2010 DOD Energy Planning Brief: Natural Gas Looking Good

We've talked about natural gas before, primarily to point out that the world is going to have access to a lot more of the stuff in the coming years thanks mainly to new discoveries and extraction methods. Here's an early 2010 natgas intro and update from guest blogger and Navy energy contractor, Vince Marshall.

1/19/01 "There's no such thing as a free lunch" Update: In the case of one of the new New York fields, a skirmish is brewing over possible extraction-related groundwater contamination. Here's an excerpt from oil & gas newspaper, Upstream:

At issue is the controversial process of shale gas extraction known as hydraulic fracturing, or "fracking," in which a combination of chemicals, sand and water are blasted through rock to free trapped gas. Fracking is exempted from regulation under the US Clean Water Act. The natural gas industry argues that drilling poses no risk to drinking water, saying the chemicals are injected through layers of steel and concrete thousands of feet below aquifers. But opponents argue that toxic fracking chemicals are contaminating drinking water, citing numerous reports of private wells near gas installations having water that is discolored, foul tasting, or even flammable because of methane that has escaped from drilling operations.

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Natural gas is a preferred fuel for heating and power plant operations at many DOD locations worldwide. It is clean, comparatively simple to bring to process, and for the most part, readily accessible. As such, fluctuations in the supply and demand of this commodity severely impact operational budgets. For the next few years, there are strong market drivers that should help keep average gas prices relatively low. The first is Hydraulic Fracturing.

Hydraulic Fracturing, also referred to as “fracking”, is a process that injects high pressure fluids into shale and existing gas fields. This breaks up the underground rock and allows gas to be removed that otherwise would stay in the ground. The process increases production from fields that otherwise would be considered depleted. More on fracing here. Fracing is not a brand new technology but is increasingly being used to breathe new life into older gas fields. It does have a downside, though: groundwater contamination has prompted some local governments or prohibit its use.

Another development of note is the discovery of very large natural gas fields in Pennsylvania, Texas, Arkansas, Louisiana and elsewhere have substantially increased US gas inventories. In 2010, current gas inventories are approximately 15% higher than the rolling five year average. More on this here.

Of course, climate change legislation that would tax coal or fuel oil would drive consumers to natural gas and likely cause gas prices to increase. So far, coal and petroleum lobby groups have been effective in avoiding significant changes in their taxes and liability. From an early 2010 vantage, this is unlikely to change in the near future and will help keep natural gas prices low.

Perhaps this biggest short term driver has been the recent reduction in demand, which has increased inventories and helped keep prices low. New electrical generation from gas fired combustion turbines requires a long lead time and takes years to build and permit. It is believed that increases in demand will be more than offset by increases in gas production.

In sum, DOD personnel responsible for making long term energy decisions, like DLA's DESC, can look at today’s environment and plan with some certainty that natural gas prices will stay reasonably low over the next few years.

Photo Credit: sidewalk flying / Seth Sawyers @ Flickr