Friday, January 13, 2012

Will Cheap Natural Gas Alter U.S. Energy Consumption?

Sources:

Americans for Energy Leadership: How Cheap and Abundant Natural Gas Affects Renewables

NPR: Solar Panels Compete with Cheap Natural Gas

Rice University The Baker Institute Energy Forum: Impact of Shale Gas Development on Global Gas Markets

WSJ: Glut Hits Natural Gas Prices


Prices for natural gas in the U.S. have fallen to their lowest levels in over two years and are expected to drop further. The dramatic decline in gas prices is attributed to several factors, including technological advances in drilling capabilities as well as climate forecasts for mild winter temperatures throughout the U.S that have driven natural gas supplies to all time highs. The decline of natural gas prices spells relief for businesses and homeowners who use gas for heat, and has spawned revived interest in natural gas as an alternative to coal and a compliment to clean energy initiatives. The surplus of natural gas has greatly impacted the energy market in the U.S. and abroad in the past decade. Compared to natural gas, the cost of wind, solar, nuclear, and even coal generated power appears much less attractive, and exportation of excess U.S. natural gas production could impact global markets as well.


Advances in drilling technology in the last decade have played a large role in creating the current surplus. The introduction of hydraulic fracturing of shale formations, known as “fracking,” and the seemingly endless supply of shale formations across the U.S. loaded with natural gas have kept reservoirs full and suppliers looking to export excess gas. Current excess reserves are so high that some companies are simply burning off the natural gas produced as a byproduct of oil and ethane extraction.


For several reasons, experts do not expect the excess natural gas supply to decline anytime soon. In addition to the extraction of natural gas through fracking, natural gas is a byproduct of oil drilling which has expanded greatly in recent years thanks to high oil prices. Most wells in the U.S. contain a mixture of oil, gas and other petroleum products, such as valuable ethanes. Since oil and ethanes are profit-makers for exploration companies, drilling will continue as long as oil prices are high. Another factor contributing to the increased supply is the fact that most energy companies have land leases that will expire unless the company performs a certain amount of drilling.


In less than a decade, the U.S has become a major source of natural gas with unforeseen surpluses. Due largely to fracking technology and an extensive pipeline infrastructure, the U.S. is exploring the possibility of replacing some nuclear and coal burning electricity generating facilities with natural gas facilities. Export opportunities are also increasing as global demand for liquefied natural gas grows. Wind and solar energy initiatives are also seeking to partner with natural gas facilities to bridge supply gaps when the sun is not shining or the wind is not blowing. Natural gas production in the past decade has altered the economics of energy consumption in North America with the potential for a global impact.

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