if the price differential between gas and gasoline stayed the same which if you believe my numbers will be highly unlikely. Once gas prices return to a level of profitability, that differential will disappear. A nationwide conversion to NG for transportation is unaffordable for a country running $1 trillion plus deficits.  The gas industry is begging for yet more subsidies from the Federal and state government including agencies like the Wyoming Business Council. If the City of Jackson makes the mistake of converting its vehicle fleet to NG and when prices hit parity, it will be the citizens who are stuck with the bill. If a group wants to purchase equipment and a station, by all means let them, with their own money at their own risk, and not the taxpayers of Jackson or Wyoming.

Partial list of sources for this essay: http://www.eia.gov/oil_gas/natural_gas/data_publications/eia914/eia914.html

http://www.theoildrum.com/files/After%20The%20Gold%20Rush_Page_14.jpg

http://www.slate.com/articles/health_and_science/future_tense/2011/12/is_there_really_100_years_worth_of_natural_gas_beneath_the_united_states_.html

Regards, Hugh Owens MD

The thoughtful reader of whether we can or should make a  jump to an alternative form of energy use for transportation needs to know far more than the price differential between gasoline and CNG prices in Salt Lake City. The single most confusing issue is how production and consumption and prices are reported in the media on all the fossil fuels much like the economic  and job data that is dispensed from the government. I have spent a lot and I mean a LOT of time sorting through often conflicting numbers and the data is often  if not usually in conflict. So get used to it. There will be bias reported depending upon who is reporting. For example an investor group or an investment bank may report statistics tacitly designed to encourage and reassure investors pointing out a bright investment future for their particular product. You will find differing numbers reported on production and consumption even between the international agency, the IEA and the US agency, the EIA. If you go to these  agency websites you may wear out your computer mouse trying to tease out what you are looking for. If you go to industry sites like the API(American Petroleum Institute), you are likely to be served up optimistic and rosy data which I generally regard as suspect unless I can find verification from other sources. For example if you are worried about the negative side of fracking for oil and gas,you might as well forget the  corporations and their lobbying arms. If you  read their company releases you will read that frac wells hardly ever leak or contaminate water supplies and that fracking is the new energy nirvana for the United States leading to more jobs and companies returning to the US because of low energy prices.  You will see the usual cliche buzzwords like sustainable and common sense approach. When I see terms like these I know that they really translate to unsustainable and idiotic. For example, you will rarely see any mention of the negative aspects of fracking for gas or oil and its possible contribution to global warming. Methane is many orders of magnitude worse than CO2  in its contribution to global warming and I rarely see articles dealing with whether gas wells leak methane to the atmosphere. Of course they do! Anyone who lives in my state anywhere near the Pinedale anticline gas fields knows they leak. I have driven there in quiet winter days when my eyes burned so bad I could hardly see the road. I once stopped for gasoline in Pinedale and complained to the station about the smell and the smog and the cashier smiled and said”Ah…the smell of money!”. The thick ozone cloud in the area has many causes besides leaking frac wells. Diesel pumps power the rigs and the frac injection pumps and my Toyota pickup is also a small part of the problem. The tragic fact is that no one knows how many wells leak and how much and you can be sure that the industry will under report it. There are a few good reports on the problem like this long monograph from  Schlumberger about 10 years ago. What alarms me is that I haven’t been able to find a credible source of how much the new fracking techniques of horizontal drilling involving numerous long laterals arcing out from a single pad because the old studies largely involved cemented vertical casings. Fracking doesn’t involve intact cemented casings in the entire drill path. It fractures the rock far distant from the main drill bore. There is no easy way even for the drillers  to know how much or how often methane finds its way up existing rock cracks or into adjacent aquifers. In the largely unregulated get rich quick wild west environment of the big frac basins, the big players know better than to open their mouths. In the state of Wyoming our  captured regulators have been loathe to say anything negative about the oil and gas industry. When the citizens complain about burning eyes and getting asthma because of the gas smog, the state doesn’t restrict drilling or issue cease and desist orders to the drillers. Instead  they recommend that all parties should cooperate and car pool and drive less.

