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More attention paid to all the natural gas we’re wasting

Energy experts are starting to pay more attention to an important byproduct to U.S. oil extraction: the incredible amount of natural gas that gets burned off into the atmosphere, or “flared,” because it’s not profitable enough to capture at the well head.

Forbes contributor Michael Kanellos is the latest to examine the absurd practice, writing:

… the sheer volume of gas that gets flared or emitted into the atmosphere t remains truly astounding. A potential source of profits and jobs is literally transformed in bulk into an environmental hazard and potential liability around the clock.

It’s an environmental hazard because natural gas is made primarily of methane, a greenhouse gas that’s many times worse for the environment than carbon dioxide. Some methane leaks from wells and pipelines, but even when the gas is burned off, it creates some GHG emissions.

Methane has tremendous potential as a commodity, however, because it can be turned into alcohol fuels — ethanol and methanol — to run our cars and trucks. Both fuels burn much cleaner in engines, and can be cheaper for the consumer.

When the price of oil was $115 a barrel, there was little incentives for oil drillers — who put bits in the ground mainly for oil, after all — to capture and store the natural gas, because gas remains stuck in the cellar in terms of pricing. Now that oil has dropped by 60 percent over the past seven months, maybe U.S. drillers will be incentivized to keep more of the gas that comes up in the wells.

(Our blogger William Tucker has written about the flaring issue before. It’s also discussed, along with many oil-related issues, in the documentary PUMP, which is available for download on iTunes now.)

Landfills also emit methane, and much of that is flared as well. If we captured more methane and turned it into fuel, there would be more of a market for it, and the infrastructure for converting it to fuel and distributing it would grow. A whole new generation of jobs could be created in the sector, jobs that by their nature would stay in America.

Kanellos has compiled many fascinating statistics about how much natural gas is wasted by flaring, including these nuggets:

Since the beginning of 2010, more than 31% of the natural gas in the Bakken region has been burned off or flared. It was worth an estimated $1.4 billion.

Over 150 billion cubic meters, or 5.3 trillion cubic feet, get flared annually worldwide, or around $16 billion lost.

Flaring in Texas and North Dakota emit the equivalent amount of greenhouse gases as 500,000 cars.

Fracking boom waste: Flares light prairie with unused natural gas (NBC News)

Natural gas flaring in Eagle Ford Shale already surpasses 2012 levels of waste and pollution (Fox Business)

Fracking offers hope

January 21, 2015/in Economy, Over a Barrel Blog wtucker, newleaf /by Arctic Leaf

I’ve just finished The Frackers, the excellent history of how the United States became the world’s leading developer of fossil fuels, by former Wall Street Journal reporter Gregory Zuckerman.

There are three lessons that can be taken away from this history, all of which relate to the development of alternative sources of energy:

The government had very little to do with the development of fracking. It was all done by wildcatters who operated far outside major institutions.
The founders of these methods didn’t necessarily get permanently rich. All have done well initially but have been undone by their very success, producing a superabundance of gas and oil that has driven down prices to the point where producers are overextended.
The maverick wildcatters who have opened up our gas and oil resources are not necessarily opposed to alternative sources of energy. In fact, they have often become the biggest promoters of wind, solar and alternative fuels for our transport sector.

Let’s examine those myths one by one:

The government should get credit for the breakthroughs. Proponents of big government often try to promote the idea that the fracking revolution never would have occurred without the help of the government. They even argue that government was responsible for the fracking initiative. Three years ago, Ted Norhaus and Michael Shellenberger of the Breakthrough Institute published a piece in The Washington Post in which they practically argued that fracking had been invented in the laboratories of the Department of Energy. George Mitchell, who spent 40 years developing fracking, had simply borrowed a few ideas that the DOE had designed.

Read the opening chapter on Mitchell in The Frackers, and you’ll hardly find one reference to the Department of Energy or government help. At one point the DOE contributed a few million dollars to an experiment that Mitchell had designed, but that was it. The rest of the story tells of Mitchell’s fascination with trying to suck oil out of shale rock, and how he nearly bankrupted his moderately successful oil company in the effort. He had no luck trying to convince the major oil companies that shale could be accessed. At one point, Chevron came very close to fracking the Barnett Shale, where Mitchell had his first breakthrough, but the company gave up on the effort. Harold Hamm experienced the same frustrations in the Bakken, where he alone believed there were vast reserves of oil but couldn’t get anyone to support him, until he finally made a breakthrough. The government had nothing to do with it.

