The ‘Age of Shale’ and America’s Energy Future
With billions of dollars in new investments and global interest soaring, the shale revolution is here to stay.
Shh…don’t tell the New York Times, but it looks like America’s energy renaissance in shale — which has been fueling economic recovery from North Dakota to Texas and Louisiana to Pennsylvania — is going to last for a long, long time.
As the Wall Street Journal reports, in a story aptly stating that the “Age of Shale” has arrived:
Shale discoveries have reinvigorated U.S. oil and gas production that just half a dozen years ago was widely seen as in terminal decline. Today, there is a glut of cheap natural gas, and domestic oil production is rising for the first time in decades. Shale development is even spreading to other countries, such as Poland and Argentina.
The shale boom has already minted a half-dozen new billionaires comparable to the riches brought by the Internet.
“You certainly have to record the discovery and the exploitation of resources from both oil and gas shales as one of the great wealth creators in American history,” said Ralph Eads, vice-chairman of investment bank Jefferies & Co., which has advised on more than $75 billion worth of shale deals over the last three years. “It looks to be the economic equivalent to any of the big technology innovations.”
Recent market developments further highlight this trend. Kinder Morgan Inc. announced this past weekend that it would be buying El Paso Corporation in a deal worth approximately $38 billion. The acquisition will ultimately create the fourth-largest energy company in North America.
What prompted that enormous deal? El Paso owns the largest natural gas pipeline system in North America, with more than 43,000 miles of gas pipelines. As Reuters points out, the deal combines “the two largest natural gas pipeline operators in North America in a huge bet on the fast-growing market for that fuel.”
More from Reuters:
Despite weak natural gas prices, production of the fuel has been rising as energy companies pile into shale fields — underground formations rich in oil and gas. In the Eagle Ford Shale in South Texas, where there are scant pipelines, companies are having to rely on trucks and are building rail terminals to handle the vast field’s output.
El Paso already owned the largest natural gas pipeline system in North America, with more than 43,000 miles of pipe. The combined company would own 67,000 miles of natural gas pipe and another 13,000 miles of pipelines to move refined products and other fuels.
“We believe that natural gas is going to play an increasingly integral role in North America,” Kinder Morgan Chief Executive Richard Kinder said in a statement. “We are delighted to be able to significantly expand our natural gas transportation footprint at a time when it seems likely thatdomestic natural gas supply and demand will grow at attractive rates for years to come.”
And this is only one of stories out this week about the growing shale revolution. Statoil ASA has also announced that it is purchasing Brigham Exploration to get a piece of the mighty Bakken Shale in North Dakota. The purchase makes Statoil one of the top 10 holders of Bakken acreage, and shows how shale development is attracting massive amounts of direct investment in American energy development.
Less than a decade ago, few would have predicted that these massive investments would take place. But through the expanded use of proven technologies like hydraulic fracturing and horizontal drilling, the United States has completely transformed its position in the global economy, not only with respect to energy security, but also with the capacity for job creation and economic growth.
In Pennsylvania, the development of the Marcellus shale has led to a rebirth of manufacturing, especially the steel industry. A study from Penn State shows that Pennsylvanians saved more than $630 million on their utility bills thanks to shale gas production, and the oil and gas industry in the Keystone State has helped create nearly 50,000 jobs in 2011. In Texas, the Eagle Ford shale is not only creating much-needed jobs, but is also putting the state’s finances on a stronger footing: In November, more than $1 billion will be added to the state’s rainy day fund, revenue that is mostly generated from oil and gas production. And thanks to the development of the Haynesville shale in northern Louisiana, Shreveport-Bossier is now the ninth fastest growing metropolitan area in the entire country. In Ohio, developers are only just beginning to invest billions of dollars into local economies to tap the resources of the Utica Shale.
By 2017 the United States could be the largest oil producer in the world — thanks mostly to shale oil development in places like the Bakken and the Eagle Ford — and shale gas is already allowing countries in Europe to think about disentangling themselves from the Russians.
