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The Small Business & Entrepreneurial Council’s new study is telling about the potential future for job growth. Entitled, The Benefits of Natural Gas Production and Exports for U.S. Small Businesses, this study makes clear that natural gas has led to the expansion of small business in the US and to the creation of 146,000 jobs between 2005 and 2010 as total US jobs fell by 4.3 million over the same period. As we approach more forums by the Senate Energy and Natural Resources Committee relative to liquid natural gas (LNG) exports, it is worth noting the jobs-related potential that can come from allowing new permits for LNG export.
The Council’s report not only identified the specifics of job growth, it attributed some of the job growth to small businesses. While total employers fell over the five-year period between 2005 and 2010 by 4.2% in the US, small businesses with less than 500 employees in sectors like oil and gas extraction grew by 3%. In some other related sectors, growth percentages were higher in the face of a declining overall US economy.
The forums by the Senate Energy and Natural Resources Committee could make a difference in the potential for future job growth. The US continues to have an enormous potential for the production of natural gas. This huge reserve has meant that the US has very favorable prices for natural gas when compared with the rest of the world. The Council’s study reports recent prices for natural gas in the US of $3 per million metric British thermal units of energy, compared with a price of $11 – 13 in Europe and $18 in Southeast Asia. The price differential explains the potential for exports from the US to the rest of the world – and the potential for additional job growth from large and small US businesses.
Some business representatives, especially in the chemical industry, have argued against permitting additional LNG exports. Their argument for industry protection is associated with their own interest in protection and in producing chemicals at relatively lower prices with cheap US natural gas. This kind of argument for isolating an industry or a country from world markets is one we have seen for centuries. Isolationism and industry protection have not generally proved good for a country’s economy. Some historians have catalogued the decline of the Spanish economy centuries ago to its decision to isolate domestic markets. More recent examples of attempts at isolation are evident in agriculture from both the US and the European Union.
Generally speaking, the economy is a global one, and attempts at isolation are suboptimal. Isolation tends to raise prices for a country’s citizens and limit economic growth. The consequences are slower growth or decline in new businesses and limitations on growth or declines in new jobs. As the US economy remains fragile in its recovery from the recent recession, this is no time for the US Government to take actions, which will be harmful to US job growth. And the argument is easily made that this is especially no time to stifle the potential in an industry like natural gas that has been nearly singular in its job growth in the face of overall decline in most other US industry sectors.
The annual EPA report on greenhouse gases – Inventory of U.S. Greenhouse Gas Emissions and Sinks: 1990-2011 – published this past month, is striking for its findings on both carbon and methane and the impact of natural gas on the environment. Its findings include evidence that is favorable to natural gas relative to two very important greenhouse gases: carbon and methane. The findings associated with methane are especially important because they will be surprising in light of recent media reports. The EPA report shows a decline in methane, raising serious questions about the methodology and findings of recent studies of ambient methane release associated with natural gas extraction.
Natural gas is increasingly becoming the fuel of choice for electric power generation. There are many reasons for this, but an important one has been the relatively lower production of atmospheric carbon from natural gas. However, the rationale for the transition to natural gas in the power industry goes well beyond its comparative advantage in friendliness to the environment from lower release of carbon. Since 2009, the price of natural gas has declined while that of coal has risen. Contributing substantially to the increase in supply of natural gas and its lower price has been the extraction method known as fracking. Hydraulic fracturing of shale – or fracking – involves fracturing layers of underground shale using high-pressure injection of liquids. The newness of the process has raised a variety of environmental questions.
When examining the impact of natural gas on the environment, it is important to understand why it is considered a cleaner fuel source. Natural gas is a lower carbon intense fuel. It produces the same unit of heat or electricity with a 55% lower carbon content than some other fuels such as coal. US greenhouse gas emissions declined from 2007 to 2011 as a result of “a decrease in coal consumption, with increased natural gas consumption and a significant increase in hydropower used.”
Nevertheless, the increasing use of the fracking process for extraction of natural gas from shale has been questioned for its environmental friendliness, particularly from the potential for increased methane production. Among the questions has been a set dealing with the potential that the process has for producing unintended emissions of greenhouse gases that offset the advantage of the lower carbon intensity of natural gas. Of particular attention has been the production of methane in what has been referred to as fugitive methane emissions. Methane has more than 20 times the capacity of carbon for trapping heat in the atmosphere. The Intergovernmental Panel on Climate Change reported that atmospheric methane has increased by 158% over the last 250 years.
