The world may be facing an era of cheap and plentiful energy, and the U.S. lies at the center of the potential boon to the global economy, thanks to technology and a bit of luck. But the road faces serious hurdles, including environmental worries driving political opposition.
Two key technologies are fueling the deluge of new oil and gas energy supply — what many are calling an energy revolution. But environmentalists have been uniting against one, hydraulic fracturing, claiming the process creates air pollution and could contaminate water supplies.
Greens also aren't happy to see lots more carbon-based fuel come to market. They know a glut could send prices plunging and kill the incentive to seek clean but expensive alternatives, such as wind and solar energy.
A 'Game Changer' But supplies are ramping up. "The technology has advanced enough to improve results," said Bill O'Neill, partner with commodity-focused Logic Advisors in Saddle River, N.J.
In hydraulic fracturing, or fracking, pressurized water and chemicals are injected into the ground, releasing large amounts of oil or gas that otherwise would be too costly to extract.
Horizontal drilling technology, another practice, allows the operator to drill down, then turn left or right. That exposes the drill to far more energy deposits.
The HDT process also makes far more deposits economically feasible. Traditionally, drillers needed to work vertical deposits at least 200 feet thick. HDT opens a new population of deposits to drillers, some just 25 to 100 feet thick, with the bulk of the formation running horizontally.
Shale-deposit extraction benefits most from fracking and HDT. It is the driving force behind U.S. natgas production, which is rising 4% to 5% a year.
"The real game changer has been seen in shale gas," said John Staub, team leader for exploration and production analysis at the U.S. Energy Information Administration, the Energy Department's statistical arm.
Some 7.609 trillion cubic feet of shale gas will be produced in the U.S. this year, up 11.6% from last year. In 2004, before the industry embraced fracking and HDT, the U.S. produced just 0.604 TCF of shale gas.
There's nothing special about U.S. shale, as opposed to Italian, Korean or Malawian shale. But lucky for the U.S., the nation is rich in shale and the type of deposits that the new technologies can unlock.
Price Advantage As natgas output has exploded, prices have tumbled, drawing attention from buyers abroad, where natural gas prices are three to six times higher.
The benchmark U.S. futures contract, which reflects prices at the Henry Hub in Louisiana, ended Thursday at $2.874 per million BTU. That's off 82% from a record $15.78 in December 2005.
In much of Europe, natgas now fetches between $12 and $14. Prices in Asia are even higher.
That's the recipe for export demand, which could be a turbo-booster for the U.S. economy, analysts say.
Already, the bargain-basement U.S. gas price is enticing investment in huge, expensive liquefaction plants. Liquefaction is the crucial step needed to change natgas to liquid form for use in certain vehicles or to ship to faraway destinations.
Europe could use more energy options. Its current big supplier, Russia, isn't shy about cutting off the taps to settle a dispute — even in the dead of winter.
Asia is also hungry for energy.
Domestically, a major shift from oil toward natgas-fueled vehicles would mean a staggering shift in oil's supply-demand picture, experts say. Combined with a slower economy that cools demand and continued torrid crude output by Saudi Arabia, oil, heralded just a few years ago as the "new gold," could become a cheap, high-surplus commodity.
But that's where the obstacles start to arise.
For the broad automobile population to shift to natgas, new gas stations would have to be built or old stations would need to add natgas pumps, or cylinders, or whatever mode develops. This is happening now on a smaller scale in commercial trucking.
Then there's the price issue. Natural gas is cheap now, but many of the new sources of energy, including shale, tar sands and deepwater drilling, are more expensive than the old-fashioned oil well.
Steady export demand could push prices higher, while extraction costs could rise as drillers are forced to seek harder-to-get-at reserves.
Still, proposals are being discussed to build liquid natural gas, or LNG, plants and terminals in the Gulf of Mexico and along the Eastern seaboard.
Cheniere Energy (LNG) is developing a $5 billion plant in the Gulf of Mexico, the U.S.' first new LNG export facility in 40 years, according to the Financial Times. The plant should come online in late 2015, and Cheniere has already won commitments for 89% of its output from customers in the U.K., Spain, India and South Korea.
Canada also is preparing for the future by building LNG plants and ports in Vancouver on the West Coast and in Nova Scotia and New Brunswick on the East Coast. The plants presumably could process natural gas produced in the U.S. as well as Canada.
Some 17 plants are planned for North America, including the Canadian and Cheniere projects, according to Intelligence Press, publisher of Natural Gas Intelligence. Many of the U.S. sites are in Texas and Louisiana, near the Gulf of Mexico. But Hess (HES) is building a facility in Fall River, Mass.
Excelerate Energy wants to build the country's first floating LNG plant in the Gulf of Mexico.
The biggest challenge may be to the crucial fracking process itself. Not everyone welcomes plunging prices and continued reliance on gas and oil.
Environmentalists, concerned about greenhouse gas emissions and global warming, already have marshalled forces to fight fracking.
And then there's the anti-fracking fury unleashed among those who say that the process itself — not just the end product — is environmentally harmful. Protests have already shut down some projects and have made fracking off-limits in some states.
Consider these items from a blog post by William L. Chameides, dean of Duke University's Nicholas School of the Environment: "The fracking process generates air pollution, and the leakage of natural gas releases methane (a greenhouse gas many times more effective than CO2) into the atmosphere," Chameides wrote. "Fracking requires the high-pressure injection of huge quantities of water, various (often unknown) chemicals and sand, and then the recovery and disposal of that so-called flowback water along with the briny formation (or produced) water. ...
"At any number of points in the process, fracking fluids and/or recovered water can inadvertently — or not inadvertently, if dumped into local rivers or streams — contaminate local groundwater or drinking water.
Energy executives, among others, dispute claims that the fracking process is inherently damaging to the environment.
Meanwhile, Ohio regulators claimed in March that fracking caused a dozen earthquakes. They announced "new environmentally responsible standards for transporting and disposing of brine, a by-product of oil and natural gas hydraulic fracturing.
The Republican-led North Carolina legislature passed a bill legalizing fracking in the state, only to see the bill vetoed by Democratic Gov. Beverly Perdue.
After some hemming and hawing, New York Gov. Andrew Cuomo announced a plan that would allow fracking on private land, but not on public land or near some water sites. A coalition of six well-known environmental groups has protested the plan.
But for all the uproar, the fact is that fracking isn't new. It's been around for decades.
"It's a lot more environmentally friendly than in years past," said O'Neill at Logic Advisors. "It's only grabbing headlines now because the improved results are creating a stampede of frackers."