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Some Considerations about Natural Shale Gas

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We have been told that it is not economically profitable to extract natural gas from shale deposits via High Volume Horizontal Hydraulic Fracturing (HVHHF), be they Marcellus, Utica, Bakken, or any other, unless the market price is at least $5 to $6 per thousand cubic feet (Mcf).

The U.S. Market wellhead prices for natural gas since February of 2002 had ranged from a low of $2.19 per thousand cubic feet (Mcf) to as high as $10.79 in July of 2008.  However, since that peak a little over 5 years ago, about when high volume horizontal hydraulic fracturing (HVHHF) started in earnest, it dropped even lower to $1.89 in April of 2012 and was last reported by the U.S. Department of Energy's Energy Information Administration to still be stubbornly low at $3.35 as of December 2012.

We were told that this new technology, still in its beginning stages, now enabled us to access deposits that we couldn't reach before.  We were also told that it would enable our country to be Energy Self-sufficient and Energy Secure. 

Initially, drilling operators and the companies which supply them with the chemicals they use said the information was proprietary however New York State has required that they be disclosed.  The initial chemical count was somewhere between 600 and 700 different chemicals however that list has now grown to over 900.  The industry suggests that they are not substantially different than what almost any household has under their kitchen sink or in their garage; while this may be true that doesn't mean that I would choose to gargle with them or ingest them.

U.S. Companies, recognizing that the prevailing market prices would afford them a less expensive source of energy, started waxing enthusiastic at the prospect of being able to reinvigorate domestic production instead of off-shoring it to locations where other costs of production (i.e., labor) were lower.

What they did not take into account was the reality that the nations of Europe and the western Pacific (China, South Korea, Taiwan, Japan) had been paying 4 to 5 times as much for their natural gas imports than what they could get it from the U.S.'s newly found shale sources for. 

So what happened?  As of May 17th of this year, 26 applications were filed with the U.S. Department of Energy to convert Liquefied Natural Gas Import facilities, at the major coastal ports of our country, to export capacity.  Three of these 26 conversion applications have already been approved and the other 23 are reportedly being “fast tracked.”  Why this flurry of conversion applications?  The glut on the natural gas market due to HVHHF.  Aggregately those converted LNG operations would be capable of exporting 57.34 Billion cubic feet of natural gas per day and that would work out to 20.92313 Trillion cubic feet per year.  After all, what oil and gas company wouldn't want to get the highest price for what they were selling?  When the dust settles on all of this the European markets will no longer be held hostage to Russia for their NG fuels and as the Asian manufacturing sectors continue to grow they can and will do it less expensively and thus do it more rapidly. 

If we were to consider that the exported LNG would be sold on the world market for $14 or more per Mcf, and cost $6 to make fracking economically viable, that would yield at least an $8 profit per Mcf times almost 21 Trillion Mcf being exported that would produce a profit of around $160 Trillion.   Our national debt is $17 Trillion so why not just tax half of the profit of every exported Mcf of LNG and dig ourselves out of debt at all national and local levels?  I'm sure the math isn't that simple but this solution to our economic predicament and malaise is intriguing.

With all of this planned exporting, what does that do for our domestic manufacturers, our energy independence, and our energy security?  Not much by my way of thinking.  The world market dynamics will make U.S. supplied natural gas less expensive for the countries paying multiples of our current market price but as our world becomes hotter, flatter, and more crowded, the price in the U.S. market will rise and provide scant economic relief to our domestic consumers, be they residential or industrial.

If we can't learn from the tragic consequences of hydraulic fracturing in other states, our plentiful supplies of clean water in New York State, for us and for future generations, will be jeopardized.  Our agriculture, beverage, and tourist sectors will all be negatively impacted.  The industry and its proponents contend that there have never been contaminations however there are documented cases and there are untold numbers of cases which have been settled on the condition of non-disclosure “gag” orders on the plaintiffs, if they wished to obtain any financial relief for the harms they have experienced.  Drilling companies have also put gag orders on physicians trying to treat people who have been chemically injured from drilling accidents before they will provide those practitioners the information they need to adequately treat the afflicted.  Does this smack of obfuscation and outright lying on the part of the industry and its defenders?  Decide for yourself.

If, not when, high volume horizontal hydraulic fracturing for natural gas and other petroleum resources is approved in New York State, ask yourself how the gas will be brought to market from the widely spaced drilling pads.  It won't get there magically.  I anticipate that eminent domain will be exercised to force property owners, receiving little or no economic compensation, to allow collecting pipelines to be put on their properties along with noisy compressor stations to help move the gas from one point to another.  The proposed Constitution Pipeline along the I-88 corridor has already demonstrated the likelihood of such eminent domain takings.  This prospect will merely add insult to the injury of compulsory integration, which landowners unwilling to lease their properties for drilling purposes are and will continue to be subjected to.

What's the rush to frack New York State?  The Bang-Bust economics are inevitable as these wells are typically only productive for two to three years, leaving in their wake capped but pressurized well sites, the protective concrete and steel casings of which will corrode and deteriorate thusly resulting in the inevitable contamination of the aquifers we rely on.  The drilling operators will be long gone, laughing all the way to their banks.

TOM PRITCHARD, a Hartwick resident, is the president of the Arnold Lake Association and vice chairman of the the Capital Region Energy Forum.

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