The annual EPA report adds very important information about natural gas and fugitive methane emissions. While natural gas remains a large potential source of methane, emissions of methane have decreased since 1990. This decrease occurred at the same time that the supply of natural gas has increased substantially, at the same time that the fracking process was introduced for extraction of natural gas, and, most importantly, at the same time use of natural gas has increased. In examining specifically the issue of methane production from fracking, the EPA report compared current findings of its Inventory with its Greenhouse Gas Reporting Program (GHGRP). There are unreconciled differences between these two reports. Moreover, the GHRP data “show lower overall methane emissions from well completions with hydraulic fracturing and workovers with hydraulic fracturing (refracturing) than calculated in this inventory.”
Clearly more studies will examine the issues of methane production from the fracking process. The EPA will also work to reconcile data from different methodologies for measuring greenhouse gases. But overall data from this Inventory are simply inconsistent with what has been reported from some studies about the impact of fracking on methane production.
Last week the U.S. Senate Committee on Energy & Natural Resources held a hearing on natural gas and Liquid Natural Gas (LNG) exports. On the whole, the discussion was a good one, covering issues of natural gas availability, safety of fracking fluids, domestic uses of natural gas, and jobs created in the natural gas industry and related chemical manufacturing industry. But there were some elements of the discussion that should leave Senators and the public somewhat puzzled.
Perhaps most puzzling were statements associated with the desirability and viability of potential government control of natural gas prices and markets. The idea is seemingly simple; keep domestic natural gas prices low. Doing so will, of course, benefit domestic consumers of natural gas. Those consumers include the public and large manufacturers like Dow Chemical, which is a heavy user of natural gas and whose CEO, Andrew N. Liveris, testified at the Senate hearing.
This blog has already pointed to the conundrum that the US faces with oil and gas prices. We are not an island that is insulated from global energy prices. Yet, a puzzling premise of the hearing appears to be that our domestic abundance of natural gas allows us to behave as if we were an island. And that is the second puzzling aspect of the Senate Committee’s hearing.
Since the US has the potential to become a net exporter of natural gas because of its domestic abundance, the government can stand in the way of exports by limiting permits for exports of LNG. Of course, damping the supply of domestic natural gas has several unintended, potential consequences. Those include stifling job growth in the energy industry, stifling domestic production of natural gas, causing prices to rise for domestic consumers and increasing the balance of payments by restricting exports.
The third and final puzzling aspect of the Senate hearing is why the Senate or the federal government should try to pick winners and losers among potential job creators. Keeping the domestic natural gas price low perhaps will positively impact the US chemical industry and the number of jobs it creates with increased production. At the same time, keeping natural gas prices low and restricting exports of natural gas have the potential to stifle job growth in the domestic energy industry. It will do so by restricting supply for US natural gas with prices held artificially below global levels.
More hearings from the Senate Committee on Energy & Natural Resources are likely. We should watch closely for testimony and Senate recommendations that may tend to distort US markets and negatively impact economic growth with restrictions on job growth in any industry, including the natural gas industry.
National Public Radio recently reported on the transformation of the power industry from coal to natural gas; it focused on Georgia Power’s growth in electric generating plants from natural gas. This transformation is part of a broader, global move from coal to natural gas in power generation. The World Energy Outlook 2012 report forecasted that, even with new, restrictive policies, global demand for coal will grow at 1 percent compound average annual growth rate between now and 2035. Growth in natural gas consumption on the other hand will surpass that with a compound annual growth rate of 1.6 percent and a whopping 47 percent increase in consumption between now and 2035.
Without any change in policy, the World Energy Outlook 2012 forecasts substantial growth in demand for electric power. In OECD countries it will grow by 16 percent, but in non-OECD countries electric power consumption will grow by 54 percent under the same scenario of no change to policy. Much of this growth in power production will continue to depend on traditional fossil fuels including coal. However, the extent to which there is an increasing transition to other fuels is evident in the report.
Across the globe, the report forecasts that gas-fired power generation will grow by almost 80 percent under a scenario that includes introduction of some new policies associated with carbon restrictions. The report also forecasts that two-thirds of new plants will be built in non-OECD countries. There are many reasons for the growth in natural gas-fired power plants. They require lower capital costs and they permit shorter construction times. With the increased production of natural gas from fracking, especially in the United States, prices for natural gas remain low as another advantage for power production from natural gas-fired plants. As this blog has also noted in the past natural gas also produces fewer carbon emissions.
