Shale formations are a crucial component of the nation’s oil and natural gas supplies. Estimates of total potential production are rising rapidly over time as new fields are discovered and explored. Exploration and production, lease bonuses and royalties, pipeline construction, and other related activity lead to large economic gains. In addition, the availability of a large supply of domestic production helps keep prices lower and improves energy security. For the non-geologists in the crowd (like me), here’s a little background. Shales are fine-grained sedimentary rocks that can be sources of petroleum and natural gas. While their existence has been known for decades, it is only in the past 10 years or so that the technology evolved (primarily horizontal drilling and hydraulic fracturing) to allow for recovery of the trapped resource. Conventional gas reservoirs form when natural gas migrates up from an organic-rich source layer and is trapped in highly permeable rock capped by a layer of impermeable rock. Essentially, a successful well taps into this reservoir and the gas flows out. With shales, by contrast, the rock is too dense (impermeable) for the gas to flow, so wells are drilled down into the shale layer, then turn horizontal. A high-pressure mixture is injected down into the well, causing the shale layer to crack. Fissures are held open by sand particles (pumped down as part of the mixture) and the gas can then flow out. The process is similar for oil. The US Energy Information Administration (EIA) estimates that shale gas comprised 14% of the total US supply in 2009, but is expected to account for 46% of the supply in 2035. In a recent study for America’s Natural Gas Alliance, IHS Global Insight (USA) indicated even greater importance of shale gas, estimating that in 2010, such gas represented 27% of the total, with the share rising to 60% by 2035. IHS Global Insight also projected that there will be $1.9 trillion in capital investment (both upstream and infrastructure) between 2010 and 2035. I have studied the economic benefits from the Barnett Shale, located beneath more than 5,000 square miles of North Texas, on several occasions. Direct spending for exploration and production activity related to the Barnett Shale leads to multiplier effects through the economy which, in turn, initiate a chain of spillover business stimulus throughout the area. It also benefits both state and local governments through property taxes, severance taxes, enhanced retail sales and real estate development, permits and fees, and other types of levies such as hotel/motel occupancy taxes and receipts stemming from various taxable activities. We estimated the 2011 total effect of Barnett Shale activity to include $11.1 billion in annual output and 100,268 jobs in the region. The Eagle Ford is another large Texas shale play and activity there is gaining momentum at a rapid pace. However, there are other shales which are substantially larger including the granddaddy of them all (so far), the Marcellus, which is located under parts of the northeastern United States. The exploration and production in these areas is providing a rare economic bright spot in Pennsylvania, North Dakota, Arkansas, and many other parts of the country. In addition to the economic stimulus that comes from exploration, this industry development will contribute to lower oil and natural gas prices in the future (compared to what they would be in the absence of shale development). By allowing consumer and business resources to be expended in more productive ways, lower prices will contribute to economic growth. Developing these large sources of natural gas also has environmental benefits. Using natural gas results in lower emissions compared to many fuels and will likely serve as an important energy source given efforts to reduce carbon dioxide emissions. An interdisciplinary study by MIT, for instance, stated that “natural gas provides a cost-effective bridge to...a low-carbon future.” In addition, by increasing domestic supplies, these reserves contribute to US energy security. Currently, a significant portion of US oil imports originate in regions which are politically volatile such as the Middle East and Venezuela. By increasing the availability of domestic supplies, the United States can be better prepared to deal with potential interruptions in these supplies. While they must be developed in a way that minimizes any adverse consequences for other resources (such as water supplies), the oil and gas resources embodied in the nation’s shale plays are an extremely important aspect of economic growth both now and in the future.
posted @ 08:04 AM CST [link]
Friday, January 27, 2012
How Dry I Am!
In spite of some relief over the winter in the form of much-needed rainfall, Texas remains in the midst of the worst drought on record. Agricultural losses for 2011 were in the billions (we topped $5 billion in August), wildfire losses hit $100 million, and cities and water supply systems across the state enacted conservation measures. There are, of course, multiplier effects on top of that. Currently, less than 1% of Texas is not at some stage of drought, down from more than 20% a year ago according to the US Drought Monitor. Fortunately, the rain has helped eased severity, with the portions of the state in the “extreme” and “exceptional” falling since late fall. However, experts such as Texas State Climatologist John Nielsen-Gammon have indicated that ocean trends are suggesting the drought could continue for a number of years. In the midst of the bad news regarding weather patterns, the Texas Water Development Board faced the challenge of coming up with a plan for dealing with the state’s future water needs. The 2012 State Water Plan includes projected usage, supplies, and necessary investments to ensure future needs are met. Population and economic growth increase the need for water. The Water Development Board’s population projections indicate 82% growth by 2060, up from 25.4 million people in 2010 to 46.3 million in 2060. Water demand is projected to increase 22% over the time period from about 18 million acre-feet per year to 22 million acre-feet per year in 2060. Water supplies from existing sources (given current permits, contracts, and infrastructure during drought), however, are expected to decrease by 10%. By 2060, these supplies will produce about 15.3 million acre-feet, down from 17.0 million in 2010. The primary reasons for the decline are depletion of the Ogallala Aquifer and less reliance on the Gulf Coast Aquifer. To address this shortfall, regional water planning groups developed specific strategies to increase water supply or maximize existing supply. These 562 projects would add 9 million acre-feet per year to the total 2060 supply, thus closing the gap and meeting future needs. Strategies include conservation and reuse (34% of the volume added, which may be difficult to achieve), new major reservoirs (17%), and other surface water supplies (34%). The cost of these solutions is $53 billion to permit, design, and build. Total capital costs for water-related issues outlined in the plan are $231 billion (about $89 billion for water treatment and distribution, $82 billion for wastewater treatment and collection, and less than $8 billion for flood control). Although these are big numbers, they pale in comparison to the cost if these issues aren’t dealt with effectively. Of course, every one of these dollars with likely be a source of controversy, thus likely leading to delays, added expense, and, in some instances, project abandonment. The Texas Water Development Board recommended several regulatory and administrative changes to help with plan implementation. These include designating additional sites recommended for reservoir construction as protected under the Texas Water Code, providing a mechanism to acquire reservoir sites, allowing interbasin transfers of water, requiring annual water loss audits by retail public utilities, and developing a method to provide financing assistance for implementation of water plan projects. Without a doubt, such impediments to progress in securing and better managing Texas’ water supplies should be removed. In the introduction to the 2012 State Water Plan, Chairman Edward G. Vaughan stated in an open letter to the people of Texas that “in serious drought conditions, Texas does not and will not have enough water to meet the needs of its people, its businesses, and its agricultural enterprises.” Addressing these shortfalls is possible (as outlined in the plan), but it cannot happen overnight and is likely to face daunting challenges. Investing in this most crucial resource is essential to the economy and future quality of life, and must be a top priority.
posted @ 07:59 AM CST [link]