Dow is right: Natural gas exports should be limited

images[9]While it’s undoubtedly true that fracking has been a real game changer for the domestic energy industry, I get nervous when I see the government adopting a policy to allow more and more exports of natural gas with the growing construction of export terminals. My concern is that many areas where hydraulic fracturing is carried out are stressing their water supply, given the large amounts of water needed for the technology. Recycling is already being practiced, but the outlook is for many thousands of new wells being drilled, now that a huge new (export) market is becoming available.

Unquestionably, there is a great demand for our natural gas and this will force up the domestic price, reducing the competitive advantage our petrochemical and other producers now have versus other countries, where natural gas is priced above  $  10/MMBTU, versus around $ 3 in the U.S. This is the argument Dow is using, as the firm campaigns against large future gas exports. But the water problem seems just as compelling to me. I wonder to what extent the big drillers have figured out where they can sink all the new wells, while dealing with the worsening water situation in many areas.

A new study shows that 47% of oil and gas wells (25,450 wells reported) are already located in water-stressed areas, many in Texas and Colorado. Intensive drought has been a fact of life in Texas, while in Colorado, 80% of the available water is already being used for residential, industrial and agricultural uses.

High agriculture use, due to extensive drought conditions, is apparently responsible for the fact that water levels in U.S. aquifers (underground water storage areas) between 2000 and 2008 dropped at a rate that was almost three times as great as at any time during the twentieth century, according to a new report by the U.S. Geological Survey. The so-called High Plains Aquifer. which lies beneath parts of a number of states where fracking is and will be intensive, but where drought conditions were mostly severe, has had the highest rate of water depletion starting in the 1960s.

So, putting this in perspective, if the U.S. is on the road to exporting huge amounts of natural gas, to what extent will this then exacerbate the conflict between agricultural and residential users of water on the one hand and energy firms drilling more and more wells beyond the oil and gas production we need to be energy self-sufficient. It’s an interesting question.

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4 Responses to Dow is right: Natural gas exports should be limited

  1. jvporcelli says:

    I looked at this a while ago, and I concluded that the costs associated with operating the export terminals, transporting the LNG abroad and receiving it and distributing it into pipelines at the destinations would limit how much the Henry Hub price could rise before exporting became uneconomical, so the situation should be self-correcting. US petrochemical operation margins will decrease but it will still give some advantage to those producers vis a vis Europe at least.

  2. Peter says:

    Good comment, Joe. But following up on the water question, I am wondering to what extent companies that want to produce massive amounts of shale gas have taken into account the growing scarcity of ground water in many parts of the country. And whether the Obama administration and its Energy Department, who are heavily committed to fracking (with proper regulations) have really studied the water question. Fertilizer exports are huge and take a lot of water already for corn and soy bean agriculture. There is only so much to go around at a time when drought has hit the U.S. pretty hard.
    Massive investments are required to built has export terminals and the infrastructure to support them. If your point about a “self-correcting mechanism” is right, how will these firms get a return on this investment?

  3. Joe Pilaro says:

    Peter – The long term water issue is being addressed by frac firms with research being carried out on a small scale using other fracking fluids. Successful work has been done using high pressure propane, taken from the shale source, as the fracking fluid. Others have been testing the use of carbon dioxide or carbon dioxide and propane as the fracking fluid. None of these have been reduced to commercial practice but all have hopes to find funding to extend this work.

  4. Leo Stern says:

    Peter– Re your highlighting water supplies, bravo ! Bud

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