Changes in power production will come from increased use of renewables as well. The production capacity from renewables almost triples in one scenario, but its growth is disproportionately in Europe, India and China. Nuclear power will grow at a modest pace as a result of the disaffection with nuclear power that resulted from the disastrous earthquake in Japan, and power production from oil will continue to decline.
Where there will be the greatest change in power production is in from natural gas. The US stands to benefit from this change with its very large available natural gas supply, its sophisticated technology, and the potential for favorable regulation associated with fracking. What is unlikely to change is the demand for energy from developed countries and especially developing countries, as I wrote in my last entry.
Energy-related news at the close of 2012 was all about US energy independence, a goal of US presidents for decades. It will not happen, and here is why. Global demand for energy along with relatively free markets will drive supplies of energy toward the area of growing demand. That growing demand will put pressure on prices; the areas of growing demand will increasingly come from outside the United States.
But the case against US energy independence is not one against its value for our security and the benefits of uninterrupted supply so much as it is against the pragmatic reality of its likelihood in a global energy market.
Of course, increases in the supply of oil and natural gas, the growing availability of renewables, and improved efficiency in energy consumption have the capacity to mitigate the impact of increasing demand on price. To the degree that an increasing supply of energy is able to offset demand for it, there is some possibility that the US may achieve its long sought after goal, but it remains unlikely. Here is why.
US production of petroleum rose for the third consecutive year in 2012 to 8.7 million barrels a day, up from 7.5 million in 2010. Net imports of petroleum have fallen by 29 percent over the same period (see Penley on Education and Energy: World Energy Outlook 2012). Yet, the Department of Energy data on which this is based show that oil imports remain almost as high at 7.7 million barrels per day. While there is still plenty of opportunity for oil-producing companies to find and produce more domestic oil, the difference between what the US consumes and what it produces is likely to still depend upon non-US supplies from major oil and gas companies that search for oil within and outside the US.
Moreover, the growing demand for energy in developing countries endures. Right now readily available supplies of oil mean that prices have declined and remain steady. None the less, the potential for increases in price and declines of reserves remains. The Economist forecasts China’s growth in GDP per capita this year at a staggering 51% from US $6,890 to $10,410 (PPP). With such tremendous growth anticipated in wages as well over the next three years, the potential for very increased demand for petroleum products is huge. And the magnitude of the growth portends very significant increases in price without commensurate rises in available product.
US energy independence is not likely for reasons associated with the global, free market for energy and the rise in GDP from countries like China and India. That market is a good thing for the US. It has meant that we have been able to consume far more energy than we have produced domestically. It means that we will be able to benefit in the future from our abundant natural gas supplies as global demand for energy grows and the US increases its exports of coal and natural gas. Of course, all of this depends upon US and global political leadership that recognizes the value of healthy, profitable energy industry that is relatively unencumbered by restrictions on business.
What is likely to be missed from news about the World Energy Outlook 2012 report is the role of coal in the future global energy mix. With recent attention on natural gas (See Penley on Energy and Education) and the focus of most news reports on the US surpassing Saudi Arabia in oil production by 2020, the anticipated role of coal was lost. Yet, the report forecasts that, even with new, restrictive policies, global demand for coal will actually grow by 1 percent compound average annual rate. Coal demand is expected to more than doubles by 2035 in India.
It is clear that coal will play a very large role in our future energy mix. In the last decade, it was coal that met 45 percent of the energy demand, per the Outlook 2012. Without policy changes associated with greenhouse gas emissions, the forecast is for coal to still grow at a 1.9 percent rate. At that pace, coal would surpass oil as the leading fuel by 2025. But even so, its proportion of the total energy mix would decline from the last decade’s 45 percent to 30 percent by 2035. Renewables and natural gas will play a much larger role.
The role of coal in our energy future depends upon a variety of factors, but leading among those are government policy and technology development. Of particular import to coal producers is the potential role that government can play in establishing policies that encourage replacement of coal by cleaner fuels, ranging from a variety of renewables to natural gas. The power sector would be most affected by these policies, and they would change the role of coal where policies are implemented.
Of course, there are alternative scenarios that leave coal as a much bigger player in the future. Among them is the development of new technology for coal gasification or carbon capture and sequestration. Both are receiving the attention of researchers in academia and industry, and both have the potential to substantially reduce emissions from coal. The challenge remains of sufficient investment in the research needed to produce viable, large scale, financially successful technology (see a review of the area in Underground coal gasification: From fundamentals to applications in the Progress in Energy and Combustion Science journal).
