Back in the old “aughts” when natural gas prices bounced wildly from single to double-digits per million British thermal units (Btus) and back again, Congress and the Bush Administration pulled out all the stops to encourage the construction of import facilities for liquified natural gas (LNG).  That was then, of course, and now we have gas hovering around $2/mmBtu and nobody in their right mind wants to try to import LNG.

The good news is that an LNG import terminal can be retrofitted to export LNG, as Dominion wishes to do with Cove Point.  Here’s the Post:

The opportunity here is obvious: The United States should export some of its bountiful stocks of natural gas to Japan and other countries with fewer supplies and high demand. That is why Dominion Resources wants to retrofit its Cove Point facility to service exports as well as imports. It’s no surprise that Sumitomo Corp., a Japanese energy outfit, is already in contract talks to use the retrofitted terminal, pending regulatory approval of exports to Japan.

Since no good deed goes unpunished, of course, the litigation-happy folks at the Sierra Club are trying to block this action because they are afraid of the environmental consequences of natural gas production, specifically water contamination (so far unfounded) and leakage of emissions into the air (so far insignificant).

The WaPo is strong on this front:

Though environmental groups worry about hydraulic fracturing, the process drillers use to extract unconventional gas, the right response is to push for proper oversight for all energy firms, not to punish one company for trying to provide a reasonable service that others will succeed in furnishing in  coming years.

And the Post is equally good on the benefits of natural gas exporting, while acknowledging the fears of some:

Though it’s possible that allowing exports might raise natural gas prices somewhat in America, doing so would also improve the country’s trade deficit, produce returns on domestic energy projects, increase state and federal tax revenue, support construction and maintenance jobs, reduce the leverage of gas-rich international bullies such as Russia, provide nations such as Japan a lower-emissions alternative to burning lots more coal and oil, and, as Japanese Prime Minister Yoshihiko Noda indicated at the White House last week, tighten trade ties with America’s leading Asian ally.

The fact is that a little upward pressure on prices would be a good thing.  Natural gas production in shale fields is currently uneconomic; there’s plenty of room for price growth to ensure stable supplies while maintaining affordability for consumers.  A new export path for the US sector is in the national interest on multiple levels.

The clear answer is yes, unless leakage rates from natural gas production are significantly higher than current estimates.  The WaPo gets a few things right:

America’s abundant supplies of unconventional gas have the potential to be a rich economic and environmental blessing. New extraction techniques — hydraulic fracturing, or “fracking” — make the country’s vast reserves accessible at low cost. The fact that burning natural gas produces about half the carbon emissions as coal means the fuel could be an attractive, affordable alternative, giving lower-carbon energy options more time to become less expensive.

And it then raises the current issue in the radical enviro community:

How fortunate we are that taxpayers did NOT buy a bunch of expensive gas and put it in storage.  A cautionary tale.  Similarly cautionary is what EPAct 05 looks like today with its focus on diversification of electricity fuels, taxpayer subsidies for various energy technologies related to electricity generation (clean coal, nuclear and renewables), encouragement for nuclear plant licensing and liquified natural gas imports — and relatively little about our damaging dependence on oil in the transportation sector.

Sure, the ethanol lobby in 2005 achieved its trifecta of taxpayer support:  a blend mandate (known as the renewable fuels standard, or RFS), continued tax credits for blenders, and continued tariff’s against imports.  Of course Congress finally wised up last year and jettisoned the tax credits due to deficit concerns.  But the most important tools in our energy security tool box — increased domestic production and fuel efficiency standards — were largely ignored in 2005.

The 2005 Act’s emphasis on electricity generation now seems misplaced, as natural gas producers can only sit and hope that utilities switch from coal to natural gas quickly and massively to soak up the gas before we run out of storage.  Or producers can ramp up their move away from gas and into oil production.  Oil continues to pay off for investors and producers — and high prices continue to make Canadian oil sands and US tight oil formations sound investments.  Shale gas and tight oil — the former is dramatically reshaping our electricity landscape while the latter is only slightly mitigating the damaging impact of our dependence on oil.  When will policy-makers learn which portion of our energy market needs an intervention?

The Environmental Protection Agency has dropped its claim that an energy company contaminated drinking water in Texas, the third time in recent months that the agency has backtracked on high-profile local allegations linking natural-gas drilling and water pollution.

On Friday, the agency told a federal judge it withdrew an administrative order that alleged Range Resources Corp. had polluted water wells in a rural Texas county west of Fort Worth. Under an agreement filed in U.S. court in Dallas, the EPA will also drop the lawsuit it filed in January 2011 against Range, and Range will end its appeal of the administrative order.