Fracking wildcatters always get rich. The great irony for many of these pioneers is that they are often undone by their own success. Aubrey McClendon built Chesapeake Gas into the nation’s second-largest producer of natural gas but was forced to give up his company because the success of his fracking had driven the price of gas so low that he was overextended. The same thing happened to Tom Ward, an early associate of McClendon’s who had built his own company, SandRidge, based on fracking. Ward was forced out of his ownership by the board of directors. Harold Hamm has been having the same trouble in The Bakken since the superabundance of oil has forced the price down. Developing a new source of energy doesn’t necessarily mean you’re going to be permanently rich.

The developers of new ways to access fossil fuels are opposed to other alternatives. Because they have been so successful in reviving production of oil and gas, the assumption has been that the Frackers are wedded to fossil fuels and are undercutting alternatives. This is not true. The primary motive of all these innovators has been to make America more energy-independent and reduce our reliance on foreign oil. All of them see the development of fossil fuels as only a temporary step, and acknowledge that we must ultimately find some other sources of energy. T. Boone Pickens, the dean of oil magnates, put forth a plan that would try to get the electrical sector to rely on wind so that natural gas could be moved over to the transport sector to replace oil. His Clean Energy Fuels Corporation had some success in building a “natural gas highway” that substitutes compressed natural gas for diesel fuel in long-haul tractor trailers. Both Mitchell and Hamm have been exploring alternative energy, and they’re funding efforts to try to substitute renewables for fossil fuels, both domestic and imported.

As Zuckerman concludes at the end of The Frackers:

The great leap forward should have involved alternative energy, not oil and gas. The U.S. government allocated over $150 billion to green initiatives between 2009 and 2014. … There’s little to show for the investments, however. … Instead a group of frackers, relying on market cues rather than government direction, achieved dramatic advances by focusing on fossil fuels, of all things. It’s a stark reminder that breakthroughs in the business world usually are achieved through incremental advances, often in the face of deep skepticism, rather than government inspired eureka moments.

It’s a lesson worth keeping in mind as we pursue alternative fuels to substitute for foreign oil.

Obama aims to cut methane emissions 45 percent

January 14, 2015/in Economy, Environment, What's The Buzz staff /by Fuel Freedom Staff

President Obama’s latest effort to mitigate the effects of climate change will be to crack down on methane leakage from oil and gas wells, The New York Times reported.

The EPA will announce new regulations this week aimed at reducing methane emissions by 45 percent by 2025, compared with 2012 levels. Final rules will be set by 2016, the newspaper reported, citing anonymous sources.

Obama, stymied by Republican opposition that stands to become more solidified now that the party controls the Senate as well as the House, has increasingly turned to executive action, skirting Congress, to deal with climate change. The administration says the Clean Air Act gives it the green light to issue such mandates.

Methane, the primary component of natural gas, sometimes escapes from oil and gas wells, in addition to pipelines. Although the gas accounts for only 9 percent of overall greenhouse-gas emissions, it’s 20 times more potent than carbon dioxide, another GHG that accounts for the majority of emissions.

The Natural Resources Defense Council applauded the proposed regulations, but the oil and gas industry said they’re unnecessary, since they’re already motivated to capture methane instead of allowing it to escape into the atmosphere. If it’s captured, it can be burned in power plants to generate electricity, making it a cleaner alternative to coal. Methane can also be used to fuel cars and trucks, as compressed (CNG) or liquefied (LNG) natural gas. It can also be converted into two types of inexpensive liquid alcohol fuels, ethanol or methanol.

Howard Feldman, director of regulatory affairs for the American Petroleum Institute, said:

“We don’t need regulation to capture it, because we are incentivized to do it. We want to bring it to market.”

That market would grow if the infrastructure for transportation fuels were expanded, creating more of an incentive to capture methane. The price of natural gas stood at $12.68 per million metric British Thermal Units (MmBTU) in June 2008, only to crash to $1.95 by April 2012. Last month the average was $3.43 at the Henry Hub terminal in Louisiana. Profit margins are still so low that oil drillers flare off much of it.

Will falling gas prices hurt alternative vehicles?

December 16, 2014/in Economy, Over a Barrel Blog wtucker, newleaf /by Arctic Leaf

Everyone is saying that falling gas prices will ruin the market for alternative fuels and vehicles. But it isn’t time to give up on them now.
Ethanol and methanol are still two liquid fuels that will easily substitute for gasoline in our current infrastructure. Ethanol is making headway, particularly in the Midwest, where it is still cheaper than gasoline and has a lot of support in the farm economy. The big decision will come when the EPA finally sets the quota for ethanol consumption for 2015 – if the agency ever gets around to making a decision. (The decision has been postponed since last spring.) A high number should guarantee the sale of ethanol no matter what the price of gasoline.

