Saturday, July 9, 2011

Marcellus Shalegas: The Swiss Cheesing of WNY - Part 2

Update:

The recently announced plan of Governor Cuomo with respect to the big Frack Attack upon NY State did have one good aspect - it could actually be worse. But his plan goes downhill fast after that initial point is ascertained. While it initially spares the water supply of NY City and Syracuse from poisoning by hydrocarbons from leaky wells or from the drilling process/fracking fluids and "produced brine", for a large section of rural NY, it looks like open season has just been declared. And add to that a NYS DEC department that just got hammered with more budget cuts, and the fact that budget cuts to departments in NY State government for all seems to be Andrew Cuomo's vision of things to come in NY State. The odds of getting a sufficiently staffed DEC to police a drilling industry that often could care less about laws, rules and regulations does look awful slim, and probably lies in the range of slim to none. But, we could be like Texas, only without natural gas royalties... can things really get more bereft of intelligence than that? And even if that is possible, must we go there?

At present, natural gas prices are still in the dumps at near $4.30/MBtu - see http://www.oilnergy.com/1gnymex.htm. And as for the near term probable price for Ngas in the U.S. for the next few years, try this on for size: http://www.cmegroup.com/trading/energy/natural-gas/natural-gas.html. Futures prices don't reach $6/MBtu until March of 2015, and don't hit $7/MBtu until December of 2019! Those prices indicate that Ngas is in abundance for the next 8 years. While futures prices are not a guarantee of the price in the future, they are what reasonably informed people in the business are will to be that the price will be, and someone has signed a contract with a purchaser of Ngas in the future for that price. And remember, fracking Ngas requires a price of close to $10/MBtu to justify the investments needed, like wells, pipelines, storage for radioactive Ngas (needs at least a 60 day "cool-down" to deal with natural Radon contamination) and gas treatment facilities (remove water, adjust methane content, remove "natural gas liquids" like ethane and propane). The fracking industry will supposedly have to make a treatment facility for the spent fracking fluids and "produced water" that cannot be put into municipal sewage treatment facilities. And if $4/MBtu to $6/MBtu is all that they will be getting for a price, and that price is less than the ALL-IN COST to produce it, well, somebody will be losing a lot of money. Tens of Billions of dollars could go "up in smoke", and in a hurry, too. But what the heck, it's another financial bubble - Party On, dudes!

Here is another not too well known fact. Wind turbines might be partly responsible for those sub-par Ngas prices right now, though if you are a consumer of Ngas, you probably don't mind this fact - in fact, you might be quite happy about that. Here is how that works:

The U.S. now has about 42 GW (42,000 MW) of installed wind turbine capacity, though for most of 2010 it was near 36 GW. According to the US Energy Information Agency and the average net output of these turbines was around 10.8 GW (94,647 GW-hr/yr) - see http://www.eia.gov/renewable/annual/preliminary/pdf/table3.pdf. Odds are, this wind sourced electricity displaced natural gas sourced electricity (in general, old nuclear and coal based generation is less expensive than Ngas based electricity, so the Ngas option gets discarded when the electricity demand is supplied by wind turbines). If the displaced Ngas generators had an average thermal efficiency of about 42.5% (some peaking units, some combined cycle units), the 94,647 GW-hr/yr of electricity needed would have required about 763 billion cubic feet/yr (bcfy) of Ngas. In 2010, about 22.6 trillion cubic feet (tcfy) were sold in the U.S. from 493,000 wells (and going up at about 3.7%/yr in number, too - see http://www.eia.gov/dnav/ng/hist/na1170_nus_8a.htm) and some imports (imports were about 10% of the total - mostly from Canada, and some as imported liquified natural gas (LNG)). Thus, wind turbine electricity production dropped Ngas production from what it would otherwise have been by 3.3%. In Texas, where more wind capacity is installed than in any other state (and all but 3 other countries), wind energy owners had to curtail production by 17% last year to prevent prices from getting too low (and possibly going negative, as happens in Europe on occasion), so more wind sourced electricity could have been made from already installed turbines....

