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Natural Gas Boom Is Drowning Out Coal Industry’s Battle Cries

Natural Gas Boom Is Drowning Out Coal Industry’s Battle Cries thumbnail

While a lot of the political fodder during the 2014 election season focused on the “war on coal,” a bigger and even stronger show of force is transforming the nation’s economic landscape, especially in “war torn” Appalachia: natural gas.

The natural resource has emerged from the back burner of U.S. energy development and onto the hot seat. Over the last seven years, it has not only fueled new economic growth but it has also changed the way electricity is generated. Beyond the newfound abundance — a result of shale gas drilling technologies — the manufacturing sector has subsequently boomed.

To be clear, dry natural gas can be used for electric generation. Wet natural gas, or natural gas liquids that include methane, ethane butane and propane, are separated from the dry gas. Those elements are then used as feedstocks in the manufacturing and chemical processes to make universal products, like fertilizers.

Because of the advent of hydraulic fracturing, or fracking, developers are able to access the shale gas — unconventional natural gas — a mile or more beneath the earth’s surface where it is embedded in rocks. While the friction between producers and ecologists is heated, there is now a plethora of dry gas, making U.S. natural gas prices half of what they are in Europe and a third of what they pay in Asia.

Indeed, the shale gas revolution is marching on and creating jobs and prosperity in its wake — nearly 3 million new U.S. jobs by 2020, of which 1.7 million will be permanent, says consulting firm McKinsey and Company. Those benefits are dispersed around the United States but they have been especially fruitful for the Gulf Coast and the Marcellus Shale region, where 20 percent of the nation’s natural gas production now takes place.

At present, more than 180 chemical industry projects that are worth $117 billion have been announced, says the American Chemistry Council. That includes new plants and expansions of existing ones from companies based all over the world that want access to inexpensive gas.

Take West Virginia: Coal production has fallen by 32 percent since its peak in 2008. But natural gas has stepped up there, with the permitting of 2,300 wells, of which about 700 of them are currently active. Each of those active wells comes with a $5 million investment that flows into local economies.

“As one of four U.S. States with significant Marcellus acreage, West Virginia now has a tremendous opportunity to capitalize on its natural gas resources — at a time when demand for natural gas is growing faster than most other major energy sources, including oil,” says Randy Cleveland, president of ExxonMobil’s XTO Energy, in a speech.

IHS Energy projects a $9 billion infusion into the state by 2035, which will employ 57,000 people in gas-related fields, or 7 percent of the West Virginia’s workforce. Average pay: $90,000 a year, similar to that of the coal sector. Meantime, the current coal industry workforce is 20,000 in West Virginia.

In Parkersburg, WV, for example, Brazil-based Odebrecht Oil and Gas is planning to build a $4 billion to $6 billion refining facility that would create 3,000 jobs. Specifically, it would be an ethane “cracker” that would split the raw material from natural gas before it would go into such products as plastics.

Meantime, the state’s coal plants in the southern section of the state are announcing layoffs, including a recent one by Alpha Natural Resources. On the same day as that communique, ironically, a Texas gas firm said it would pay $100 million to landowners in the northern part of the state for Marcellus drilling rights, an amount that will climb even higher, says the Charleston Gazette.

“It’s a wave that is growing, and it is far from having crested, and it’s going to sweep through the Ohio Valley like no other wave that has ever descended down through our valley,” says Jonathan Turak, a lawyer representing families sitting atop those shale gas deposits, the paper reports.

The news is similar across many areas of the country. The estimates of recoverable natural gas in the United States have grown from 200 trillion cubic feet in 2005 to 350 trillion cubic feet in 2012. The fuel could supply as much as half of all electric generation in two decades, up from about 30 percent today. Production, meanwhile, is expected to increase by 60 percent by 2035, says the U.S. Energy Information Administration.

