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2009-12-21 06:20:21
By MARK WILLIAMS, AP Energy Writer Mark Williams, Ap Energy Writer 54 mins
ago
An unlikely source of energy has emerged to meet international demands that the
United States do more to fight global warming: It's cleaner than coal, cheaper
than oil and a 90-year supply is under our feet.
It's natural gas, the same fossil fuel that was in such short supply a decade
ago that it was deemed unreliable. It's now being uncovered at such a rapid
pace that its price is near a seven-year low. Long used to heat half the
nation's homes, it's becoming the fuel of choice when building new power
plants. Someday, it may win wider acceptance as a replacement for gasoline in
our cars and trucks.
Natural gas' abundance and low price come as governments around the world
debate how to curtail carbon dioxide and other pollution that contribute to
global warming. The likely outcome is a tax on companies that spew excessive
greenhouse gases. Utilities and other companies see natural gas as a way to
lower emissions and their costs. Yet politicians aren't stumping for it.
In June, President Barack Obama lumped natural gas with oil and coal as energy
sources the nation must move away from. He touts alternative sources solar,
wind and biofuels derived from corn and other plants. In Congress, the energy
debate has focused on finding cleaner coal and saving thousands of mining jobs
from West Virginia to Wyoming.
Utilities in the U.S. aren't waiting for Washington to jump on the gas
bandwagon. Looming climate legislation has altered the calculus that they use
to determine the cheapest way to deliver power. Coal may still be cheaper, but
natural gas emits half as much carbon when burned to generate the same amount
electricity.
Today, about 27 percent of the nation's carbon dioxide emissions come from
coal-fired power plants, which generate 44 percent of the electricity used in
the U.S. Just under 25 percent of power comes from burning natural gas, more
than double its share a decade ago but still with room to grow.
But the fuel has to be plentiful and its price stable and that has not always
been the case with natural gas. In the 1990s, factories that wanted to burn gas
instead of coal had to install equipment that did both because the gas supply
was uncertain and wild price swings were common. In some states, because of
feared shortages, homebuilders were told new gas hookups were banned.
It's a different story today. Energy experts believe that the huge volume of
supply now will ease price swings and supply worries.
Gas now trades on futures markets for about $5.50 per 1,000 cubic feet. While
that's up from a recent low of $2.41 in September as the recession reduced
demand and storage caverns filled to overflowing, it's less than half what it
was in the summer of 2008 when oil prices surged close to $150 a barrel.
Oil and gas prices trends have since diverged, due to the recession and the
growing realization of just how much gas has been discovered in the last three
years. That's thanks to the introduction of horizontal drilling technology that
has unlocked stunning amounts of gas in what were before off-limits shale
formations. Estimates of total gas reserves have jumped 58 percent from 2004 to
2008, giving the U.S. a 90-year supply at the current usage rate of about 23
trillion cubic feet of year.
The only question is whether enough gas can be delivered at affordable enough
prices for these trends to accelerate.
The world's largest oil company, Exxon Mobil Corp., gave its answer last Monday
when it announced a $30 billion deal to acquire XTO Energy Inc. The move will
make it the country's No. 1 producer of natural gas.
Exxon expects to be able to dramatically boost natural gas sales to electric
utilities. In fact, CEO Rex Tillerson says that's why the deal is such a smart
investment.
Tillerson says he sees demand for natural gas growing 50 percent by 2030, much
of it for electricity generation and running factories. Decisions being made by
executives at power companies lend credence to that forecast.
Consider Progress Energy Inc., which scrapped a $2 billion plan this month to
add scrubbers needed to reduce sulfur emmissions at 4 older coal-fired power
plants in North Carolina. Instead, it will phase out those plants and redirect
a portion of those funds toward cleaner burning gas-fired plants.
Lloyd Yates, CEO of Progess Energy Carolina, says planners were 99 percent
certain that retrofitting plants made sense when they began a review late last
year. But then gas prices began falling and the recession prompted gas-turbine
makers to slash prices just as global warming pressures intesified.
"Everyone saw it pretty quickly," he says. Out went coal, in comes gas. "The
environmental component of coal is where we see instability."
Nevada power company NV Energy Inc. canceled plans for a $5 billion coal-fired
plant early this year. That came after its homestate senator, Majority Leader
Harry Reid, made it clear he would fight to block its approval, and executives'
fears mounted about the costs of meeting future environmental rules.
"It was obvious to us that Congress or the EPA or both were going to act to
reduce carbon emissions," said CEO Michael Yackira, whose utilty already gets
two-thirds of its electricity from gas-fired units. "Without understanding the
economic ramifications, it would have been foolish for us to go forward."
Even with an expected jump in demand from utilities, gas prices won't rise much
beyond $6.50 per 1,000 cubic feet for years to come, says Ken Medlock, an
energy fellow at the James A. Baker III Institute for Public Policy at Rice
University in Houston. That tracks an Energy Department estimate made last
week.
Such forecasts are based in part on a belief that the recent spurt in gas
discoveries may only be the start of a golden age for gas drillers one that
creates wealth that rivals the so-called Gusher Age of the early 20th century,
when strikes in Texas created a new class of oil barons.
XTO, the company that Exxon is buying, was one of the pioneers in developing
new drilling technologies that allow a single well to descend 9,000 feet and
then bore horizontally through shale formations up to 1 1/2 miles away. Water,
sand and chemical additives are pumped through these pipes to unlock trillions
of cubic feet of natural gas that until recently had been judged unobtainable.
Even with the big increases in reserves they were logging, expansion plans by
XTO and its rivals were limited by the debt they took on to finance these
projects that can cost as much as $3 million apiece.
Under Exxon, which earned $45.2 billion last year, that barrier has been
obliterated.
The wells still only capture only about a quarter of the gas locked in the
shale formations. Future improvements could double that recovery rate. Bottom
line: this new source of gas supply in Texas, Louisiana, Pennsylvania, North
Dakota, New York and other states holds out the promise of as much as 2,000
trillion cubic feet of supplies. It is estimated that the U.S. sits on 83
percent more recoverable natural gas than was thought in 1990.
"The question now is how does this change the energy discussion in the U.S. and
by how much?" says Daniel Yergin, a Pulitzer Prize winning author and chairman
of IHS CERA, an energy consultancy. "This is domestic energy ... it's low
carbon, it's low cost and it's abundant. When you add it up, it's
revolutionary."