  The second main point I would like to point out to individuals or governments contemplating a shift to alternatives to oil like CNG cars and trucks is to be aware of the unregulated and uncertain supply picture for natural gas. There is also no national regulatory body controlling gas production like there was for oil back when the Texas Railroad Commission was calling the shots for oil production in order to ensure stable prices and lower the risks for destructive booms and busts. I have looked long and hard and have been unable to find out how much gas is available and produced  purely as  gas plays. USGS does break down gas by type and origin.  The current rig count reported by Baker Hughes shows that about 2/3 of current wells are oil and 1/3 gas but even that is a bit misleading. All manner of hydrocarbons come out of these wells. There is oil in gas wells and gas in oil wells. Gas prices are so low that  the oil and gas industry is still flaring  gas to the atmosphere. This is rarely reported but the industry continues this abominable practice. Some of the oil drillers do try to recover this gas and re inject it to help the oil rise to the surface but injection pumps cost money as do laying gas pipelines. Methane is being flared in the Bakken and the Eagle Ford tight oil fields today as recently reported in the Oil Drum.I have read that more than 30% of gas is as a by product of oil fracking.   I mentioned in my letter that gas prices are below the cost of production. If that is the case why would the drillers not just cap the wells and wait for better prices? I wondered the same thing and found that even with the low prices,the producers have to maintain cash flow even if they are losing money because cash flow services their loans, keeps investors happy and people employed. Some of the early gas fields are of course actually still making money because they  were first to the game and collared low price leases and with the high gas prices 5-6 years ago were able to hedge their production. But one must keep in mind that these producers can only lose money so long. They are hanging in as long as they can hoping for a rebound. There are many events that could trigger that rebound. If the current recession deepens and oil demand and oil price drops as some predict, oil fracking could drop below profitability. The recent cancellation of the Bakken Express pipeline could have occurred for many reasons but ultimate  frac oil profitability and amortization of its cost must certainly be factors. Crude oil trades freely on the world market and is generally easily  transported but North American gas is largely trapped. This is the main reason that the gas producers are lobbying hard for export  LNG terminals and pipelines to let this trapped gas escape to the coasts so it can be loaded on to LNG Ships destined for Asia and European markets where the current price is many multiples above the US price. Just yesterday Transcanada obtained permission to run a  6 $Billion pipeline to Prince Rupert BC to supply Asian markets. If you wonder why a country like the US  which is not energy independent in natural gas should be exporting

 

 

 

 

 gas, you are to be forgiven. That’s why you see so many conflicting and obfuscatory media reporting like” Fertilizer and petrochemical companies are considering returning to the US to  take advantage of low price natural gas,” or T Boone Pickens begging for government subsidies to convert the US car and truck fleet to CNG. The companies know that the surest way to high price natural gas is to let it escape to the world market where it will trade closer to the BTU content of crude oil. If it were, gas would be priced over $15 and that is the kind of price that would put a smile on the face of Aubrey McClendon, the CEO of Chesapeake, one of the country’s big players. It is also the kind of price that would kill CNG cars and trucks, so something has to give. You can’t have both.

      If the reader is wondering where I come down on the side of NG vs gas for transportation, I would say NEITHER!  I would like to see the country moving away from car and truck transportation of people and cargo and moving to a “fuel” that is sustainable and vastly cheaper: Electricity!,which can be generated from darn near anything, including Wyoming gas and coal. The level of public and private debt in this country is such that there is no way that a new gas pipeline/filling station infrastructure could be constructed from scratch when the country is too broke now to repair its roads and bridges. The uncertainty about price and availability of Natural gas in my opinion  absolutely militates against a switch from gasoline to gas by anyone but most especially by my local government or utility if they are going to fund it from my taxes and utility bills.

     If the reader is interested, I have covered this subject in more depth in previous posts last year.

 

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About cal48koho

I was born in Montana and raised in a dozen Air Force SAC bases. I attended Holy Cross,West Point and UNC in Chapel Hill(MD"71). Army doc in the last years of the Viet Nam fiasco. My wife and I live in a log cabin I built in Jackson Hole in 1975 when we aren't on our Cal 48 yawl. I've done a dozen different jobs and retired from ER and Anesthesia in 2004. I've written magazine articles and am writing a Kunstleresque novel about life in a past Peak Oil world. We are living in a beautiful alpine setting where we hike and ski when we're not thinking about economics and spreading the implications of PO to anyone who will listen.
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