WSJ readers may have gloated a bit on EPA “losing” here, but the real import is that a  “growing number of industry, academic and environmental experts say that while drilling can cause water contamination, that can be avoided by proper use of cement seals and other safety measures.”  And who is better positioned to ensure such local safety measures,  EPA or the various state regulators?  

EPA itself had a reasonable perspective on the withdrawal of its claim against Range:  (I)n a statement, the agency said that settling with Range “allows EPA to shift the agency’s focus in this particular case away from litigation and toward a joint effort on the science and safety of energy extraction.” The agency said it and Range would continue to monitor water wells and share data.

And the WSJ also found a reasonable-sounding enviromentalist to spin the outcome:  “This points out why it is so critically important to get a regulatory structure in place where companies are required to do thorough, publicly available baseline testing before they get in ground.”

A regulatory structure that provides for baseline water quality conditions to be established before production begins could actually be as protective of producers as it would be informative for citizens.  And an EPA role that focuses on sicence and safety that leaves permitting and regulation to the states could be the right answer as well.

Gold writes:  A couple of years ago, natural gas was touted as a bridge fuel to a renewable-energy future. But the bridge is looking longer and longer, spanning decades into the future. Is gas still a bridge, or a detour? Will it keep renewables from reaching viability that much longer?

Gold quotes venture capitalist Vinod Khosla, who has bet heavy on alternative energy sources and spent years lobbying for supportive state and federal policies, as calling shale gas “a black swan.”  Now, black swans can be good, but high-impact surprises usually aren’t.  In this case, if you are long on renewables, you are feeling pain with low natural gas prices.

If you are a consumer, or somebody who is elected by them however, you’re liking low energy bills:

California Gov. Jerry Brown said gas could help his state meet aggressive goals for generating a third of its power from renewables. The low cost of natural gas is helping offset the higher cost of wind and solar. It’s helping prevent “sticker shock,” he said.

That is close to a traditional role for natural gas in the electricity system — providing load-smoothing electrons that fill the gap when its cloudy and the wind isn’t blowing.  But what about abundant natural gas as baseload power?  What if it crowds out renewables altogether, rather than supplementing them?  Here’s Bill Gates on that prospect:

Having so much natural gas is “phenomenal,” he said, “if you put aside climate change.”

The idea that natural gas use is bad for the climate has been a recent, ahem, discovery.  Back when natural gas was thought of as a substitute for coal — and that being only the coal needed after aggressive efficiency and conservation measures were adopted — we always heard that burning natural gas for power emitted half the greenhouse gases that burning coal releases.  Which is true.

But now that natural gas production and usage is far more robust, enviros are concerned about two things:  1) displacing truly clean fuels like renewables — who emit negligible GHGs on a life-cycle basis (counting wind turbine or solar cell production activities) — and, in a more recently expressed worry, 2) how much methane “leaks” during the production and transport of the gas to the combustion facility.  Since methane is such a powerful GHG — 25 times more potent than CO2 — even a small leakage rate will have a big climate impact.

So, is focusing our electricity generation on natural gas a good thing?  Depends on your metric.

In this case, the Europeans don’t appear worried, and intend to rely in part on increased LNG imports to make up the difference.  That should stand as a reminder that linking the US to the global natural gas market through robust LNG exports could have energy security ramifications that will need to be taken into account.

On the oil side, today’s WSJ reports that the Nigerian militant group MEND (Movement for the Emancipation of the Niger Delta) claimed responsibility for an attack on an Eni SpA pipeline that caused the company to shut down the pipeline on Sunday.  That’s disturbing since MEND has been “largely dormant since a 2009 amnesty granted to militants” and of course Nigerian oil production leads all African production.  Apparently some younger “militants feel they haven’t benefited from the peace dividend as much as MEND’s ex-commanders.” “An oil-industry official said it was nearly certain the Eni incident was sabotage” and MEND “warned of more attacks in the Delta.”  And it’s not just MEND threatening Nigerian production:  ”Last month, to protest against government plans to remove fuel subsidies, unions threatened to shut down the country’s oil production” leading the Nigerian government to pull back on those plans.  That’s doubly bad since market-distorting subsidies like Nigeria’s help keep global oil prices high.

There’s no question that 2011 was a good year for US energy security on both the natural gas and oil fronts.  Yet we are reminded daily why greater energy self-sufficiency is a worthy goal.