With respect to price, Ngas is termed a price inelastic commodity. That is, subtle changes in the supply/demand balance can have drastic effects upon the price. For example, in 2009, demand for Ngas dropped by 3% from 2008 following the appearance of the Grim Reaper-like occurrence that is the Great Recession, and the price dropped by over 50% - see http://www.eia.gov/dnav/ng/ng_sum_lsum_dcu_nus_a.htm. In this table, note the drastic difference in the value of the Ngas sold in 2008 and 2009, a difference of nearly $89 billion: http://www.eia.gov/dnav/ng/ng_prod_whv_dcu_nus_a.htm. So that 3% of Ngas demand that was replaced by wind sourced electricity could be worth close to $89 billion in savings to customers or $89 billion in additional revenues (and a lot of it as profits) by the natural gas producers. There are other factors that go into pricing for any given year, but, either an increase/decrease in demand or an increase/decrease in supply can have pretty amazing effects on Ngas prices.

The Fracking Facts
So far, this is what we do know about fracked Ngas:

1. The Global Climate Warming effects of fracked tight shale gas for the initial 20 years after production are GREATER than if a comparable quantity of coal had been burned to supply the same end user product. This is because of the large quantities of methane that gets vented after the well bore is fracked versus a conventional gas or oil (with associated gas) well, and then all that 3 million gallons or so of fluids also contains methane (often as a gas-liquid emulsion). After the 20 years, coal gradually becomes the worse choice, but not by much. And so, anyone who tells you that there is a big difference climate wise when switching from coal to fracked tight shale gas is full of crap, and at best is "weasling" you. Here is some more reading on this:
http://www.energybulletin.net/stories/2011-07-05/fracking-–-tale-gas-and-greed-and-global-warming.

2. The growth market in the U.S. for Ngas nowadays is in electricity production, but this electricity also can be made with wind turbines at similar costs, and without the air pollution of leaking methane and the CO2 pollution that comes from burning methane. So, the Ngas is not NEEDED, especially to make electricity. Ngas electricity prices cannot be accurately estimated much past a few months (though futures markets are one of the better indications of these price trends), and that inherent inability to know what the future price will be imposes a lot of costs on society. The decision to stick to Ngas as an electricity source led to widspread bankruptcies in the 2000-2001 period, for example (the Enron crime wave).In 2010, Ngas supplied less than 2.6% of the electricity in Western NY (Zone A).

3. A recent report about job creation in Pennsylvania showed that fracking has created up to 5,000 new net jobs, and up to 70% of them are being supplied with people from outside of Pennsylvania. More jobs are created by manufacturing wind turbines than are created by people extracting methane from tight shales via fracking in order to produce the same amount of electricity that is supplied by that Ngas. This is in contrast to the widely publicized "80,000 jobs for Pennsylvania" from fracking. For more on that, read the report:
http://keystoneresearch.org/sites/keystoneresearch.org/files/Drilling-Deeper-into-Jobs-Claims-6-20-2011_0.pdf.

4. The "energy payback" of a wind turbine is between 6 to 9 months, depending on the wind resource, and up to 1 year in a place with a really pathetic average wind speed. After that, the electricity is made with essentially zero CO2 pollution. Even if the methane leakage was ignored, as long as Ngas is burned, it makes CO2 pollution.

5. Just where are all the proper hazardous waste locations that will properly treat fracking fluids and how much does proper treatment cost? Will frackers pay that when they are already losing money, or will they attempt to "get creative" with the trash disposal problem, and not in a good way? And speaking of truth in labeling, how come that waste fracking fluid/spent water is not labeled as hazardous waste, and thus documented and tracked like it is with other similar hazardous waste. Chemically speaking, it IS hazardous waste.

6. Who is going to pay for damage to local roads, and who will repair the drill sites (averaging 1 to 5 acres per well)/bring them back to near original condition? And who will be the cops on this effort?

7. How is a fracker supposed to make money selling Ngas for less than the cost to produce it? Where is the business model in that with regards to steady Ngas sales in NY State?

