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Fracking Out About LNG

Wednesday, August 22, 2012


Domestic natural gas can be harnessed as a potent geopolitical weapon to reframe global energy discussions. Innovations in hydraulic fracturing allow us to affordably tap into vast fields of shale gas embedded in rocks deep in the earth and recover a resource that was just a few years ago considered out of reach. The shale gas revolution is in my opinion, the single best and most important piece of news since the end of the recession. Record production of natural gas in the US, most notably out of the Bakken and Marcellus shale formations, has driven down natural gas prices and has resurrected the petrochemical sector by replacing coal as the main fuel used for electricity generation in power plants. The supply glut has led to a dip in the price of natural gas in nominal terms and more importantly, it lead to a 60 percent decrease in the price of natural gas when pitted against WTI benchmark crude oil. Due to the surplus in the US and high natural gas prices in Japan and Europe, American producers would like to liquefy and export some of their production as LNG (liquefied natural gas). A string of companies have applied for permits to export LNG and yet the Obama administration is standing in the way as part of the one of the most reactionary trends of US trade policy. For the last decade, there has been a slow creep of strategic protectionism by regulatory fiat over the energy industry's ability to participate in global trade. This new “national interest” protectionism has to find such exports to be consistent with the “national interest” before they can occur. The term “national interest” is ambiguously defined and is left to be determined by regulatory discretion.



       In the long run, however, national interest is best served not by empowering the Energy and State Departments to restrict energy trade, but rather through a strong and consistent American support for trade liberalization. A study conducted by Michael Levi of the Council on Foreign Relations, estimates that American firms could make up to $3 billion a year exporting LNG. The US should stop introducing legislation or regulations that would either promote or limit additional exports of LNG from the United States. The nature of the LNG sector, both the costs associated with producing, liquefying, and shipping the gas, and the global market in which it will compete in, will place upper bounds on the amount of LNG that will be economic to export.



       Natural gas also has true promise as a transitional energy source between higher-emission fossil fuels, such as coal and oil and even cleaner, zero-emission renewables over the very long term. By developing shale gas as a replacement fuel for coal we retrieve the prospect of blunting — and possibly reversing — the upward climb of carbon dioxide emissions. Shale gas emits 50 percent less carbon dioxide than coal, and so if countries like China and India made the switch on a large scale, then we have a chance to reset the trajectory of global carbon dioxide emissions. Coal now produces 34 percent of U.S. power, down from about 50 percent. According to the International Energy Agency, the U.S. has cut carbon dioxide emissions more than any other country over the last six years and is at its lowest emissions in 20 years. Total U.S. carbon emissions from energy consumption peaked at about 6 billion metric tons in 2007. Projections for 2012 are around 5.2 billion mt, and the 1990 figure was about 5 billion mt. If China follows the U.S. lead and uses LNG exports to replace coal-fired power generation, global CO2 emissions will plummet.



          And of course, no discussion on natural gas is complete without addressing the risks of hydraulic fracturing. Hydraulic fracturing, colloquially known as fracking, is a process used in nine out of 10 natural gas wells in the United States, where millions of gallons of water, sand and chemicals are pumped underground to break apart shale rock and release natural gas. Many activists worry that the chemicals in residual wastewater left over from fracturing may contaminate drinking water. A bigger fear is that large amounts of methane, a powerful greenhouse-gas, could be emitted during the entire process of exploration and production. Although these risks are real, they are weak arguments for banning hydraulic fracturing altogether. Building properly concreted well-shafts that don’t leak; preventing gas venting and flaring would limit methane emissions to acceptable levels and the risk of small tremors, which commonly occur as a result of conventional oil-and-gas activities, can be contained by careful monitoring. The International Energy Agency estimates that these measures would add 7% to the cost of the average shale-gas well. A paper published on Monday by Duke University researchers found that exploration in the Marcellus shale in northeastern Pennsylvania did not result in contamination. Tight and effective regulation can lead to better industry practices. It’s a small price to pay for companies who want to maintain the health of a promising industry.


          The story of America's shale-gas revolution offers hope through difficult times. Exporting our surplus will strengthen our economy further, creating thousands of more jobs in liquefying, shipping, and clean technology industries. Although natural gas is not a long term clean energy solution, it can buy us time by providing cheap gas and financial resources for R&D in low carbon-technology.

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