July | August 2017



by Carrie Abner
As the last century drew to a close, the U.S. Energy Information Administration projected that the nation’s foreign dependence on natural gas would continue through the first part of the 21st century. In 1999, the agency forecasted that net imports of natural gas between 1997 and 2020 would grow nearly three percent, from 12.9 percent to 15.5 percent, to account for increased demand for the fuel.
Less than 15 years later, with the discovery of new U.S. natural gas reserves and new technologies for extraction, natural gas import facilities largely sit idle and some are being converted into export terminals. In its energy outlook for 2014, the Energy Information Agency, or EIA, projected the U.S. would become a net natural gas exporter by 2016.
What a difference a few years can make.
The Natural Gas Boom
According to some experts, the United States may have more natural gas than ever anticipated. By itself, that’s good news, but it comes at a time when new technologies for extraction mean that it can be recovered at a profit, fueling a revolution for the industry.
That’s led to a boom in production. According to America’s Natural Gas Alliance, or ANGA, a group that represents natural gas exploration and production companies, natural gas production has increased by 30 percent since 2005.
According to Erica Bowman, vice president of research and policy analysis for ANGA, much of the innovation in natural gas extraction has occurred within the last decade with the application of new hydraulic fracturing technologies along with horizontal drilling methods to extract gas in shale rock formations—reserves where natural gas is trapped in sedimentary rock formations—such as the Marcellus shale play in Pennsylvania and the Haynesville shale play in Louisiana.
“It definitely started with what people refer to as the shale revolution” and the new technologies and extraction innovations used to extract shale gas, Bowman said.
Between 2007 and 2013, shale gas grew from 10 percent of all U.S. natural gas reserves to 45 percent, according to federal data, and the growth in proved shale gas reserves is fueling a growth in production. By EIA’s estimates, total U.S. natural gas production is expected to grow 56 percent between 2012 and 2040, with shale gas accounting for 50 percent of that production.
“Geologists have known about shale gas for a very long time,” Bowman said. “It’s just that they didn’t necessarily know a good and economical way to extract that gas.”
Integral to the growth in shale gas production levels today is the use of the relatively new extraction method called hydraulic fracturing, also known as fracking, a technique that pumps water, sand and chemicals into a shale formation to create fissures through which natural gas is extracted. The technique is much cheaper than more traditional forms of drilling. By lowering the costs of production, hydraulic fracturing has contributed to the growth in U.S. natural gas reserves in recent years, making it a worthwhile financial investment for producers.
“They’ve (operators) really been able to optimize how they use hydraulic fracturing and horizontal drilling where now you’re just seeing an incredible amount of production coming from a single well,” said Bowman.
Back in 2007, said Bowman, it could take operators up to three weeks to drill a well. Now the process takes just six days.
“There’s been dramatic improvement in just time,” said Bowman. “By being quicker, you’re also making things less expensive. And they’re also doing more with that drilling—they’re drilling deeper and with wider laterals. It’s really amazing the innovation that’s happened just in the drilling itself.”
The Fracking Question
There is no question that hydraulic fracturing has contributed to the growth of natural gas as an energy source for the nation, but the practice isn’t without its critics.
Natural gas, itself, is cleaner when compared to other fossil fuels such as coal, resulting in half the CO2 emissions that coal emits to generate electricity. In fact, industry representatives point to natural gas as an option for states as they develop compliance plans for new regulations released by the Obama administration to reduce carbon emissions.
“With the finalization of the Clean Power Plan, states have an incredible opportunity to use natural gas as a compliance option or compliance tool,” said Bowman of ANGA. “Not only is it affordable, but it’s also reliable and it’s meeting the environmental requirements put forth by the EPA.”
Environmental advocates, however, cite the extraction process—namely hydraulic fracturing—as a threat to both environmental and public health.
In its 2014 report, “Dirty Fuels, Clean Futures,” the Sierra Club pointed to hydraulic fracturing as the source of smog-producing air pollutants, toxic ground water contaminants, earthquakes and the destruction of previously pristine public and private lands.
“Fracking is the driving force for a dirty energy boom that is releasing billions of tons of new climate-disrupting carbon pollution into the air,” warned the report’s author, Dan Chu.
“The mad rush to drill as quickly as possible and wherever possible is causing serious harm—to people’s health, to their communities and to our climate,” he wrote.
The environmental concerns led to the banning of the technique by New York state and communities in Colorado, Pennsylvania and Texas, though in May, Texas Gov. Greg Abbott signed legislation banning cities across the state from prohibiting hydraulic fracturing.
State leaders in Wyoming were also concerned about the potential environmental consequences of hydraulic fracturing. In 2010, under the administration of Gov. Dave Freudenthal, the state became the first in the nation to require public disclosure of the chemical additives to be used in the hydraulic fracturing process on federal, private and state lands. What’s more, said Jerimiah Rieman, natural resource policy director for the office of Wyoming Gov. Matt Mead, “we remain the only state to require pre- and post-production disclosure, and that process has been successful.”
