Clean Electricity Bill Could Be A Bonanza For Shale Barons

Categories: The Environment

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A senator from New Mexico has proposed a bill that could change the face of Texas electric generation. And it has another interesting side-effect: It could reinvigorate a shale gas play depressed by tanking prices.

U.S. Senator Jeff Bingaman, chair of the Senate Energy and Natural Resources Committee, envisions a doubling of clean energy by 2035. That includes wind, solar, geothermal, landfill gas plants, and, interestingly, coal-fired plants that use a carbon capture and sequestration system, and certain natural gas-fired plants.

Under this regime, electricity retailers would be required to purchase a certain amount of electricity from one of these sources. Generators, on the other hand, receive credits for the amount of low- or no-carbon energy they produce. Some will have a surplus to sell. A utility with a bunch of unscrubbed coal-fired plants would probably need to buy them. Over time, the percentage of clean energy retailers must buy gets bigger and bigger, acting as a sort of market incentive for generators to build cleaner power plants. It works a bit like the EPA's Cross-State Air Pollution Rule, currently stayed by a federal appeals court.

According to a U.S. Energy Information analysis of the bill, the amount of coal-powered electricity we use would decline 41 percent by 2035. Renewable energy, however, would increase exponentially. And our use of natural gas for electricity would rise 53 percent in a little over two decades. That's a number that must make shale gas producers like Chesapeake Energy salivate.

Since the shale boom launched from North Texas' Barnett glutted the market, prices lately have been hovering at around $2.50 per million British Thermal Units or less, down from the 2008 high of $13. It's caused the play in this part of the state to slow, mostly because drilling in dense (and densely regulated) urban areas just isn't worth the headache when your product is going for a song.

But if natural gas use soars the way EIA predicts, that would spur the demand the industry craves, and we might see gas prices approaching heyday levels. Of course, in terms of air quality, a gas rush might have mixed results. It may burn cleaner than coal, but a drilling rig's diesel generator may 24 hours a day. The jury apparently is still out on whether methane leaks from pipelines and compressors offset any advantages to shale gas.

And, before we crown shale gas the "game-changer," it might help to have a clear idea of exactly how much gas we can actually get at.The EIA recently revised downward the amount of "unproved reserves" in the United States by half in a single stroke.

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9 comments
solar thermal energy
solar thermal energy

Solar thermal power captures the sun’s power to generate electricity by using lenses to concentrate the sun’s energy. This energy is then used to heat a fluid such as water or oil and the steam is used to drive a turbine. This technology is being deployed on a large scale to provide electricity.

Max from the Sandspit
Max from the Sandspit

This sounds like something hatched in a faculty lounge, the son of cap and trade. Right now I pay 9 cents a Kwh and use an average of 1000 Kwh a month, average bill is 90 bucks. Under this scam you're lookin' at 25 to 30 cents a Kwh or probably more, no thanks. These envirocrats need to be locked up.

lorlee
lorlee

Joel Salatin said: If you think organic food is expensive, have you priced cancer lately?"

Currently, environmental costs are socialized (meaning that those who pollute do not pay the real cost of pollution but society picks up the cost in increased health costs, clean up, etc. etc.) 

So I guess you are happy with 9 cents -- can you afford cancer?

Max from the Sandspit
Max from the Sandspit

Been there done that, thank God and capitalism for M D Anderson.  By the way them folks in Houston privatly think that the big C is mostly genitic and viral, in my case HPV caused. Only a fraction is environmental contrary to the crusaders message.

Lorlee
Lorlee

Sound a little like the argument from the cigarette guys who insisted it was good for you.

Steve T
Steve T

"Clean" is not a technical term; any coal and gas production is only somewhat less polluting than certain other means of producing electricity. However, if we're going to contiune coal and gas use, we'd best make it cleaner.

claytonauger
claytonauger

Unless of course you live in a place where they mine the gas and that mining produces more air pollution than all the cars and trucks in the region. 

CV Gilkeson
CV Gilkeson

The unproved reserves were cut in half by a political stroke, not an actual study based on data. No energy policy decisions (if our government could actually get its shit together to craft a policy) should be based on estimates of unproven reserves. However, the fact remains that right now natural gas is the best option overall for electrical generation and fueling buses and short-haul delivery trucks.

Paul
Paul

 The unproved reserves being cut in half is due to the reduction in market price.

At the height of the Barnett Shale boom, the strike price for whether or not to drill a well was about $7.50/MMBTU.  Above that price it makes economic sense to drill the well, below that it does not.

The only reason that one would drill a well below the strike price would be to hold on the lease.  Once a gas well is brought in, it can be shut in for an extended period of time without production without causing a lease termination.  This shut in time may be limited by lease terms.

One of the requirements of saying that a reserve is unproved, is that it makes economic sense to drill the well.  As the price of the commodity drops, the amount of unproved reserves also drops because the amount of commodity found and produced must be greater in order for the economics to make sense.

For example, if I go to drill a well with gas at $7.50/MMBTU, my economics says that I need to find a certain amount of reserves with a certain amount of deliverability. For the sake of discussion, lets say 2 MMCFD IP with 15 BCF of reserves.  If the price drops to $3.75/MMBTU, the well now needs to have a 4 MMCFD IP with 30 BCF of reserves in order for the economics to make sense.  Now all of that acreage where a well will deliver 2 MMCFD IP and 15 BCF are now no longer in the unproved category.

The categories for oil and gas reserves are: Proved, Proved Nonproducing, Proved Undeveloped, Possible and Probable.  The Possible and Probable categories are the "unproved" reserves.

hth

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