Economides: Texas Lost $7.7 Billion By Not Using Natural Gas To Keep Lights On

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Economides: The amount of dough we're missing is this big!
Dr. Michael Economides, author, CNBC regular and University of Houston professor of chemical and biomolecular engineering, says Texas lost out on some $7.7 billion between 2005 and 2011 primarily because we didn't use natural gas for electricity.

Economides, it should be noted, is a vocal industry supporter and testified before Congress last year, criticizing the EPA's approach to its sweeping (and pending) study of hydraulic fracturing in America. So his position in the report released this morning isn't all that surprising. But it's still pretty interesting.

We know that the natural gas industry is in a slump, due in no small part to the fact that it glutted the market, a victim of its own success. As a result, big players like Chesapeake have diverted rigs in the Barnett Shale to pursue oil. According to this report, if power plants were using natural gas, we wouldn't miss out on the dough paid for the exploration, drilling, production, treatment and transportation of it in Texas. Nor would we lose royalties, severance taxes, sales taxes and local property taxes that accompany natural gas production. Economides also cites "leasehold improvements (such as roads)," but we wonder how much that's offset by the utter pulverization of county roads by, say, saltwater trucks ferrying production water?

The report says natural gas use for power generation has remained flat and even fallen off a little, while nationally its use is characterized by an upward trend. If we'd kept pace, Economides reasons, we would have burned through an additional trillion cubic feet of Texas-produced natural gas. And that, he says, would be money in our pockets.

Instead, power generators have continued to lean on coal, to their detriment. Coal-fired plants in Texas, money machines during the days of high natural gas prices, have become much less profitable. The amount of coal we buy out of state has increased 10 percent in the last six years, along with coal prices and the cost of transport. The total loss to the Texas economy from decreasing natural gas use was $2.5 billion in 2011 alone, Economides estimates, some $530 million of that in lost wages. "Most importantly, 8,600 long-term Texas jobs in the natural gas industry have been forfeited to coal imported from out of state," the report says.

What it doesn't mention, however, is the cost to the state in higher electricity prices. It's been said that the fastest way to inflate the price of natural gas is for power plants to use it as a fuel source. The further proliferation of gas-fired plants is, of course, on the industry's wish list, and Chesapeake has partnered with the American Lung Association in a public awareness campaign to fight air pollution ... emitted mostly by coal-fired power plants.

To be sure, there's much to recommend natural gas over coal. Combined-cycle natural gas-fired plants emit almost no sulfur dioxide and fine particulates, and about a tenth of the nitrogen oxide of coal-fired plants using current pollution control technology. And in these dry times, they use about half as much water.

But questions still remain regarding fugitive emissions of methane -- a potent greenhouse gas -- from production on down the line to transmission. As we noted earlier, the Government Accountability Office found that there is almost no oversight of natural gas gathering pipelines. Simply put, we have no idea how much methane is escaping into the atmosphere. We're only beginning to understand its effect on local air quality, and the mechanisms by which hydraulic fracturing may contaminate groundwater.

Yet coal isn't Economides only target. He goes after wind power, too. Texas leads the nation in wind-generated capacity, and in March set an all-time record when it supplied 22 percent of the electricity in the grid. But the report worries about the condemnation of hundreds of miles through the Hill Country for high-voltage lines to carry wind-generated electricity, including the impact on property tax valuations.

Sure, there's no denying that the natural gas industry has made it rain cash in Texas. I was just in Parker County, a place completely transformed by all that money. The problem is, as the locals will tell you, it hasn't always been for the better, and for every lost dollar lamented by Economides, there have to be at least a few on the other end that, so far, remain unaccounted for.

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Marc
Marc

Something really bothers me about that photo of the "really smart guy." You would think that if he was really all that smart, then he might be earning enough money to buy suit coats with sleeves that extend all the way to his cuffs rather than cutting off just below the elbows!

He looks and talks like he is a few bricks short of a full load.

GusMitchem
GusMitchem

You guys can get fancy and make this very complicated but if we used gas we wouldn't be buying out of state coal.

Marc
Marc

Gus, there is a HUGE abundance of natural gas already in the pipelines. The trouble is that we do NOT have a large enough vehicle fleet that uses natural gas instead of gasoline, and we do not have a sufficient number of power plants or other industrial operations that use natural gas. There is nothing we, as citizens, can do about that.