America’s energy future is perhaps brighter than it has ever been, a status that owes itself to the continued and responsible development of domestic shale resources.
The Amazing Energy Future that the Federal Government Wants to Prevent
Shale oil development in places like North Dakota means ‘OPEC’s days are numbered,’ but federal regulators pursue alternative future with potentially devastating results.
In 2004, North Dakota was the ninth largest oil producing state in the country, producing less than half as much oil per year as the state of New Mexico. In 2010, a mere six years later, North Dakota had climbed to the fourth largest, surpassing energy rich Oklahoma and Louisiana. What happened?
Two words: shale oil. The Bakken formation in the western part of the state, which the U.S. Geological Survey predicted in 1995 had only 151 million barrels of oil, turned out to be one of the largest onshore oil fields ever discovered in the United States — in 2008 the USGS famously revised its estimate upward by an amazing 25-fold, projecting that the Bakken could hold more than four billion barrels of oil.
This incredible story was told in detail this weekend in the Wall Street Journal‘s weekend interview, ” How North Dakota Became Saudi Arabia,” which focused on Harold Hamm, the oil man credited with discovering the massive energy potential in the Bakken:
[S]ince 2005 America truly has been in the midst of a revolution in oil and natural gas, which is the nation’s fastest-growing manufacturing sector. No one is more responsible for that resurgence than Mr. Hamm. He was the original discoverer of the gigantic and prolific Bakken oil fields of Montana and North Dakota that have already helped move the U.S. into third place among world oil producers.
How much oil does Bakken have? The official estimate of the U.S. Geological Survey a few years ago was between four and five billion barrels. Mr. Hamm disagrees: “No way. We estimate that the entire field, fully developed, in Bakken is 24 billion barrels.”
Of course, none of this would have been possible were it not for horizontal drilling and hydraulic fracturing, both of which are needed to unlock the vast deposits of oil and natural gas in shale deposits across the country.
Yet even with this amazing success story, the America’s ability to reduce its reliance on OPEC is far from written in stone, and indeed seems to be under attack by federal regulators whose actions could undermine this renaissance just as its getting started. As the WSJ further explains:
[Hamm's] only beef these days is with Washington. Mr. Hamm was invited to the White House for a “giving summit” with wealthy Americans who have pledged to donate at least half their wealth to charity. (He’s given tens of millions of dollars already to schools like Oklahoma State and for diabetes research.) “Bill Gates, Warren Buffett, they were all there,” he recalls.
When it was Mr. Hamm’s turn to talk briefly with President Obama, “I told him of the revolution in the oil and gas industry and how we have the capacity to produce enough oil to enable America to replace OPEC. I wanted to make sure he knew about this.”
The president’s reaction? “He turned to me and said, ‘Oil and gas will be important for the next few years. But we need to go on to green and alternative energy. [Energy] Secretary [Steven] Chu has assured me that within five years, we can have a battery developed that will make a car with the equivalent of 130 miles per gallon.’” Mr. Hamm holds his head in his hands and says, “Even if you believed that, why would you want to stop oil and gas development? It was pretty disappointing.”
Washington keeps “sticking a regulatory boot at our necks and then turns around and asks: ‘Why aren’t you creating more jobs,’” he says. He roils at the Interior Department delays of months and sometimes years to get permits for drilling. “These delays kill projects,” he says. Even the Securities and Exchange Commission is now tightening the screws on the oil industry, requiring companies like Continental to report their production and federal royalties on thousands of individual leases under the Sarbanes-Oxley accounting rules. “I could go to jail because a local operator misreported the production in the field,” he says.
