Energy and Environment Reporting for Texas

How Abundant Natural Gas Spells Trouble for Renewables

A few years ago, when US natural gas production was kicking into high gear, gas promoters like T. Boone Pickens sold it as something close to a panacea. It was a plentiful source of energy that could create jobs at home. It could wean the US off of foreign oil. Perhaps most importantly, it was a “bridge fuel” — it could serve as a cleaner source of electricity while America’s renewable energy industry came into its own.

It’s hard to conceive just how fast the industry has grown since then. In 2010, the US surpassed Russia as the world leader in gas production on the strength of domestic shale reserves. Estimates show production more than doubling by 2020 to over 40 billion cubic feet of gas produced per day. This success can be viewed as a vindication of early gas investors. But abundant and cheap natural gas has also brought its own set of challenges.

“Natural gas is absolutely a victim of our own success,” Adam Haynes, director of Corporate Development for Chesapeake Energy, told StateImpact Texas. He says natural gas has become so prevalent that fewer people are putting their money into it. “Right now, because the price of natural gas is so low, producers are chasing the oil and natural gas liquids window,” Haynes said.

In places like the Eagle Ford shale formation in South Texas he says Chesapeake uses the same hydraulic fracturing (“fracking”) techniques that extract gas to extract oil and liquid gas. That’s a best-case scenario for companies, though no comfort to environmentalists concerned with the impact of fracking.

The worst-case scenario from a business perspective is if a driller is holding a lease on land to drill gas that it no longer wants. “In [gas companies’] lease obligations, they have drilling obligations, and they have, if they find something, production obligations,” said Chip Groat, director of UT’s Austin’s Center for International Energy and Environmental Policy.

“So they really have to keep up a certain amount of drilling to hold the leases. And they aren’t quite willing to give them up yet. So it’s a really interesting position for companies to be in, where they don’t really need more gas, but they don’t really want to let go what they’ve already paid for,” Groat said.
But the real challenges in a world of cheap and plentiful natural gas are found outside the fossil fuel industry. Since it’s such an inexpensive energy source now, Groat wonders if gas has gone from being a bridge to renewables and become a barrier instead.

It’s a suspicion backed up by some of renewable energy’s greatest proponents.

“The low price of natural gas has an automatic negative impact on the development of renewable energy sources. And people in leadership positions know that,” said Russel Smith, the Executive Director of the Texas Renewable Energy Industries Association.

Smith says the state of Texas may want to look into regulating how much gas can be drilled in order to control prices. Other proposals include boosting exports and finding new markets for gas domestically.

In support of that last idea the so-called “Nat Gas Act” — a bill to give incentives to trucking businesses that use natural gas powered vehicles — was introduced in the US Senate this month.
While the fate of that is yet to be determined, one thing’s for sure, according to Chesapeake Energy’s Adam Haynes. There’s plenty of gas to meet future needs.


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