Other states such as Colorado, North Dakota, Pennsylvania and West Virginia have followed suit with chemical disclosure rules for hydraulic fracturing, though the actual requirements vary from state to state.
Rieman said that the priority of supporting energy production to boost economic vitality in Wyoming is matched with a focus on protecting the state’s environmental health.
“It doesn’t matter what administration is in office here, there’s always a deep interest in ensuring that we continue energy production that we have because that is such an important economic driver for our state,” Rieman said. “But, equally important, every resident of Wyoming enjoys the great outdoors. We enjoy seeing wildlife, we enjoy clean air, clean water, and we like to share that with the world. So, it’s been important to be on the front edge of these issues and to make sure that we’re doing it on Wyoming’s terms.”
To Market, To Market
Developing natural gas is only part of the equation, however. Being able to get it to market is equally important.
In December 2013, six New England governors came together to begin addressing an energy crisis in the region after two consecutive winters during which New Englanders paid $5.5 billion in added costs due to insufficient infrastructure to support the demand for low-cost energy options. In Maine, spikes in natural gas prices led some companies to temporarily shut down this past winter, resulting in calls for increased natural gas pipeline infrastructure for the region.
“The decisions have devastating effects on small towns,” said Mark Vannoy, chairman of the Maine Public Service Commission, during the New England Electricity Restructuring Roundtable in Boston in March. “It’s a top priority of Maine to solve the natural gas pipeline infrastructure.”
Among options being considered by New England states is a cost-sharing proposal to increase the region’s natural gas capacity through new pipeline and transmission infrastructure.
From Imports to Exports
Once a nation reliant on other countries to supply its energy resources, the United States is quickly becoming a global leader in natural gas production, and may soon become a net exporter of the fuel.
The Energy Information Administration reported a decline of nine percent in net natural gas imports in 2014, according to preliminary data, continuing a trend in declining natural gas imports that started in 2007. In fact, the administration estimates that exports of natural gas could surpass imports as soon as next year.
While some American natural gas is exported to Canada and Mexico, higher prices of natural gas in Asian and European markets have led operators in the United States to expand their export capacity. Several liquefied natural gas, or LNG, import terminals, such as the Sabine Pass terminal in Louisiana, are in the process of being converted into export terminals.
It’s often a long and arduous process, however, requiring approval by the Federal Energy Regulatory Commission and the completion of an intensive environmental impact statement. For operators applying to export natural gas to countries with which the United States does not have a free trade agreement, there is an additional layer of approval by the U.S. Department of Energy.
For states like Wyoming, a leading state in energy exports, the federal permitting process is a major challenge.
“The biggest issue that we face on a daily basis for any of our energy production in the state—whether it’s natural gas, oil, coal or even wind resources—it has to be the federal permitting process,” said Rieman.
A July report by the Brookings Institution’s Natural Gas Task Force cited the lengthy permitting process as creating a potential obstacle for U.S. natural gas exports, as American operators race to enter high-demand foreign markets before other countries and fluctuations in natural gas prices in overseas markets threaten American natural gas competiveness.
According to Bowman, however, recent improvements to the federal permitting process have helped move operators closer to exporting natural gas overseas.
“There is a lot of opportunity for the United States to be exporting natural gas, and there’s a lot of benefits that flow from it,” she said. “Right now, there’s over 10 Bcfs (billion cubic feet) a day that’s been approved to be exported to non-free trade agreement countries,” where the greatest demand for natural gas exists.
Fueling Homes, Industry and Jobs
By EIA’s estimates, existing American gas reserves are sufficient to fuel the country for more than 87 years at current consumption levels. And political leaders point to the potential of natural gas to fuel not only homes and industry, but jobs, too.
“We have a supply of natural gas that can last America nearly one hundred years, and my administration will take every possible action to safely develop this energy,” said President Obama during his State of the Union address in January. “Experts believe this will support more than 600,000 jobs by the end of the decade.”
Bowman agreed. “By exporting LNG, you’re creating more production opportunity in the U.S. and you’re creating jobs,” she said.
But the employment benefits aren’t limited to the energy export industry, she said.
“When you’re producing natural gas, especially in the current shale plays that are the most productive, you’re also pulling up co-products called natural gas liquids—such as ethane, butane, propane—and those co-products are being used by domestic manufacturers,” said Bowman. “So, you’re not only supporting exports and supporting national security interests by becoming a major energy player on the global stage … you’re also supporting your domestic manufacturing base. In many ways, it’s a win-win situation.”
As states expand natural gas production capacities, there are plenty of challenges. But Rieman said that states shouldn’t go it alone.
“I would encourage states to reach out to their counterparts to understand how they’ve dealt with these important issues such as hydraulic fracturing,” said Rieman. “The states really are on the progressive end of this and we’re all welcome to share our insights on this and help (other state leaders) craft a plan that works for your state.”