Wednesday, January 20, 2010 Times Topics By Clifford Krauss Overview Natural gas, the first-cousin to crude oil, is a combustible, gaseous fossil fuel often found in underground reservoirs and comprised of methane and other hydrocarbon compounds. It rarely attracts as much interest or headlines as petroleum, but in the last year or so, many have predicted that a new natural gas era may be dawning.
Table of Contents Overview A Higher Profile Around the World The Gas “Bonanza” Gas as the Fuel of the Future? Natural gas is primarily a source for electrical generation that has become increasingly popular because it burns cleaner than oil and coal and produces less greenhouse gases. Many environmentalists and energy analysts view natural gas as a natural bridge fuel between the dominant fossil fuels of today and the renewable fuels of tomorrow. Once merely a regionally based fuel, frequently flared off in oil fields because it was of little use, natural gas is now fast becoming a major international commodity. A Higher Profile Around the World Once “stranded” gas is now being piped and shipped around the world. When recent droughts hit Spain, natural gas came to the rescue as a backup source of electricity. When a nuclear plant was closed in Japan, the Japanese also turned to natural gas. Meanwhile natural gas has become a geopolitical weapon for Russia, which flexes its muscles by turning on and then off a pipeline to Ukraine and Western Europe.
In 2008, natural gas became the new energy rage in the United States, with T. Boone Pickens and others touting it as the next great transportation fuel. The reason for natural gas’ sudden popularity was the high price of oil and gasoline, but also because of the sudden discovery that vast amounts of natural gas could be tapped from fields around the United States. But when oil prices fell at the end of 2008, natural gas just as suddenly receded back to its normal state recessed in oil’s shadows.
The Gas “Bonanza” Hopes for the fuel were stoked in the last few years by a tremendous boom in natural gas production in the United States, which pushed down prices of the fuel and reversed the conventional wisdom that domestic gas fields were in irreversible decline. The new drilling boom took hold across Texas, Pennsylvania and Louisiana in so-called shale fields.
Black or brown shales are a type of sedimentary rock, high in organic matter, found beneath millions of acres in at least 23 states. The rock has been known for more than a century to contain gas, but it was considered virtually worthless until a decade ago because typical wells on such sites would produce gas briefly and then die. Now companies are drilling long, horizontal wells and pumping in water to fracture the rock, releasing vastly more gas than could the vertical wells of old.
The most famous and productive, so far, is the Barnett Shale region around and even inside the city of Fort Worth. A frenzy of leasing and drilling since 2005 made thousands of people wealthy for simply living on top of gas deposits.
According to a 2008 report released by Navigant Consulting, paid for by a foundation allied with the gas industry, there could be as much as 842 trillion cubic feet of retrievable gas in shale fields around the country. That would be enough to supply 40 years worth of natural gas at least.
The sudden prospect of massive amounts of domestic natural gas had oil men dreaming of a new bonanza, but also fearing a collapse in gas prices. The sudden overflow of natural gas supplies left a handful of new terminals built to receive liquefied natural gas from Trinidad and the Middle East virtually empty. Suddenly the country was swimming in gas.
Gas as the Fuel of the Future? Aubrey K. McClendon, chairman and chief executive of the Chesapeake Energy Corporation, produced television advertisements to drum up support for using natural car to fuel motor vehicles. And a handful of politicians began touting domestically produced natural gas as the answer to imported oil. T. Boone Pickens aired his own commercials calling on the country to build massive wind farms, and then use the natural gas that formerly produced electricity to replace oil-based gasoline.
Cars fueled by compressed natural gas had been available intermittently in the United States for decades, but only found wide use in fleets of vans, buses and cars. Of the 8 million natural gas vehicles operating worldwide, only about 116,000 are in the United States. Compressed natural gas caught on in Utah in 2008, due to unusual local market conditions, but political support for a widespread switchover to natural gas cars did not catch on.
Bursting with supplies, natural gas prices collapsed in late 2008 and early 2009 about as steeply as oil, just as the oil men feared.
Lower natural gas prices slowed drilling in both conventional and shale fields through most of 2009, but enthusiasm for gas spread beyond American shores. Italian and Norwegian oil engineers and geologists arrived in Texas, Oklahoma and Pennsylvania to learn how to extract gas from shale. European and American companies leased huge tracts of land across Europe for exploration. And oil companies gathered rocks and scrutinized Asian and North African geological maps in search of other shale gas fields.
But despite the prospects for a global boom, gas still took a back seat to other fuels as Congress began considering climate change legislation. It also faced some intense public pressure in areas like Pennsylvania and upstate New York where residents became concerned that expanded drilling could endanger water supplies with spills and ground seepage of fluids used in fracturing shale.
Bowing to public pressure, Chesapeake Energy in October pledged not to drill for gas within the upstate New York watershed.
But the new political pressures did not squash international interest in the fuel. Exxon Mobil made the biggest energy deal in years when it moved to acquire XTO Energy for $31 billion in December 2009. The acquisition of the Fort Worth company will make Exxon the biggest natural gas producer in the United States and a major player in the shale fields. Not to be outdone, the French oil giant Total started the new decade by moving into the Texas Barnett shale field by entering into a $2.25 billion join venture with Chesapeake Energy.