As Ian Urbina reported:

The agency estimated that there are 482 trillion cubic feet of shale gas in the United States, down from the 2011 estimate of 827 trillion cubic feet — a drop of more than 40 percent. The report also said the Marcellus region, a rock formation under parts of New York, Ohio, Pennsylvania and West Virginia, contained 141 trillion cubic feet of gas. That represents a 66 percent drop from the 410 trillion cubic feet estimate offered in the agency’s last report.

Rather  than hurling accusations about incompetence or malfeasance, Urbina began the piece with a straightforward lead emphasizing the “difficulty and uncertainty in predicting natural gas resources.”  EIA’s history on estimating oil and gas resources includes repeated attempts to get folks to understand that doing those estimates is indeed a highly uncertain exercise — we’re glad to see a reporter educating the public on that front.

The explanation for the downward revision is simple:  “Drilling in the Marcellus accelerated rapidly in 2010 and 2011, so that there is far more information available today than a year ago.” 

Urbina also gets it just right on why an understanding of the resource base matters:

The estimates are important because they underpin policy decisions on energy subsidies and exports. Market analysts look to these estimates in making investment decisions. Historically, they have varied widely based on assumptions about the future of technology, coming regulations on drilling and the long-term price of gas.

The lesson here?  Because estimates vary widely over time, policy-makers must be wary about basing decisions with major implications for fuel use — and usually long-tailed implications — over today’s snapshot of the available resource.

Nonetheless, even these new, lower estimates merely make an incredibly great US energy landscape instead simply really, really great:

The share of natural gas produced by drilling in shale formations is projected to more than double, from 23 percent in 2010 to 49 percent in 2035, the report said. The United States will also become a net exporter of liquefied natural gas by 2016, while natural gas prices are expected to remain low for more than a decade, according to the report.

And that’s still the promise of shale gas, even at the new, lower resource estimates:  low, stable prices for residential and industrial consumers with exports that help our balance of trade.  Oh what a difference a few years can make.  Instead of the clamor to build LNG-importing terminals in the face of volatile and rising domestic prices we saw around 2005, policy-makers in 2012 now have the luxury of weighing the value and extent of an export strategy against the other competing potential uses of this important resource.  That is a much better challenge to have.

First things first.  In a fairly stunning piece, even to jaded DC insiders, former Congressman William Delahunt (D-MA) is reported to be working for the small coastal town of Hull, on Massachusetts Bay “for help in developing a wind energy project.”

The catch?  “While in Congress, he personally earmarked $1.7 million for the same energy project.”  And it gets worse, as “80 percent” of the funds his firm will receive will be “from the pot of money he created through a pair of Energy Department grants in his final term of office, records and interviews show.”

Now most former members of Congress who end up in law and lobbying firms claim they aren’t actually lobbyists but instead are “strategists.”  And the former Congressman released a statement quoted by the NYT saying:  “I have no federal lobbying relationship with any past or current client.”  That may be news to the town of Hull, who’s town manager is quoted a few paragraphs later using a textbook definition of access-lobbying:

“Obviously he’s got connections into the federal government that we don’t have . . . . We’re hoping he can open doors at the federal level that we could never open.”

So the Hull wind energy project will soon join Solyndra as grist for the argument that the federal government should not be providing incentives for clean energy technology deployment because those incentives are inevitably transformed into “crony capitalism.”  But just as Solyndra was evidence of the misuse of an innovative technology loan guarantee program for economic stimulus rather than evidence of a problem with government incentives; so too is the Hull project actually a fair indictment of earmarking rather than a fatal flaw in the concept of deployment incentives.  The solution?  Programs that provide funding only where the merits of various projects can be clearly compared using  objective metrics rather than “awarded” through either the legislative process or via an opaque administrative ”negotiation.”  Reverse auctions — where bidders commit to delivering X units of energy at Y cost to the taxpayer and only the best deals are then funded — are particularly suitable for such an objective process.

The second piece begins with the type of human interest angle that can obscure rather than teach, as (again, Massachusetts) a hilltop homeowner laments that the local utility wouldn’t run a natural gas line out to his place and he must instead rely on expensive home heating oil.  The real story, as we soon learn, is that home heating oil users are spending between double and triple what their natural gas-using counteparts do.  Some are out of luck due to location; others because they can’t afford the cost of conversion — even though savings due to lower monthly bills may pay for the investment in just a few years.