8. Marcellus shale is not about making NY State self sufficient in methane, or of stopping the money bleed for consumers who are buying Ngas from somewhere and thus sending their money elsewhere. In reality, these are ASSET PLAYS, where the goal is to sell of proven methane reserves to oil companies who are now bloated with money, and who need new hydrocarbon reserves in order to keep their stock price up/avoid takeovers. When companies like Chevron, Shell and Exxon-Mobil buy these assets up, they will wait as long as it takes for Ngas prices to once again get pricey. So all the NY shale gas proven reserves that get bought up by petroleum companies won't necessarily be produced for over a decade, or until prices get well above $10/MBtu.

9. Where are the royalties to NY State, which just about every other government gets when hydrocarbons are extracted from underneath state lands? Everyone else is making money, yet NY State is enduring big costs and zip for profits. Who says we have smart people in charge of us?

10. Fracked gas wells deplete REALLY FAST, especially compared to conventional gas wells. Almost all of the gas that will get made from a well gets made in the first couple of years, and most of that comes in the first few months. To supply the same gas production rate, ever faster drilling rates have to be maintained. Plus, odds are, the best wells will be found initially, and then the dregs have to be tapped. According to seriously competent oil and gas expert Dr. Geoffrey Brown (co-author of the "Export Land Model", and from Texas, too), wells in the Texas Barnett Shale Gas region depleted at an average rate of 65% per year: http://www.energybulletin.net/node/46776. Here is what that means in terms of outputs for those of you not math inclined if the production decline rate follows an exponential decay pattern with a decline rate of 65% per year:

Start of year 1= 100%
Start of year 2 = 52.2%
Start of year 3 = 27.3%
Start of year 4 = 14.2%
End of year 4 = 7.4% of initial output

By then, the gas output might not even be worth the cost of operating the plant/compressing the gas to line pressures. And these are optimistic numbers, assuming a linear decay rate of 65%/yr, as in A(t) = 100*Exp[-kt] where A(t) is the production rate expressed as a percentage of the initial ouput (time = 0) at time t. In some models, production declines even faster... see http://www.fekete.com/software/feketeharmony/media/webhelp/DeclinePlus/TightGas_Theory.htm and http://www.aspousa.org/index.php/2009/08/lessons-from-the-barnett-shale-suggest-caution-in-other-shale-plays/.

11. Methane deposits are not uniformly distributed in the Marcellus Shale Region. There are "sweet spots" and wimpy well spots, and even dry holes. The quantity of extractable Ngas can vary significantly within a given county. In the Barnett Shale gas field, only a small fraction of the multi-county shale rocks actually produce more than 1 billion cubic feet of Ngas, eventually, and those are clustered together in parts of 3 counties.

12. Fracked Ngas is not renewable - once it is gone, it won't come back, and nor will the money spent on it. Investing in wind turbines to make electricity avoids that depletion process, and leaves us with something to show for all the money spent to make some electricity. Odds are, that wind turbine can go for between 25 to 30 years, though it is only warranted for 20 years.

13. Actually, the Ngas developers and drillers are not the ones who will make money, and the same goes for the investors in the well. The money makers are the bankers (loans, not investors), suppliers of special services (fracking specialists, for example, like Halliburton), and those selling equipment and services to drill and then transport Ngas. In addition, there are the gamblers on methane prices (futures, derivatives on futures prices, etc), who stand to make the really big bucks, and who produce little value to society for their efforts.

14. Who pays to clean up when "oops" events happen, such as a defective well sealing, accidents, and the spills/air pollution and associated water pollution from drilling muds and sulfide ores brought to the surface? A wildcat driller LLC can wrap up things fast and move out of state/out of country, sticking local communities and NY State with lots of costs. Fun, wow.

15. The investment made in Ngas production (which mostly runs out in 3 to 5 years with Marcellus wells) crowds out investments in wind turbines. Once you've blown the money on Ngas wells/pipelines/roads and contaminated countryside, that money is not there to invest in sources of electricity that do not deplete. Plus, the associated manufacturing jobs from making the wind turbines are not likely to be happening in NY State, because no turbines were installed. There are tremendous economic incentives to using high quality local labor to make commercial scale wind turbines, since long distance transport can add 10% to 15% on the cost of such units.