No where has the debate over shale development been more spirited than in Colorado and in New York. As for Colorado, it has increased its production 139 percent from 2005 to 2012, reports the Small Business & Entrepreneurship Council, making the oil and gas business worth $30 billion there. As a result, 12,000 new jobs have been formed in Colorado over that time, the Denver Post reports.

“Oil and natural gas are huge boons to the state,” says Joshua Epel, chair of the Colorado Public Utilities Commission, in an interview. “So how do we reduce that friction and produce oil and natural gas in an environmentally safe way?”

He says that the state enacted clean air legislation premised on retiring a “tremendous” amount coal and using a “tremendous” amount of natural gas. To make the drilling process better and safer, Colorado’s Air Quality Control Commission would require producers to install the tools to capture 95 percent of methane gas leaks coming from wells and pipes, while also limiting the volatile organic compounds that lead to smog.

For it to be economically attractive, Colorado has entered into futures contracts with Anadarko Petroleum Co. and Xcel Energy that limits natural gas price volatility. Anadarko is investing $2 billion into the state while Nobel Energy is making a $12 billion allocation there.

New York State, furthermore, has an even tougher battle. There, a fracking moratorium has been in effect since 2008 — with no signs of letting up.

Proponents of shale-gas drilling are pointing to a Yale University review that says development would add $100 billion to a national economy and that environmental concerns could be protected. Opponents, however, are citing a study from the Colorado School of Public Health that says those living near drilling sites are exposed to unhealthy conditions.

If the state allows drilling, it would alleviate the kind of fuel crunch and price spikes that occurred this past winter. Otherwise, the natural gas would still be imported.

Regardless, the New York Public Service Commission “has approved several collaborative proposals to expand the gas distribution system as a way to replace coal as a source for generating electricity, as well as making gas available to residential and business customers who currently use oil or propane,” says Chairwoman Audrey Zibelman, in an interview with this writer for a story that appeared in Public Utilities Fortnightly.

She adds that the commission has given a key utility there, National Grid, the ability to explore approaches to deliver more natural gas to customers located upstate. Such an expansion, Zibelman says, would provide “significant economic and environmental benefits to New York consumers.”

Whether natural gas is used to generate electricity or its elements are used in the chemical and manufacturing processes, the potential could be transformative, especially in Appalachia that has long heard the coal industry’s battle cries. If gas producers aren’t environmentally conscious, however, those dreams could go up in flames and smother an economic revival.

Forbes



15 Comments on "Natural Gas Boom Is Drowning Out Coal Industry’s Battle Cries"

  1. Makati1 on Sun, 23rd Nov 2014 7:20 pm 

    So many things could pop the current gas bubble. I don’t think coal miners have much to worry about. A few of the less profitable mines will be closed, but the US still has ~557 coal fired power plants. “Coal power in the United States accounted for 39% of the country’s electricity production in 2013.” Not to mention exports.

  2. Plantagenet on Sun, 23rd Nov 2014 7:20 pm 

    We’ll drill it all eventually. If New York or other states want to delay getting rich from the natural gas shale boom, then that is their right. Meanwhile those state that allow drilling will have an even bigger boom now.

  3. wildbourgman on Sun, 23rd Nov 2014 7:26 pm 

    We’ll get to drill and frac New York, give it time.

  4. Northwest Resident on Sun, 23rd Nov 2014 8:15 pm 

    As long as oil prices stay at or below $80 per barrel, New York won’t have to worry about getting fracked. The chances that the economies of this world can squeeze out another few trillion dollars in debt to buy all the junk bonds required to frack New York is also very doubtful, even at higher oil prices. Shale and fracking are not looking good these days, in case nobody noticed.