What’s the current federal policy response to this problem?  It is a well-intentioned effort to help low-income homeowners stay warm in the winter through the much-maligned Low Income Heating Assistance Program, or LIHEAP, whereby taxpayers subsidize the heating bills of qualified consumers.  Unfortunately, that neither fixes the problem nor encourages conservation, but instead simply transfers wealth to homeowners (and ultimately heating oil providers) “trapped in a cycle of spending more and more for heat . . . .”

Is there a better way?  For some, it could be the hugely popular state and local program called PACE — Property Assessed Clean Energy Bonds (see www.pacenow.org).  Designed to let homeowners invest in energy efficiency retrofits in an affordable way, at no cost to taxpayers, this program has been literally sweeping the nation during the last few years.  And if it doesn’t include switching from heating oil to natural gas as an eligible activity, it should.  That would be an obvious energy market intervention worth making.  No earmarks required.

First, in “Glut Hits Natural-Gas Prices,” the WSJ reports:

U.S. energy companies are pumping so much natural gas out of the ground that prices are plummeting, and the cheap gas isn’t likely to evaporate anytime soon.

Natural-gas prices fell 5.7% Wednesday to their lowest level in over two years—good news for people who use gas to heat homes and for companies that use it to power factories.

For U.S. energy companies, however, the domestic natural-gas market is looking increasingly out of whack. Despite a 32% drop in prices last year, onshore production rose 10%, and it is expected to rise another 4% this year, according to Barclays Capital. As a result, prices are expected to remain low for at least the next couple years.

Prices may even drop through — or at least near — the old $2 per mBtu floor that hadn’t been hit since 2002.

So what to do with all this gas?  The WSJ provides one answer in their story on utility emissions, “Power Plants Top List of Emissions.”  This is the first time EPA has made detailed emissions information publicly available, and not surprisingly:

Power plants accounted for more than half of the greenhouse-gas emissions by the major emitters on the list, with refineries and chemical facilities also contributing large shares.

So clearly one thing to do with all this gas is use it for power plants while we figure out how to burn coal more cleanly.

Another thing that can be done is referenced in Bloomberg today, who reports that: 

Chrysler Group LLC, the automaker controlled by Fiat SpA, plans to begin selling natural gas- powered pickups in the U.S. this year, said Sergio Marchionne, chief executive officer of both automakers.

Apparently deliveries will begin in the US in 2017 to, appropriately enough, fleet customers.  The reason to start with fleets is obvious and well reported by Bloomberg:

Infrastructure for refueling natural gas vehicles is limited. The International Association for Natural Gas Vehicles says on its website that there were 1,000 stations and 112,000 natural-gas vehicles in the U.S. as of December 2010. The worldwide totals were 12.7 million such vehicles and 18,202 refueling stations, according to the association’s data.

So you start with fleets that can make the investment in refueling infrastructure and can then recapture the investment in lower engine and fuel costs versus diesel and electric hybrid — estimated by Fiat as $3,000 in engine costs alone for natural gas versus $3,300 for diesel and $8,000 for an electric hybrid.

Natural gas for power and natural gas for fleet vehicles where it makes sense.  That’s a pretty sound use of this currently plentiful commodity and a likely recipe for sustainable pricing.

Does hydraulic fracturing to obtain natural gas cause earthquakes?  Yes.

This stark opening was quickly followed by a reasoned explanation of the relationship between fracking and seismic activity, and that technical discussion then succeeded by a recognition of the game-changing fact that is our natural gas bounty:

Yet fracking in America’s massive Marcellus Shale formation could provide a large, domestic source of energy with fewer harmful emissions and half of coal’s carbon output.

The WaPo goes on to recognize the jobs bonanza that is already flowing from the shale production, and makes the unobjectionable recommendation that more study and probably more regulation will be needed. 

The paper also cites the US Geological survey for the proposition that of the 144,000 storage wells of this type in America, only a tiny fraction have been linked to earthquakes.

Unfortunately, the thoughtful analysis that followed the attention-grabbing first line may be lost in future references to the Post.  This is an area where trying to be provocative is probably not a good idea.

Saturday’s WSJ reported on natural gas prices falling through the $3 per million Btu floor at the end of December — for the first time in two years.  More downward price pressure will come from the fact that inventories aren’t being drawn down sufficiently — the Journal reports they are at “their highest ever for this time of year and about 12% above year-ago levels.”

This is a case where ever lower prices may not be good for consumers.  A sustainable price will be needed to keep production levels up, though it is true that, as the WSJ further noted, producers “have shown little desire to curb output.”

At some point, pricing and irrational environmentalism (or simple NIMBYism) will begin to really rain on the gas parade.  Let’s hope that markets and policy-makers can adjust before it’s too late.