Natural Gas Quandary Widens

Natural Gas Quandary Widens

July 15, 2009

Ken Silverstein
EnergyBiz Insider
Editor-in-Chief

The quandary surrounding natural gas drilling is deepening. While natural gas is both cleaner and prevalent in unconventional forms, environmental groups have expressed concerns that it is becoming too easy to get exploratory permits and that drinking water supplies are becoming endangered as a result.

Accessing natural gas deposits is difficult because of environmental laws. And getting to unconventional sources is not any easier. But the difference is that the conventional fields are becoming depleted while the output from coal-bed methane and shale formations are expanding. Today, such fuel sources that can be transformed into natural gas represent a trend in energy production.

"Programs that encourage the use of alternative fuels should be coupled with programs that boost natural gas production," writes Ed Ireland, executive director of the Barnett Shale Energy Education Council. "This is because clean-burning natural gas will provide another century or more of a stable energy resource to power the nation's electric generation systems, and will help integrate wind and solar power into the energy resources currently available."

He points to a study by the U.S. Energy Information Administration that says that fossil fuels will dominate for at least another two decades. Today, oil, natural gas and coal comprise 85 percent of all energy consumption. By 2030, the agency is predicting that such fuels will make up 81 percent. The flip side is that alternative sources will grow. But those energy forms are intermittent and they must have back-up generation. Ireland thus asks whether the nation would rather depend on natural gas or coal for electricity.

If the reduction of greenhouse gases is a top priority, then the answer would be natural gas that, when combusted, releases half the carbon dioxide as coal. But Ireland says that pending federal policies would actually dissuade natural gas production by imposing new taxes and regulations. He is particularly critical of a bill to eliminate the expensing of intangible drilling costs -- a proposal that the industry says would result in far fewer wells getting drilled and henceforth lead to less supply and higher prices.

Shale is a sedimentary rock that is less porous than sandstone where traditional natural gas is found. While explorers have always known shale formations are rich with gas, it has only been in recent years that retrieving such resources has been technologically feasible. With horizontal drilling, producers can move laterally beneath cities and neighborhoods to extract the product. Hydraulic fracturing, meantime, is also productive.

But tons of water and chemicals must be pumped deep down into the wells to loosen it. And that has created concerns among many communities and environmental groups that say the process contaminates the groundwater. Along those lines, such organizations say that they recognize that natural gas is the cleanest burning fossil fuel but that its current appeal must remain temporary until green energy sources are primed.

Regulatory Scrutiny

Beyond changes in tax law, the natural gas industry also faces those critics who say that the methane that is released in the production process harms public drinking water. They have the ear of some in Congress. They, in turn, want the relevant drilling methods to be regulated under the Safe Drinking Act, where some of them are exempt. Specifically, a measure has been submitted that would make companies report what chemicals are used to shake loose natural gas deposits from the rocks where it is trapped.

It all comes amidst pending energy legislation that would limit greenhouse gas emissions. According to the Ground Water Protection Council, the states that now regulate shale production have safeguarded consumer interest while promoting more exploration. It suggested, though, that the policymakers develop more specific guidelines for those deposits near plentiful groundwater supplies.

For their part, natural gas producers say that they take adequate precautions to protect drinking water supplies by sealing off the wells with steel and concrete before they unloose any chemicals. They also say the evidence linking any sicknesses with their drilling techniques is lacking, pointing to a U.S. Environmental Protection Agency study in 2004 that agreed with their thinking.

"We believe the states are doing an effective job in managing the risk," says Scott Kell, president of the Ground Water Protection Council, in testimony before Congress.

Supporters of the industry say that federal regulations such as those now pending would deter investment in shale production. Even in times of recession, Texas economist Ray Perryman says that the Barnett Shale in the Dallas-Fort Worth area will generate $6.5 billion in economic output, which is still well below the $11 billion it created in 2008.

The Barnett Shale was the first major field to be explored around 2001. It now supplies 6 percent of the nation's natural gas. Meantime, the Haynesville Shale project in Louisiana and Texas as well as the Marcellus field that stretches from New York State down through Appalachia might be even bigger. Estimates are that 21 shale beds exist in 20 states but that it will take several years to prepare them for development.

"Traditional wells may have a four-year lifespan," says Cathy Conner, chief executive of Universal Well Site Solutions in Loveland, Colo. "But an unconventional one may have a life of 50 years and very rarely is there a dry hole. New forms of automation also mean there is a much smaller footprint."

As the nation thirst for cleaner energy that is domestically produced, natural gas developers say that they have an important role to play. Their drilling methods are environmentally benign, they add, emphasizing that their product is the ideal supplement to wind and solar power. U.S. lawmakers are now scrutinizing their claims, which if nothing else will force those developers to try to be even better.