Fracking and Self-Sufficiency in Gas and Oil-Becker

More or less every American president starting with Dwight Eisenhower, and prioritized by Richard Nixon, called for American self-sufficiency in energy sources. In fact, America is now about self-sufficient in natural gas, and America’s oil imports have declined as a fraction of its total oil consumption from a peak of 60% in 2005 to about 50% in 2011. Part of the decline is due to the Great Recession’s effects on US output and automobile use. Another part is due to rising prices of oil that reduced oil imports, but increased spending on these imports. A third and growing part is due to increased domestic production of oil and especially gas that is likely to continue to grow rapidly during the next decade. The main reason for the expansion in domestic gas and oil production is a technique called “hydraulic fracking”. Texas wildcatter George Mitchell was the most important person responsible for the development of the fracking method to extract gas from shale formations in the 1980s. This method uses large quantities of water under high pressure with added chemicals to crack open rocks and extract the gas, and sometimes oil, hidden in these rocks. The cost of using fracking for natural gas extraction has become so competitive that most US natural gas production comes from fracking. As a result, the price of natural gas has fallen from a peak of about $10.80 per million BTUs to $2.20 currently. Instead of building terminals that could import liquefied natural gas, energy companies are now trying to export more natural gas. US natural gas inventories are so bloated there is a possibility that the price temporarily could be forced down toward $0, or even to a negative level. Traditionally, a barrel of oil has sold for about 11 times the price of a million BTUs of natural gas. During the past few years, rising prices of oil and declining natural gas prices have raised that ratio to almost 50.No wonder there has been a rush to substitute gas for oil in electric power generation and in other activities. Environmentalists have criticized the use of fracking techniques, and have pushed for bans or serious restrictions on their use. These critics claim that the techniques use too much water that could be used for other purposes, that it contaminates drinking water in areas surrounding fracking activities, and that it pollutes the air in surrounding neighborhoods. I am not in a position to authoritatively evaluate these environmental claims. However, the chairman of Chesapeake Energy, a major fracking company, recently argued in a Wall Street Journal interview that fracking does not use so much water, and that in any case the company in most of its operations now recycles 90% to 100% of the water it does use. Furthermore, the EPA just dropped its claim that a different energy company contaminated drinking water in Texas. This is the third time in recent months that the EPA backtracked on claims that link fracking to pollution of surrounding water supplies. The size of the effects of fracking on air pollution is still an open question as the debate continues over this and other environmental effects of fracking. Some political leaders have proposed a very bad idea:to restrict American output of oil and gas to use by American industry and consumers. If such laws were enacted and yet the US continued to import oil from abroad-which will be the case for the foreseeable future- restricting US production of oil to American use would have no effect on the domestic price of oil. The reason is that the global oil price would then determine domestic prices since no one would buy domestic oil if it were more expensive than imported oil, and no one would use imported oil if it carried a higher price than domestically produced oil. On the other hand, suppose domestic production was so large that oil imports were unnecessary and exports of oil were prevented. Then domestic oil (along with natural gas) would sell below the world prices for these fuels. This would be bad for the domestic oil and gas industry because it would be forfeiting profits from selling some of its production abroad. Moreover, the relatively low domestic prices of these fuels would encourage greater domestic use that would lead to more pollution, although cleaner gas or oil would be substituted for dirtier coal in the production of electric power and in other uses. Fracking has made the US self-sufficient in gas, and it is leading to reduced imports of oil. If this progress continues, before too long US consumption of oil as well as natural gas would not be drastically affected even by an entire breakdown of imports from the Middle East. The early progress in fracking techniques was very much aided by federal support and the work of engineers in the Energy Department. However, fracking was made into a profitable technique mainly through the ingenuity of people like George Mitchell in search of financial gains from finding ways to expand domestic production of gas and oil.

Comments

[Mick]

Damn Gary. A paragraph break would kill you?

[ellen]

I think the U.S. has the ability to control the world oil prices，

[fuelcentral]

I like your post and it's really informative for us you share lots of useful info with us about Fracking and Self-Sufficiency in Gas and Oil-Becker like Street Journal interview !!!

[new era snapback hats]

thanks for your kindly posted.

[send flowers]

now all these things which can control the oil and this kind of product prices can be converted into action by the unilted state. this is because of US has the agreement with the other countries which have the large source of the oil and another reason is the power of the US.

[Jack Walton]

For the first time in perhaps half a century, steel plants are being opened in Youngstown OH -- these will manufacture "tubular" and other goods for the oil and natural gas industries in Pennsylvania, Ohio, W. Virginia and Kentucky. Until last year I had never seen a Baker Hughes truck on I-80, now you see them all the time.

Can you imagine that Buffalo NY could come back to life if NY State would allow fracking in their portion of the Marcellus?

The associated "liquids" that can be chilled out of the natural gas will set off a boom for the US Chemical industry as gas liquids are easier to turn into ethylene, and thence into polyethylene, anti-freeze, polyester fiber etc., etc.

[Patrick Sullivan]

I agree, AT LEAST, 3 or 4 paragraphs would make for easier reading.

[NEH]

"Domestic Energy Self Sufficiency" as a policy goal? Don't make me laugh! Haven't we been trying to acheive this since at least the 1920's - 30's? As for the pricing mechanism (oil commodity futures market) that's a whole "nother ball game" that would require a full blown Thesis if not more to fully explain and articulate... ;)

As for the Engineering and Production aspects, that can be easily explained by a fundamental engineering formula that states:

Accumulation = Inflow - Outflow

or to put it another way:

Energy Self Sufficiency is equivalent to Supply - Usage which must be greater than or equal to zero. So in order to acheive the policy aim one must work on both sides of the equation. The supply must be increased and the usage side must be decreased.

