Shale drilling is creating jobs, slashing natural gas prices and spurring billions in investment for Louisiana

NEW ORLEANS, La. – The American natural gas boom will cause the U.S. to dethrone Russia as the world’s leading supplier of natural gas, and will continue to bring jobs to Louisiana, according to a new study.

The Baker Institute for Public Policy at Rice University study, titled “Shale Gas and U.S. National Security,” claims that Russia’s share of western Europe’s gas market will fall from 27 percent in 2009 to 13 percent by 2040 as a result of rising U.S. shale-gas production, specifically from increased activity at the Haynesville Shale in Louisiana and the Marcellus Shale in Pennsylvania, creating an opportunity for the U.S. to increase exports of natural gas to European and Asian markets.

Over the last 12 months, roughly 48,000 people have been hired in Pennsylvania to work on the Marcellus Shale, and in April, Dow Chemical announced plans to expand several facilities in Louisiana, including construction of a new ethylene plant on the Gulf Coast that will begin operating in 2017, and a new propylene production facility that will open for business by 2015.

The reason Dow chose Louisiana? “Competitively priced ethane and propane feedstocks,” which are used for a wide variety of consumer products, including plastics, fibers and lubricants and are produced through hydraulic fracturing – the process of injecting millions of gallons of water, sand, and chemicals into the ground to crack shale formations

Additionally, liquefied natural gas (LNG) import terminals, such as Cheniere Energy’s Sabine Pass in Louisiana, are seeking permits and funding to build the capacity to export U.S. natural gas.

The study, sponsored by the U.S. Department of Energy, claims European countries are in the process of developing their own shale-gas production, which will further impact the region’s demand for Russian and Iranian imports, and contends shale gas production will reduce Russia’s ability to use its oil and gas wealth as a “tool for political gain.”

Russia is the world’s number one exporter of natural gas, with 187 billion cubic meters exported in 2010, and has the world’s largest proven natural gas reserves.

However, Russia has already begun to accept lower prices for its pipeline supplies to some customers in western Europe, and is now allowing some sales to the region to be indexed to spot gas prices, as opposed to trading on the futures market.

Rice University claims this change in the pricing mechanism signals a “paradigm shift” in Russia’s dominance over Europe’s energy supplies. In addition, countries such as Poland are in the process of producing natural gas on a commercial scale, and according to the U.S. Energy Information Administration, may hold over 5 trillion cm of shale-gas resources.

U.S. Shale Gas Reserves

Amy Myers Jaffe, one of the study’s authors and associate director of the Rice Energy Program, claims that the geopolitical repercussions of expanding U.S. shale-gas production “will be enormous.”

“By increasing alternative supplies to Europe in the form of liquefied natural gas displaced from the US market, the petro-power of Russia, Venezuela and Iran will falter”

The study contradicts the notion that the U.S. natural gas shale revolution is short-lived, and concludes that domestic production will more than quadruple by 2040 from 2010 levels, and will account for more than half of U.S. gas production by 2030.

A decade ago, U.S. companies were investing heavily in LNG import terminals based on the assumption that domestic natural gas production would continue to decline, and that the U.S. would become dependent on imports from Russia, the Middle East, Africa and Australia.

However, with the advancement of horizontal drilling techniques and hydraulic fracturing, energy companies can now economically reach hard to access natural gas reserves.

Not everyone is lauding the new technological advancements. Jackie Savitz of Oceana claims that natural gas is not the panacea our economy has been looking for.

“The fracking process is very destructive, and can lead to groundwater contamination, which is difficult, if not impossible, to fix.”

Robert Bryce, senior fellow at the Manhattan Institute, contends that drinking-water aquifers are separated by as much as two miles, or eight Empire State Buildings, of impenetrable rock from the shales that are being targeted by the fracturing process, and that hydraulic fracturing has been used over a million times in the U.S. over the past 60 years.

Additionally, Matt Ross of the Louisiana Oil and Gas Association claims that there has not been a single instance of ground water contamination reported as a result of hydraulic fracturing across the country.

“There are proper procedures mandated by the industry and state agencies that ensures that the freshwater aquifer is protected throughout the entire process of drilling the well.”

However, Savitz cites a recent Duke University study that shows wells near hydraulic fracturing sites were contaminated with methane gas at levels “much higher than background,” and that levels were “high enough to cause an explosion.”

Hydraulic fracturing has allowed U.S. natural gas production from shale to increase to 20 percent of domestic production today from nearly nothing in 2000. Due to increases in supply, the price of natural gas has plummeted from an average of $7/million British thermal units (Btu) in 2005 to roughly $4/million Btu in 2011.

The International Energy Agency claims that the global supply of natural gas is on the rise as a result of unconventional production, such as hydraulic fracturing, and that over-supply could continue until 2030.

 

Robert Ross is a researcher and social media strategist with the Pelican Institute for Public Policy. He can be contacted at rross@pelicanpolicy.org, and you can follow him on twitter.