In the immediate future without substantial change to policies coal use will continue to grow at a rapid rate. In 2011, coal demand grew by 5.6 percent, a growth rate that was similar to 2010 and far more rapid than 2009 when it was flat. With increased demand for electrical power in developing countries, the very rapid 55% increase in coal demand over the last decade is understandable. In 2010 65 percent of global coal demand was consumed in power generation. Even with the advent of new policy restrictions, the 2012 report projects growth in coal demand in non-OECD countries at a compound average annual growth rate of 1.4 percent between 2010 and 2035. That would mean that the global growth rate is still almost 1 percent despite a decline that is greater than 1 percent in OECD countries.
The big news a few weeks ago, as I wrote in this blog, came from the World Energy Outlook 2012 report, which wrote that the US is on a trajectory to surpass Saudi Arabia in oil production by 2020. The US Department of Energy yesterday completed its study on natural gas exports by an outside consultant. The report can be summarized was follows:
- Because of the abundance of natural gas in the U.S., only modest price increases will be seen by domestic consumers;
- Exports of natural gas are made possible primarily by the increased availability of it; and
- The expected shift in power generation from coal to natural gas will be slowed by increased exports.
The modest price increases predicted from allowing greater exports of US natural gas are directly related to its increased availability from unconventional sources such as shale. The World Energy Outlook had forecasted that most of the newly available natural gas would come from three countries: China, Australia, and the United States. It forecasted that by 2035 natural gas would become the most important fuel in the US, surpassing even oil.
My previous blog entry, “Liquid Natural Gas and US Energy Exports,” pointed out the potential economic impact of allowing increased exports of natural gas in terms of job creation here in the US. However, the extent of that growth hinges on federal regulatory approvals. The long-awaited Department of Energy study paves the way for those approvals. Already, the World Energy Outlook 2012 has forecast that, even with exports, 93% of natural gas produced in the US would be kept here at home for domestic consumption.
Why would 93% remain available for domestic consumption if federal regulations permitted increased exports of natural gas? There are many reasons, but among them is the growing availability of natural gas outside the US. The Outlook 2012 report forecasts that, even with potential new climate-related policy restrictions, the production of natural gas in non-OECD countries could grow at a 2.1% compound average annual rate between 2010 and 2035. This compares with 0.85% over the same period in OECD countries like the US.
The primary reasons for increased domestic consumption are the extent to which the power industry is shifting its fuel source from coal to natural gas, and the expansion in availability of domestic natural gas. The Outlook 2012 report estimates that output in North America would continue to expand from approximately 650 billion cubic meters (bcm) in 2011 to 800 bcm in 2035, nearly a 25% increase in availability of domestic natural gas.
We are now beginning to see the potential that is coming from the growth in the worldwide natural gas supply. It will result in shifts away from traditional fossil fuels to cleaner natural gas and substantial increases in jobs within the energy industry. Of course, both will depend upon supportive regulation. The Department of Energy report should move us toward that supportive regulation.
Today, the International Energy Agency issues its annual report on energy – World Energy Outlook 2012. The report is especially instructive in the role of technology in our energy future, an argument made consistently in this blog. The report identifies the substantial changes to our energy availability that are driven by technological developments, including the growing abundance of natural gas and oil.
By 2030 the report forecasts that the United States becomes the largest global oil producer, outpacing Saudi Arabia by 2020, and it forecasts that North America becomes a net oil exporter by 2030. The success of the US and Canada is due to upstream technologies that have been relatively recently deployed.
The Outlook report forecasts that energy efficiency is expected to have a very significant impact on the reduction in US demand for oil, contributing to its becoming energy independent. This forecast is not based on the development of new technology. However, the development of more energy efficient technology such as devices for storage of electricity is already underway, as I noted elsewhere in Domestic Energy and Scientific Research. And these technological developments have the potential to make energy efficiency an even more central player in reducing US energy demand as demand grows elsewhere.
The report observes that the importance of energy efficiency deployment can be especially well understood in terms of its impact on slowing climate change. Earlier editions of the report have addressed the challenges of limiting warming to no more than 2° C. However, “Rapid deployment of energy-efficient technologies . . . would postpone this complete lock-in to 2022, buying time to secure a much –needed global agreement to cut greenhouse-gas emissions.”
Natural gas remains, according to the Outlook report, a very important aspect of our energy future. Again, it is technology development that has allowed the efficient extraction of natural gas from shale. With the potential for the export of liquefied natural gas (LNG), the US becomes a major source of energy for developed and developing countries. There is a growing demand for energy in developing countries and a relatively rapid shift from nuclear to alternative sources of energy in developed countries such as Japan and Germany. Both contribute to growing demand for natural gas and the importance of the role of the US as an exporter of LNG.