The impact of the “regulatory boot” and federal delays have a greater cost than hamstringing America’s capacity to produce energy. They also undermine the type of job creation and economic growth that a struggling economy so desperately needs:
Mr. Hamm believes that if Mr. Obama truly wants more job creation, he should study North Dakota, the state with the lowest unemployment rate in the nation at 3.5%. He swears that number is overstated: “We can’t find any unemployed people up there. The state has 18,000 unfilled jobs,” Mr. Hamm insists. “And these are jobs that pay $60,000 to $80,000 a year.” The economy is expanding so fast that North Dakota has a housing shortage. Thanks to the oil boom—Continental pays more than $50 million in state taxes a year—the state has a budget surplus and is considering ending income and property taxes.
Less reliance on OPEC. More high-paying jobs. Budget surpluses. Lower tax burdens for everyone. These are undeniable benefits of responsible oil and gas production — particularly in states with significant shale resources such as Pennsylvania (Marcellus shale), Texas (Eagle Ford shale), Louisiana (Haynesville shale), and now Ohio (Utica shale) — that the federal government should be encouraging. Instead, members of Congress are pushing for the Environmental Protection Agency to ban hydraulic fracturing, thereby cutting off at the knees America’s energy revolution. The President, meanwhile, is threatening to curb domestic oil and gas production through higher taxes.
Instead of trying to shut down North Dakota’s model of more American energy production, more jobs, and more public revenue, maybe the federal government should be taking lessons from it.
What’s Been Around Longer: Hydraulic Fracturing, Medicare or Hemingway’s The Old Man and the Sea?
It seems to have become fashionable in some anti-energy circles these days to refer to hydraulic fracturing as a “new” technology – it’s a parallel reality that seems to be growing in population by the day. The truth is, however, that fracturing has been around for decades — more than six of them, in fact. And while this critical tool stimulates oil and gas production in 9 out of 10 wells nationwide, and has been safely used over 1.1 million times, it has never been proven to contaminate groundwater. Not once in 60 years.
A recent Abington (PA) Journal Correspondent highlights fracturing’s long and productive history of safely accessing and producing homegrown energy. This from the article entitled “DEP: Fracking used since 1948 in Pa.”:
Despite controversy over hydraulic fracturing in natural gas drilling operations, the process isn’t particularly unique, according to Scott Perry, deputy director of the Department of Environmental Protection Bureau of Oil and Gas. Fracking has been used by the oil and gas industry since 1948, and in the drilling in Pennsylvania since then.
He said … that there has never been a case of fracking fluid causing direct contamination of groundwater. The fluid makes up one half to one percent of the total volume of a fracking operation, said Perry, with the remainder being comprised of sand and water.
And thanks to this time-tested technology, the United States now has nearly 100 years supply of clean-burning, job-creating natural gas. Bloomberg reports this week that US energy secretary Steven Chu believes that “New natural-gas drilling technologies may have doubled U.S. reserves of the fuel.”
And in a Harrisonburg (VA) Daily News Record op-ed today, David Banks writes this about safe, environmentally responsible shale gas production enable by hydraulic fracturing under the headline “Drilling A Resource, Not A Risk”:
Yet environmental lobbies are trying to ban production, both here and elsewhere, claiming that a process being used to recover the natural gas poses a risk to drinking water resources.
Known as hydraulic fracturing, the process involves injecting a mixture of water, chemicals and sand under high pressure to break through the shale and reach the natural gas. It has been used safely in oil and natural gas production for the past 60 years, and has never resulted in any confirmed cases of groundwater pollution. Fact is, groundwater is separated from the gas-bearing shale by hundreds of feet of thick rock.
Although geologists have known about Marcellus Shale gas for decades, its recovery only became economically feasible a few years ago after a technique was found for drilling horizontally into the rock, which enables a single well to reach more natural gas.
That technique, developed to gain access to natural gas in the Barnett Shale in northern Texas, is now being used in shale-gas production around the country. As a result, experts say, the gas that can be unlocked from these formations will last more than 100 years.
Help keep the commonsense and effective hydraulic fracturing regulations in place with the states by telling Congress to kill the FRAC Act so that this misguided bill doesn’t kill good-paying American jobs.
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