Tag: shale gas

Export Land Model watch – news from the Citi

Once upon a time, the United States of America was the world’s largest oil exporter. We grew rich from the oil we sold and the oil we used powered new industries and ways of living that, in turn, amped up our use of oil until we had nothing to spare. Simultaneously, natural events ran their course and oil fields became less productive, causing domestic production to peak in the early 1970s.

That about sums up the Export Land Model, a conundrum I touched upon in a previous post. Now, it seems to be playing out, with its own localized twists in the home of the current number one oil exporter, Saudi Arabia.

Earlier this month, a report by analysts at Citigroup echoed that assessment, saying that the world’s biggest oil exporter may become “an importer” by 2030 due to rising domestic use – which the Citgroup analysis estimated was growing by about eight percent per year.

Even more recently, a Reuters story notes that Saudi Arabia burned record monthly volumes of oil in June and July. The story notes that the reason for the increase is a need to produce more electricity for air conditioning. Unlike the United States and most other Western countries, Saudi Arabia uses oil to produce a large percentage of its electricity. Switching to solar would seem to be a no-brainer – they have a surplus of sun and the rise in oil prices is keeping the cash pipeline flowing. The trick is in the transition.

This Wall Street Journal article has some good numbers and perspective on the challenges the Saudis (and other OPEC countries) face in trying to transition up to a third of their electricity generation to alternatives by 2032.

Meanwhile, a story from this week quotes the Saudis as saying that they will be turning increasingly to natural gas for electricity generation to reduce their dependence on oil.

Ditching one fossil fuel for another to generate electricity? That sounds really familiar – where have I heard that idea before?

…Or your own lying eyes?

PR has its limits. You can only create so much belief in the face of a persistent, contradictory reality.

As the shale frenzy has bubbled along, stories about a United States and/or North American resurgence in oil production have been pushed in major media outlets from the Wall Street Journal to the New York Times and all manner of blogs in between. At the same time, domestic prices at the pump remain stubbornly aloft.

Since economic “law” dictates that ample supply should result in lower prices rather than the upward trend we’re experiencing, there must be other factors at play, right? Anxiety over threats of war with Iran, commodity speculators, Big Government rules that hamstring drilling and the insatiable greed of Big Oil are all trotted out as the proximate cause of this seeming paradox. But for these transient, man-made issues, the storyline goes, we’d be swiftly on our way to Newt Gingrinch’s $2.50-or-less-a-gallon Promised Land. We are, after all, sitting on trillions of barrels of technically recoverable oil and 100 years of natural gas, right?

Those seeking the true contours of the energy landscape we’re traversing would do well to remember that good answers start with good questions. So, take a look around and ask yourself a few. If we are actually awash in oil:

  • Why are major airlines conducting flight tests of planes with biofuels?

The actions by the organizations cited above are not inconsequential. They represent major commitments of money and effort, and, in the case of the auto companies, a major directional shift for their businesses. If energy independence and a gushing supply of oil were just a few more horizontally drilled and fracked wells away, would these entities really be pursuing strategies that hedged their futures increasingly away from reliance on petroleum?

So, who are you going to believe; the hyped assurances of investment banks and oil companies, or your own lying eyes?

Where’s that confounded bridge?

Hey, want to buy a bridge? How about a bridge fuel? It burns cleaner than coal for generating electricity, can heat homes and power a truck or a car. Best of all, we’ve got an embarrassing surplus of the stuff priced so low it’s sinful. It’s natural gas from shale, and it’s the answer to our energy problem for the next 100 years while we figure out this alternative energy stuff.

Or not.

The rosy assessments above are based on current consumption levels and an overly optimistic estimate of what we can get out of the ground at anything resembling a reasonable cost. In addition, the dollars don’t add up. The fracking that produces shale gas is expensive and when successful yields a short gusher of gas followed by a steep drop off, requiring a re-frack and repeat. It’s “an unprofitable treadmill.” The sheer number of wells drilled in the fracking frenzy has created a gas glut on the domestic market and, in turn, low prices that cannot support the expensive production model. Most companies producing shale gas are relying on steady inflows of investment cash to support their profit-challenged efforts.

Already used for cooking, heating homes and hot water as well as generate electricity and to provide feedstock for industry, expanding these uses of natural gas and creating new ones – such as in fleet trucking and even personal vehicles – is usually cited as a key way to put the shale gas glut to good use; lowering our national carbon footprint and increasing our energy independence. The big hope for producers, however, is in export. Clearing a few political and regulatory hurdles and building new facilities would allow for natural gas export in liquid form to foreign markets like Great Britain, Northern Europe and even Asia.

All of which would raise consumption levels well above current levels, reducing, in turn, the projected years of supply. Some estimates suggest shale may provide fewer than 30 years of additional natural gas supply when all is said and done. And as the glut diminishes, users will begin to be exposed to the true dollar costs of fracking extraction.

As this process plays out, a major concern is the effect on alternative energy. Another three decades of embracing the fossilized status quo aren’t going to help us achieve energy sustainability. People are fundamentally change-averse. Tales of “100 years of cheap energy under our feet” will resonate. And if the hype lures investment capital to shale companies, what does that do to the attractiveness of investment in green tech companies? Will cheaper natural-gas-fired electricity generation put further funding pressure on large-scale solar and wind projects?

If markets pick winners, then it’s hard to understand how an embrace of shale gas creates a bridge to a new energy regime, rather than to a familiar dead end. It’s time to stop digging for scraps in the past and find a new way forward.