Quantcast
Popular

What if Fracking the Marcellus Shale Doesn't Pan Out?

By Nancy LaPlaca

For the gas industry and some utilities that are racing to build as much gas infrastructure as possible, there's a lot riding on a shale gas "play" known as the Marcellus. For those who aren't buried in natural gas minutiae, a "play" is an area where there's lots of fracking for natural gas.


U.S. shale gas production (i.e. from hydraulically fractured wells) has grown steeply over the past 17 years and is now 67 percent of total U.S. natural gas.

Gas prices have historically been extremely volatile, but gas companies and utilities are saying that it will stay low for a long time—almost indefinitely—and they base much of that argument on the Marcellus, the largest source of fracked gas in the U.S.

The Cost of Natural Gas is Extremely Volatile

The cost of natural gas has always been volatile and its price has been a roller-coaster ride for the past decade. Duke Energy's former CEO, Jim Rogers, famously called it the "crack cocaine" of the power industry. And because the cost of fuel is what's known as a "pass-through," electricity customers reimburse the utility for its fuel costs. This means that utilities and their shareholders, don't really have skin in the game when it comes to fuel costs. And in 2014 alone, electric utilities around the U.S. spent $42.4 billion purchasing natural gas for electric power plants (and another $39 billion for coal).

The chart below shows the volatility of natural gas since 1997. The two biggest spikes are Hurricane Katrina (August 2005) and the run-up in oil and gas costs which peaked in July 2008 with oil at $147/barrel and natural gas at $13/MMBtu.

EIA

Key to Understanding Natural Gas Price Volatility: It's Priced at the Margin and Utilities Only Hedge a Year or So in Advance

One of the keys to understanding natural gas pricing is that it's priced "at the margin." In plain language, this means that today's price reflects the immediate past and the immediate future. Due to the volatility of gas prices, prices for natural gas are usually only "hedged" (i.e. 'locked in') a year or less in advance. In Florida, utilities paid $6 billion too much for natural gas over a 15 year period after the price of gas crashed. So while hedging gas can save money over certain time periods, it can also be a big money-loser.

This means that beyond the one year when gas prices are hedged, consumers must pay whatever the gas costs, no matter what. And because fuel costs are "pass-throughs," if the utility's cost estimates are off, it's the customers who pay, not the utility or shareholders.

Despite the Volatility of Natural Gas Prices, EIA Assumes Natural Gas at $5/MMBtu from 2030 to 2040

Despite the extreme ups and downs of natural gas pricing, the U.S. Energy Information Administration's (EIA) 2017 Annual Energy Outlook projects that the cost of natural gas will remain at bargain-basement levels from 2030 to 2040 at $5.00 per MMBtu. This is 20 percent below what EIA forecast in its 2015 Annual Energy Outlook price forecast over the 2015-2040 period.

Average Decline Rate for Shale Gas Well is 75-85 Percent Over First Three Years

While the increase in U.S. shale gas production is stunning, so are the decline rates for individual wells, which average 75-85 percent decline over the first three years. As geoscientist David Hughes points out, a steep decline rate for each well means that 30-45 percent of a play's production must be replaced each year by more drilling. In some areas of the U.S., spacing of gas wells has dropped from 1 well pad per 240 acres to 1 well pad per 10 acres.

A good example is the Haynesville shale play, which started at nearly zero in 2006 and shot up quickly until peaking in early 2012. As of 2017, the Haynesville is down by 52 percent. Despite the obvious decline in production, the EIA recently predicted an ever-higher output from the Haynesville, so that it will nearly double its 2012 peak and continue producing gas past 2040.

What About the Marcellus?

The Marcellus shale play currently provides over a third of total U.S. shale gas produced and is mainly in Pennsylvania but also includes eastern Ohio, northern West Virginia and southern New York state. The top five shale-producing counties in Pennsylvania have accounted for 65 percent of cumulative production from the Marcellus play, demonstrating the fact that most gas is produced from a few "sweet spots."

The EIA's overblown estimate of future gas supplies is higher for the Marcellus shale than any other play.

The chart below, Figure 1 from Hughes' 2016 study, shows the estimated recovery for several plays from the EIA's Annual Energy Outlook for 2014, 2015 and 2016. The 2016 estimate for the Marcellus play, in red, shoots up higher than any other play in the U.S. and is in fact 76 percent higher than the Annual Energy Outlook 2014 estimate. Note that the short black bar on the right is actual gas recovery. The Annual Energy Outlook 2016 estimate is also triple the estimate by the U.S. Geological Survey.

One constraint that's seldom mentioned is geological: many sweet spots already have so many wells that it's impossible to drill more wells without draining gas from adjacent wells, known as "well saturation."

During 2014 "Polar Vortex" Wind Power Saved Customers $1 Billion Over Two Days

Can clean energy really save money compared to natural gas fuel costs?