16. If you want to keep Ngas prices (while it is still being used) and electricity prices from Ngas reasonable, use less of it, and install more wind turbines! The more turbines that are installed, the more price suppression occurs on Ngas, and on electricity made from pollution based sources. By turning the drilling Hounds from Hell loose on NY and maxing out Ngas production so as to avoid installing more wind turbines, we get higher Ngas prices for heating, and no competition to Ngas with regards to electricity production, despite claims to the contrary. See http://wagengineering.blogspot.com/2011/06/merit-order-effect-in-wny_06.html for more on that topic, and how that works for WNY.

17. Finally, there IS an upper price for Ngas that is destined for electricity in NY State, and that is now set by wind turbines. At a well head price of $10/MBtu (about $11.35/MBtu delivered), Ngas users would have to sell their electricity for about 10.6 c/kw-hr (assume 42.5% thermal conversion to electricity, again a mix of single and combined cycle units). At that price, onshore wind turbines can produce electricity without any subsidies from the Federal government. Ngas will be at a competitive disadvantage if their well-head prices rise above $10/MBtu. And remember, that is the price frackers need to justify the investments made to get the Marcellus shale gas, under good circumstances, for already existing Ngas based generation units. A new unit has lots of capital costs rolled onto that, so they would need even higher prices for the electricity made using $10/MBtu sourced Ngas. And that seems like a losing proposition if there ever was one....

If you ever want examples of corporate and upper class myopia (the main beneficiary in NY State will be some of our uber-rich, as well as other wealthy located elsewhere), or else lust for gambling proceeds while sticking large quantities of upstate NY with economically and environmentally degraded lands, fracking is it. This has such great potential to be classic rape and pillage capitalism. All to supply something that we should be trying to replace and purge from our energy mix ASAP (natural gas) with renewable electricity, which makes more jobs per dollar invested, and does not leave the land, air and water decimated kind of like an expanse of evil, nasty and poisonous Swiss Cheese. And for added kicks, that methane (either the stuff that leaks into the air or else the stuff that is burned and instantly made into CO2 pollution) extracted from the Marcellus shale in lieu of using wind turbines to make electricity keeps working on the Greenland ice sheets, trapping solar heat and leading to an equivalent of massive mudslides, only with massive ice-chunks. The ice-sheet decomposition is THE greatest threat to NY State, because raising ocean levels 20 feet (from this ice melting) within a few years is going to flood much of Long Island, NY City and a fair amount of land along the Hudson River. Nothing like making 6 to 10 million people homeless in a state of 19.5 million as a way to send the economy of that state down the drain real fast and in a pronounced manner, too...

Oh well, at least that might cause the shutdown of the Indian Point Unit 2 and 3 reactors (Unit 1 is supposedly no longer a threat). I guess if you look hard enough, there can be a little gem of something good in the septic field that is the Marcellus Shale play in NY State. Evidently, nothing else has worked to date to shut those things down, so I guess Pan B is to activate the Global Climate Change option ....?

DB

Monday, July 4, 2011

Marcellus Shalegas: The Swiss Cheesing of WNY - Part 1

Rumors are floating that Governor Cuomo is pressuring the NY State DEC to hurry up and finish the SGEIS (Supplemental Generic Environmental Impact Statement) for fracking - alias "horizontal drilling hydraulic fracturing of tight shale gas deposits" - in New York State. The "compromise" will be that no fracking will happen in the NY City drinking watershed (in the Catskill Mountains) and also the Syracuse one. After all, if NY City's water supply gets poisoned or even slightly degraded with bacteria/sediment, the improvements needed to "pre-purify" this water up to drinking water standards could cost several tens of billions of dollars. In case you didn't know it, NY City owns or controls large sections of the Catskill Mountains, and the water collected in those water reservoirs is very high quality with respect to drinking (plus, no or minimal pumping costs - it flows by gravity to NYC). But, for those who are not in these protected zones, most are SOL, though a tiny few might make out like alcoholics who are lucky enough to hijack a fully laden booze truck.