As for increasing the "Supply side" there is the advent of new technologies that enhances Well performance such as horizontal drilling and fracking, bringing resources online that otherwise would be idle. There is also the development of new technologies that allow resources here to fore that were unaccessible to be accessed. Opening up new areas for drilling. Such as, Arctic Offshore, Presalt Deepwater, Oil Shale, Oil Sands. There is also the new developments in Biofuels and the various conversion technologies to convert various fossil fuels into different energy sources. Such as the Exxon Donor Solvent process, Fischer-Tropsch, and other chemical conversion process's. But all of these process's have certain problems and in order to protect the Public's Health, Safety and the Environment, we need to proceed cautiously and carefully.

As for the usage side, there are technological developments that can be utilized to increase efficiencies and hence conservation lowering usage. One of the latest is the Federal Program requiring Incandescence Lighting to be replaced by the much more efficient Flourescent or LED lighting. Not too mention the required efficiency developments in Combustion and Combustion units. Be they Transportation units, Boilers and Industrial Furnaces, Home heating and cooking elements and any of the energy users.

There is also the ongoing development in new energy production. Such as wind, solar, nuclear (both fission and fusion) and most importantly biomass conversion.

The Energy future of the Country is "bright", provided we proceed to continue to develop new technologies and respond to the problem in a progressive and positive manner and this includes operating with the Public's Health, Safety and the environment in mind. Taking into account that nothing is risk free, which in some cases may require "on balance decisions".

Now we need to take a close look at that rather sticky pricing mechnism that we currently have in place...

[Kvepalai]

Who owns the oil and gas resources that rools the world. Many of the wars caused by the gas and oil. People should try to use these resources as little as possible and everything would be all right.

[Jack]

NEH NG prices give us "one more chance" to benefit from low cost energy. We should be moving at Manhattan project speed to shift heavy transport (consuming 25% of oil) to NG.

Lighter transport should soon benefit from a lower cost "300 mile" battery that's in the wings.

Here in Alaska where "we" were disappointed that a $35 billion 50" pipeline is not needed to serve the L-48, our pols and fools keep trying to make one mega-project look good enough to raid our fatted Treasury for one kind of subsidy or another.

It is frustrating that we've trillions of CF of NG stranded at the slope with transportation costs too high to move it to market.

One intriguing possibility is a gas to liquids project, at the slope so the resulting premium, low sulphur diesel, could catch a ride on excess capacity of the existing pipeline.

http://en.wikipedia.org/wiki/Pearl_GTL

Here's a 200,000 bbl/day project just finishing up in Qatar. We've a million bbl a day of unused pipeline capacity, but there is likely more oil coming from Shell's HUGE (but controversial) offshore (arctic) reservoir. So...... mebbe, a 300,000 bbl/ day project bringing $10 billion plus, worth of diesel or other precious liquids to our US market a year.

Ahhh, yes! The "sticky pricing mechanism". I'm beyond certain too many dollars are chasing high oil prices (even regular stock salesmen at retail level speak of "putting clients IN commodities," as if that were an investment rather than a straight up zero sum gamble. Needs work!

But unless the thing is completely screwed up were the US to rapidly shift to NG, battery power, etc. at some point those holding long contracts "should" get nervous and withdraw or bet on the short side.

[Jack]

There was just a Congressional hearing on oil price market manipulation with lots of detail about how much money has rushed in to push these "markets" higher.

There HAS been a CFTC reform that passed both the Senate and House...... but! not the 60 votes for closure. What those few missing votes are costing Americans is half a buck to a buck at the pump. The amount going into the gas tank MORE than wipes out the economy spurring efforts of the payroll tax rollback.

There's a classic Econ example of inflation that takes place at an auction where the participants each have $500. Things go along pretty well w/o any excessive speculation until it's noticed that someone is walking around in the back of the room handing out $20 bills. Yep..... sure enough prices increased.

Oil? There is on the order of Half a Trillion too much money gambling on oil prices. As oil soars from $35 in 2004 to over $140 a short time later, back to $75 and now over $100 again it is WE all the consumers of the world paying with our hard-earned dollars and paying again because our fragile economy can not bear having the $120 BILLION/year extracted from it to the benefit of the very same Wall Street thieves who just finished with us on the faux housing boom.

In typically oil hungry N/E where they've had a mild "non-winter" heating oil continues to climb. Now who controls most of the contracts? Airlines hedging their bets? Gas or oil distributors trying stabilize prices? Nope........ Morgan Stanley.

While it's good to have a look at production and import "markets" and policies, this week's topic seems a delaying tactic of showmanship - handwringing as the oil cos and Wall Street Thieves again have their way with us and nip the fragile recovery in the bud.

[Hesse]

This is your future, from the continent you have now irreversibly chosen to follow:

http://www.spiegel.de/international/germany/0,1518,826004,00.html

Where taxes alone on a gallon of gas are more than the total Americans pay.

Prepare. The paradise of flatter effort-reward curves is coming.

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I think the U.S. has the ability to control the world oil prices，

[aditi]

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[free run]

Who owns the oil and gas resources that rools the world. Many of the wars caused by the gas and oil. People should try to use these resources as little as possible and everything would be all right.

[Removal Companies]

I think the U.S. has the ability to control the world oil prices and they are a monopolist in the market in global scale.

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[Anne Stuart]

I bet US has some grand plans when it comes to using its resources. And yes, this is such a pain to read because there was no paragraph breaks. It was quite a read.

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One thing that we need to clarify is our terminology in this debate.

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