In early January 2014, an event called the "Polar Vortex" plunged the Northeast and Great Lakes region into a bitter cold. During those two days, as the cost of natural gas on the spot market skyrocketed to meet the huge demand, wind energy saved customers a stunning $1 billion over two days.

A more recent study by Synapse Energy Economics reports that if the use of wind energy doubled in the PJM Interconnection beyond current requirements, 12 states would save customers $7 billion per year, in part because wind energy would displace the need to purchase fuel.

Where is the U.S. Today on Natural Gas Production?

The latest numbers from the EIA report that year over year, U.S. natural gas production—and oil production—decreased from 2015 to 2016. Whether this trend continues or is merely a temporary decline, is yet to be seen.

EIA

But it's certainly worth watching. Any decreases in production might signal higher prices down the road, calling into question all of the math utilities are using to justify their massive investments in gas pipelines and power plants.

Show Comments ()

EcoWatch Daily Newsletter

Sponsored
Insights/Opinion
Pexels

Tackling Climate Change Requires Healing the Divide

Canadian climate change opinion is polarized, and research shows the divide is widening. The greatest predictor of people's outlook is political affiliation. This means people's climate change perceptions are being increasingly driven by divisive political agendas rather than science and concern for our collective welfare.

Keep reading... Show less
Popular
Westend61 / Getty Images

EcoWatch Gratitude Photo Contest: Submit Now!

EcoWatch is pleased to announce its first photo contest! Show us what in nature you are most thankful for this Thanksgiving. Whether you have a love for oceans, animals, or parks, we want to see your best photos that capture what you love about this planet.

Keep reading... Show less
Food
Pexels

10 Chefs Bringing Forgotten Grains Back to Life

Millets are a staple crop for tens of millions of people throughout Asia and Africa. Known as Smart Food, millets are gluten-free, and an excellent source of protein, calcium, iron, zinc and dietary fiber. They can also be a better choice for farmers and the planet, requiring 30 percent less water than maize, 70 percent less water than rice, and can be grown with fewer expensive inputs, demanding little or no fertilizers and pesticides.

Keep reading... Show less
Adventure
Háifoss waterfall is situated near the volcano Hekla in the south of Iceland. FEBRUARY / Getty Images

The Essential Guide to Eco-Friendly Travel

By Meredith Rosenberg

Between gas-guzzling flights, high-pollution cruise ships and energy-consuming hotels, travel takes a huge toll on the environment. Whether for business or vacation, for many people it's not realistic to simply stop traveling. So what's the solution? There are actually numerous ways to become more eco-conscious while traveling, which can be implemented with these expert tips.

Keep reading... Show less
Sponsored
Animals
Freder / E+ / Getty Images

Surprising Study: Orangutans Are Only Non-Human Primates Who Can 'Talk' About the Past

We already know that orangutans are some of the smartest land animals on Earth. Now, researchers have found evidence that these amazing apes can communicate about past events—the first time this trait has been observed in a non-human primate.

A new study published in the journal Science Advances revealed that when wild Sumatran orangutan mothers spotted a predator, they suppressed their alarm calls to others until the threat was no longer there.

Keep reading... Show less
Health
Suicide rates are highest for males in construction and extraction; females in arts, design, entertainment, sports and media, the CDC found. Michelllaurence / Flickr / CC BY 2.0

CDC: Suicide Rate Among U.S. Workers Increasing

From 2000 to 2016, the suicide rate among American workers has increased 34 percent, up 12.9 per 100,000 working persons to 17.3, according to a worrisome new study from the Centers for Disease Control and Prevention (CDC).

Workers with the highest suicide rates have construction, mining and drilling jobs, the U.S. health officials reported Thursday.

Keep reading... Show less
Sponsored
Energy
PG&E received a maximum sentence for the 2010 San Bruno natural gas pipeline explosion. Wikimedia Commons / CC BY-SA 3.0

Report: 90% of Pipeline Blasts Draw No Financial Penalties

A striking report has revealed that 90 percent of the 137 interstate pipeline fires or explosions since 2010 have drawn no financial penalties for the companies responsible.

The article from E&E News reporter Mike Soraghan underscores the federal Pipelines and Hazardous Materials Safety Administration's (PHMSA) weak authority over the fossil fuel industry for these disasters.

Keep reading... Show less
Politics
Nevada Test and Training Range. U.S. Air Force / Airman 1st Class Kevin Tanenbaum

U.S. Navy Proposes Massive Land Grab to Test Bombs

Friday the U.S. Navy released details of a plan to seize more than 600,000 acres of public land in central Nevada to expand a bombing range. The land under threat includes rich habitat for mule deer, important desert springs and nesting sites for raptors like golden eagles.

Keep reading... Show less
Sponsored

mail-copy

The best of EcoWatch, right in your inbox. Sign up for our email newsletter!