So, money talks, what's new about that? And fast, speculative money talks really loud in NY State - after all, the state gets a big haul of it's income tax revenue from Banksters, brokers and other Big Casino (Wall Street) players, despite the lack of an effective Stock Transfer Tax that exists in places like London, England.

Anyway, there are four things that you should know about the Tight Shale Gas (which requires fracking to produce it) business - it is a FAST MONEY play, it requires lots of money and bank loans to extract it (that's one aspect where Wall Street/Banksters/speculators come into play), the wells that are "stimulated" generally deplete really fast, and that the whole business is really an ASSET play, not an effort to provide a long term, home grown solution to the energy needs of NY State residences and businesses.

So, here is a bit of a discussion on this, and how it relates to wind turbine derived electricity:

http://www.thinktwiceradio.com/yvonne/audio/110623b.mp3


Check it out; hopefully it will be informative to you, and get you thinking.

As for the rumored "frack attack", keep in mind that it is all about what special band of brigands (a fancy word for pirates) gets it's money, fast, faster and/or fastest. It is really not about the energy to be obtained, nor about the creation of significant quantities of jobs that now unemployed or underemployed of WNY'ers can obtain. And the legacy will be a rural landscape that will have more of a "swiss cheese appearance", especially from the air, where the numerous 5 acre sized "pads" and interconnecting roads/pipelines will be visible. As for the toxic waste left over (spent drilling muds, spent fracking fluids, "produced water", sulfide containing rocks that get eaten by bacteria and turn into sources of sulfuric acid pollution (mine waste phenomena), rad-waste (the shale rocks tend to be radioactive, and the gas often has to be "aged" to allow the radon contaminant to decompose to "background" levels)), if the cost for proper treatment can be avoided/side-stepped/dumped onto someone else, well, that's more profit for the severely profit-deficient drillers. For example, try this one for size:
http://www.energybulletin.net/stories/2011-06-27/leaked-docs-throw-doubt-gas-prospects-jun-27 (a set of 3 NY Times articles, and pretty darn awesomely good ones, too).

Another great line (as in, something said by confidence artists and associated grifters/Global Climate Change deniers) is that using the methane from fracking Marcellus shale to make electricity is less damaging to our planetary climate control system than is burning coal to make electricity (the concentration of CO2 and to a lesser extent, methane, in the atmosphere is very important to the temperatures we have on the surface of the earth). But, factually speaking over the next 20 years, NOT SO! It turns out that so much methane is vented from shale gas efforts (even compared to "regular" natural gas drilling) that this causes MORE heat retention in our atmosphere than would happen by just burning coal in an existing coal burner, like the Huntley facility in Tonawanda (now close to 86 years old, though there have been a couple of boiler change-outs and other improvements). Fortunately, methane only has a half-life in our atmosphere of about 10 years (it gets oxidized by UV light and oxygen in the air into CO2 and water), but it is a much more intense absorber of infared radiation in the wavelengths corresponding to temperatures on the surface of our planet while it is floating around in the air. See here:
http://www.energybulletin.net/stories/2011-07-01/life-cycle-greenhouse-gas-emissions-shale-gas-compared-coal-analysis-two-conflict.

Of course, using wind turbines to make electricity avoids both loser propositions of depletable coal and methane usage, and it creates a lot more jobs in the process with respect to the manufacture of those items. But that is much too much like common sense, and besides, that creates middle class jobs to a much greater extent than does a frack attack. And in some circles, creating middle class jobs in NY State is not deemed to be socially acceptable- although none of those types seem to live in my neighborhood, at least that I know of (the Secret Billionaire's Club of Buffalo?). Plus, fracking can create financial bubbles - including gambling on the future price of natural gas and of electricity made from that natural gas - and can lead to huge banker/speculator takeover fees when the proven shale gas reserves get bought up by oil companies who presently are stuffed to the gills with cash and have nowhere else to invest it the hydrocarbon business. But that is a subject for another post...

DB

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