  5. Plantagenet on Sun, 23rd Nov 2014 8:35 pm 

    @NWR

    The falling price of oil has nothing to do with the price of NG. They are two different things with different markets and different pricing

    The shales in New York are in the NG window—. That means they will produce NG not oil

  6. Northwest Resident on Sun, 23rd Nov 2014 9:26 pm 

    Plant — The falling price of oil has a lot to do with the economic and investment environment that fracking companies must operate in. That’s what I was thinking about. Of course the price of NG rises and falls independently (more or less) of the price for oil, each dependent on many different factors. But my main thought is that if oil prices remain at or below $80 per barrel, many fracking companies are going to go out of business, a lot of investment in the form of junk bonds will flush down the toilet, and the overall economic environment for going after NG in New York will most likely not be favorable, to say the least.

    But maybe you’ve raised a valid point. No matter how low oil goes in price, NG will be completely unaffected — “two different things with different markets and different pricing”. No relation whatsoever? Oil could be a $60 per barrel, exporting countries around the world could be defaulting on their debts and mass riots/mayhem rocking those countries, billions and probably trillions in energy junk bonds evaporated to nothing, but NG still stands strong! Probably not…

  7. Mike999 on Sun, 23rd Nov 2014 10:55 pm 

    It amazes me the oil and fracking industry are Completely BLIND to the advances Solar and Wind are making.

    SOLAR is growing geometrically, like a Hockey Stick, and is going to bash coal in the head in 2 years, in 2 more Fracking will be economically Dead.

    Wind is improving almost as fast.

  8. Mike999 on Sun, 23rd Nov 2014 10:56 pm 

    Because the question is:

    Do you want Clean Energy and Clean Water?
    or
    Dirty Energy and Polluted Water.

  9. Kenz300 on Sun, 23rd Nov 2014 11:15 pm 

    Forbes — the top 1% speaking for the top 1%….

    The greed is good gang wants it all…….

  10. Plantagenet on Sun, 23rd Nov 2014 11:39 pm 

    When the price of NG went down a few years ago, fracking oilcos shifted to to mainly fracking shale for oil. Now that the price of oil is down and NG is up, I won’t be surprised if some shift away from oil and back to tracking for NG, especially since a new giant LNG exporting facility is just being completed in La., and the price NG overseas is 2-3 times what it is in the USA.

    Check it out:

    http://www.businessweek.com/articles/2014-11-06/u-dot-s-dot-natural-gas-exports-will-fire-up-in-2015

  11. Davy on Mon, 24th Nov 2014 6:38 am 

    NR, in the past gas followed oil but it appears in this new environment of fracking this has changed. N/R you point is relevant that a generalized demand destruction from a faltering economy will surely affect both gas and oil in tandem. Plant makes a good point that gas is showing strength with new markets especially power generation so frackers will have some flexibility to switch between fuels depending on relative return.

    We are in interesting times with so many market influences. The traditional fundamentals are not holding like we saw historically. This is why I fault NOo and his econ 101 with supply and demand curves and elasticity. I am not saying basic economics is irrelevant. I am saying we are in a new normal and the fundamentals must adapt. I prefer Rock and Shorts view that appear to me to take on a more dynamic and systematic understanding of energy and the economy.

  12. Davy on Mon, 24th Nov 2014 6:47 am 

    Mike, solar and wind are growing but look at from what point. They are still insignificant to overall energy supply. A faltering economy will surely destroy that growth. Falling oil and coal prices may not help because it may lead to a supply and demand destruction. We are yet to be sure where gas prices are going.

    The grid must have expensive upgrades to accept a large amount of AltE power. The best sweet spots are being taken especially with wind. I want for you to be right Mike I am just not seeing long term strength of solar and wind in uncertain economic times. It is clear eroi is not optimal for all AltE power sources. The high upfront cost and long payout are problematic in a global economy already awash with debt. If the economy chokes on debt large solar and wind projects will surely suffer.