It will take decades to build enough vehicles and convert our current operating fleet to NG-fueled cars and trucks. That requires the auto industry to actually build those vehicles before they can be bought and put into service. And, it will take decades for PRIVATELY-OWNED industrial plants to convert to NG to power their operations, something that is also beyond the control of us mere mortal citizens.

Your argument would be better directed at the business owners of the auto industry, power generation and manufacturing sector (what little there is remaining here) because it is up to them to invest the money for the conversions that would switch from coal to NG in their PRIVATELY-OWNED plants. But, don't worry! Long before we can make the transition all that natural gas will be sold to Europe and Asia. The export terminals will be on-line in about three years.

Paul
Paul

Using gas produced in state to produce electricity consumed in state does not result in a net inflow into the Texas economy.  It merely transfers money from the electric consumers to the mineral owners for a depleting resource.

Equity is still moved out of state as the profits produced by the electric generators and oil and gas companies is transferred to out of state owners.

Although sales of gas to out of state markets does result in a cash equity movement into the local (state) economy, it is actually due to the liquidation of a depletable mineral resource and thus should be considered as an asset sale and not the generation of wealth.

If the equity generated by the asset liquidation is then converted into a sustainable economic activity then we have achieved true economic growth for the state.

While substantial economic activity is generated by oil and gas development, it is based upon a depletable resource and as such is limited to the period of time that the resource can be economically produced.

Marc
Marc

Michael Economides apparently is not really all that smart OR an economist. His accounting did not consider many offsets to the revenues that might have been generated using natural gas for electric production in Texas. It is true enough that one has to be fairly smart of have engineering degrees, which I assume he has since he is instructing students in engineering at U of H, but that does not mean he understands the whole picture.

(1) According to Economides, "if power plants were using natural gas, we wouldn't miss out on the dough paid for the exploration, drilling, production, treatment and transportation of it in Texas."

The truth is that revenues would be offset by expenses, with a negative R.O.I. Most gas companies today are running deeply in the red, and are depending upon future price increases AND market demand to get them into the black. Because of low natural gas rates companies are drilling wells to secure leaseholds, but then shutting them in so that they are not producing, either because of the glut of gas and the low prices at which natural gas sells, and/or because of low demand relative to the volume of gas in pipelines looking for customers.

Mineral owners are not going to become the next Jed Clampett in these market conditions. A lot of them are going to discover just what a bad mistake it was to allow exploration and production on their land. Most who are owed royalties will see little or nothing in the foreseeable future. They only get royalties on producing wells.

(2) Quoting the story above, "The report says natural gas use for power generation has remained flat and even fallen off a little, while nationally its use is characterized by an upward trend. If we'd kept pace, Economides reasons, we would have burned through an additional trillion cubic feet of Texas-produced natural gas. And that, he says, would be money in our pockets."

Burning through "an additional trillion cubic feet of Texas-produced natural gas" is good how and why? And, if anybody was going to have "money in our pockets", then it would be industry executives, not mineral owners.

(3) Economides fails to consider the enormous cost to taxpayers in the form of state taxes to rebuild and repair all the road damage caused by extremely heavy truck traffic in often overloaded trucks. (http://stateimpact.npr.org/tex...

(4) Economides is an industry shill who will say whatever he is paid to say, so it makes sense that he would parrot the standard industry lines that gas drilling is good for you, good for me, good for everybody! Try telling that to people in Wise County whose property values dropped 70-77% after and because of gas wells located just 300 feet from their houses, usually across their property lines where they had zero control. Try telling that to land owners who are facing eminent domain claims to take their land for pipeline construction running right through the fields where they graze their livestock, with a prohibition of building ANYTHING on top of, or within so many feet of, the surface below which the pipeline is buried.

It is impossible to rationally approve of individual rights (including exclusive property rights) and simultaneously approve of the use of eminent domain by private, commercial companies to confiscate YOUR private property for their personal profit.

WCGasette
WCGasette

Contrary to what Mr. Economides says (and he doesn't seem to mention any of it in his report), it's really a terrible thing that's already been done to North Texas. The Big Oil and Gas Industry and the Big Wall Street investors don't live where we live, don't breathe the air we breathe, haven't suffered the property takings via pipeline construction and Rule 37 spacing waivers, haven't seen our neighborhoods taken over by this heavy industrial activity and haven't seen our parks and lakes drilled and fracked in the name of money. We prefer to listen to Cornell Professor Dr. Anthony Ingraffea, who has the experience and the wisdom about all of it. Dr. Economides is frightening with his narrow view and attempts to shame us for not getting on board.

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