Advances in Energy Research are making renewables increasingly capable of playing a more important role in our energy mix. The World Energy Outlook 2012 report forecasts that renewables will account for almost one-third of our total electricity output by 2035. This would be a very significant development. Without new technology much of these changes would not be occurring. The Outlook report is a reminder of the very critical role of R&D spending by corporations, the US funding agencies, and universities. With that technology development, the energy landscape is altered considerably.
The US Energy Information Administration recently published its monthly report with good news about the increasing supply of domestic petroleum. For the third consecutive year, total field production of petroleum rose. From 7.5 million barrels per day in 2010, it has risen to 8.5 million in 2012, nearly a 12 percent increase. Net imports of petroleum have fallen by 29 percent in the same period.
The downward slide in domestic energy production that began over fifteen years ago has finally turned around, and the US is more energy secure today because of it. As this blog has detailed in the past, the US is headed toward a far more secure energy future. Some might have thought that greater security was due entirely to the increase in the availability of natural gas from hydraulic fracturing, or “fracking.” But in fact, domestic petroleum production has increased as well. The US is now on target to go from 8.5 million barrels a day to 15.6 million barrels per day by 2020.
The development of domestic crude oil wells hit its lowest point in 1999 when fewer than 5,000 wells were drilled. Despite some yearly fluctuation, the last four years have seen a 15.5 percent increase in number of wells drilled, and more than 15,000 wells were developed in 2010, the most recent year for which the US Energy Information Administration reported.
Why then have US gasoline prices not fallen in line with increased domestic oil production? The answer is rising global demand for oil, which I discussed in an earlier blog. World demand for energy and petroleum products such as gasoline determines price, not merely domestic supply and demand. The October report from the US Energy Information Administration reports rising world crude oil production – and with it rising demand of course. Since the early eighties, annual production has risen almost steadily. With an average of more than 75 million barrels per day in the last seven months of 2012, worldwide crude oil production has risen almost 4 percent from 72.8 million barrels per day just five years ago.
Globally we are an energy consuming people. As developing countries increase their desire for lifestyles like those familiar to Europeans and Americans, demand will increase. It is not surprising that renewable energy supply, along with more traditional carbon fuels, is also increasing. And the speed with which renewables are increasing is becoming steeper. Between 2006 and 2011, renewable energy production increased 27 percent.
The good news on US energy availability is that both renewables and more traditional forms of energy generation are increasingly available domestically. While the US cannot contain rising gasoline prices, it can benefit in energy security from the apparent domestic increase in both traditional and renewable sources of energy.
The potential for growth in US energy exports was evident in two recent but unrelated reports – one from Honeywell UOP and the other from the US Energy Administration. Together the two link growing global demand for natural gas to technological advances that will increase US energy exports.
Honeywell UOP just announced a deal with Malaysia’s Petronas to collaborate on natural gas processing. Natural gas is the fastest growing source of energy, and the US has abundant resources. This blog has previously pointed out how natural gas resources in the US have the potential to make the US energy independent. The partnership between Honeywell UOP and Petronas is focused on new technology that will make natural gas more easily shipped in its liquid form, commonly referred to as LNG – liquid natural gas.
The technology that Honeywell UOP and Petronas are working on will remove contaminants such as CO2 and mercury prior to the liquefaction of the natural gas. The resulting product can be even more compressed in its liquid form, thereby increasing the capacity of a ship to move it to areas of global demand. And that is where another recent report – this one from the US Energy Administration – makes clear why the Honeywell UOP-Petronas partnership really matters.
Earlier in the month, the US Energy Administration published its current analysis of Chinese energy demand. China has sought to raise its imports of natural gas via pipeline and LNG. Although natural gas still accounts for only 4% of China’s energy consumption, the China Offshore Oil Company has substantially increased its investment in natural gas. The China Report states that the China Offshore Oil Company invested $12 billion of its total 2011 $18 billion investment in natural gas.
While natural gas imports in China represented 12% of the total in 2010, they rose to 22% in 2011. The Chinese government has established a 2020 goal for natural gas consumption to rise from 4% to 10% of total energy use. The potential for the US with its huge supplies of natural gas is evident. And that is the reason the technological advances intended from the Honeywell UOP and Petronas collaboration really matter. Lowering costs of transport will further the capacity of the US to meet global energy demands such as those in China, thereby increasing US GDP and helping to reverse the long trend of US imports exceeding our exports.