  13. rockman on Mon, 24th Nov 2014 10:18 am 

    “The natural resource has emerged from the back burner of U.S. energy development and onto the hot seat. Over the last seven years, it has not only fueled new economic growth but it has also changed the way electricity is generated.” Just more hype trying to convince the public a new age of electricity generation is upon us. Yes NG, when priced low enough, displaces coal + nukes + hydro to some degree. Just as it did in 44 years ago when NG accounted for 25% of electrical generation. And then fell to only 10% in 1989 as a result of its increase in price relative to other sources. The latest number I could find for NG sourced e- was 30% in 2012. Probably closer to 35% these days I suspect. Which is great compared to 10% about 25 years ago. But not exactly a new revolution considering NG as a source for e- has been increasing at a rather consistent rate for the last 25 years. For now NG is holding down US coal consumption for e- generation just as it did long ago. Until its price increased and reduced that amount by 40%. How long till NG run up again? Don’t know. But the high/low price dynamic has been very erratic for the last 15 years

    And, of course, globally coal is still King when it comes to e- generation accounting for more than twice as much as NG. In fact NG is only tied with the nukes. US domestic consumption of coal might be down but coal exports have been surging. And with the support of President Obama by leasing more fed lands for coal mining and expediting the permits for increase the capacity of coal exports terminals in Texas it appears that trend will continue. Lost in all the chatter about the increase in US coal exports to China few have noticed that in the last 8 years (during the term of the “greenest” US president in history) coal exports to the EU have increased more than 300%. In fact exports to the UK have increased about 600%.

    US King Coal is not dead: he’s just shifting his focus to other parts of the world

    “Now that the price of oil is down and NG is up, I won’t be surprised if some shift away from oil and back to tracking for NG, especially since a new giant LNG exporting facility is just being completed in La., and the price NG overseas is 2-3 times what it is in the USA.” While some new plays like the Marcellus appear to have better economics then the Haynesville Shale et al back when those trends boomed I doubt we’ll see resurgence in those plays anytime soon. Even though prices were higher in 2009-10 ($3.70 to $4.50 per mcf) the rig count chasing NG fell 75% from the days when prices were $7+/mcf. The Marcellus et al might eventually suffer a bit of a slow up: back in 2010-11 when the M got hot NG was going for $4.20/mcf. Today it’s running about 20% lower. But on the bright side more pipelines are being built which will allow better marketing opportunities for those companies which could strengthen their bottom lines.

    BTW: “…especially since a new giant LNG exporting facility is just being completed in La.” The combined export of all three terminals (not just La) will represent just 8% of current US NG production. The US currently exports about 6.5% of its current production…nearly all by pipeline. But good to remember that the US, despite exporting some NG, is still a net importer: we import 1.8X as much NG as we currently export. So current pipeline exports + those FUTURE LNG exports add up to 3.6 tcf/year. The US currently imports 2.9 tcf/year. So even if those LNG exports push us to being a net NG exporter it will only amount to 3% of current domestic consumption. A rather small amount to have much impact on domestic prices either way IMHO.

  14. Kenz300 on Mon, 24th Nov 2014 10:31 am 

    As the price of alternative energy sources continues to fall……….

    Climate Change is real….. we can deal with the cause or deal with the results……

    ——————-

    Solar and Wind Energy Start to Win on Price vs. Conventional Fuels

    http://www.nytimes.com/2014/11/24/business/energy-environment/solar-and-wind-energy-start-to-win-on-price-vs-conventional-fuels.html?emc=edit_th_20141124&nl=todaysheadlines&nlid=21372621&_r=0

  15. GregT on Mon, 24th Nov 2014 11:02 am 

    Just as oil did not reduce coal consumption, NG will not reduce coal or oil consumption. BAU requires continual exponential growth. Infinite exponential growth is impossible in a finite environment. BAU is going to come to an end, as is exponential growth. NG is not the solution to our dilemma, and will increase our biggest problems down the road. CO2 is accumulative in the environment. NG is a bridge fuel to a future of catastrophic climate change, and the end of ‘life as we know it’ on planet Earth. Short term gain, for long term pain.

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