That leaves methanol, the fuel that has the most potential to replace gasoline and would it fit right into our present infrastructure but must still run the gamut of EPA approval and would require a change in habits among motorists. Methanol is still relatively unknown among car owners and is hindered by people’s reluctance to try new things. But the six methanol plants that the Chinese are building in the Texas and Louisiana region could break the ice on methanol. The Chinese have 100,000 methanol cars on the road now and are shooting for 500,000 by 2015. Some of that methanol might end up in American engines as well.

Another alternative that is still in play is the electric car. In theory, electric cars should not be affected much by gas prices because that is an entirely different infrastructure. The appeal is not based on price so such as the idea of freeing yourself from the oil companies completely and relying on a source of energy.

The Nissan Leaf has not been badly hit by oil prices. Tesla’s cars, of course, have not gone mass market yet, but the company is relying on a new breed of consumer who does not worry too much about the price and will appreciate the car for its style and performance. Elon Musk has shown no indication of backing down on his great Gigafactory, and Tesla is still aiming to have the Model III (its third-generation vehicle, which will come at a much lower expected price point of $35,000) ready by 2017.

This leaves natural-gas-powered vehicles as the only group that might be hurt by falling gas prices, and here the news is not too good. Sales of vehicles that have compressed natural gas as their fuel declined 7.2 percent in November. As David Whiston, an analyst at Morningstar, told the Houston Chronicle’s Ryan Holeywell: “I hear all the time from dealers: As soon as gas starts to go down, people look at light trucks.”

CNG’s appeal has always been that it will be cheaper than regular gasoline, so plunging gas prices make it lose much of its appeal. It costs $5,000 to install a tank for CNG fuel, and that is not likely to attract a lot of takers with oil prices low. For a gas-electric hybrid, there is similar math. For the Toyota Corolla, the electric portion adds another $7,000 to the price. That’s why the CNG-based solutions never caught up with the light-duty vehicle. They are still attractive for high-mileage vehicles like buses and garbage trucks. “For the consumers doing the math, if gas goes below $3 per gallon, the payback period goes out a number of years,” Whiston told Holeywell. “And the break-even point makes sense for fewer people.”

The collapse in gas prices is not the end of the road for alternative fuels. In a couple of months, the price may be up again, and all those people who have rushed out to buy light trucks will be stuck with them. The changeover to alternative fuels is a slow process, fraught with false starts and misleading signals. But in the end, it will be well worth it to reduce our dependence on imported oil and achieve some kind of energy independence. Car buyers have very short memories and an inability to look very far into the future. Remember, it’s always a passing parade. Consequently, their reaction has been only short-term. But once people buy those trucks, they’re stuck with them for the next 5 to 10 years. If the price of gas goes up again, they may live to regret it.

Redlands to offer CNG /LNG fueling stations in town

November 18, 2014/in Economy, What's The Buzz /by Fuel Freedom Staff

Residents and businesses in need of Compressed Natural Gas (CNG) for their vehicles will have an increased ability to fill up in town.

The city has added new Compressed Natural Gas fuel dispensers at its corporate yard to allow up to four alternative fuel vehicles to fill up at the same time.

“There’s not a whole lot of stations around that you can get that fuel source,” said Councilwoman Pat Gilbreath, adding that the availability of the fuel stations give residents more options for the types of vehicles they can purchase.

Compressed Natural Gas is a clean burning alternative fuel that helps reduce carbon emissions and costs less than fossil fuels, according to a city news release.

10 reasons why falling oil prices is good for the U.S. and replacement fuels

November 11, 2014/in Economy, Over a Barrel Blog mkaplan, newleaf /by Arctic Leaf

While they might not make the Late Show with David Letterman, here are ten reasons why the fall in oil and gas prices, if it is sustained for a while, is, on balance, good for the U.S. and replacement fuels.

U.S. consumers are getting a price break. While the numbers differ by researchers, most indicate that on average they have saved near $80 billion. According to The Wall Street Journal, every one cent drop in gasoline adds approximately a billion dollars to nationwide household consumption.
Low- and moderate-income households will have extra money for basic goods and services, including housing, health care and transportation to work.
Increased consumer spending will be good for the economy and overall job growth. Because of the slowdown in production and the loss of jobs in the oil shale areas and Alaska, the net positive impact on GNP will be relatively small, higher at first as consumers make larger purchases, and then lower as oil field economic declines are reflected in GNP.
Low prices for oil and gas will impede drilling in tight oil areas and give the nation time to develop much-needed regulations to protect environmentally sensitive areas. Oil is now under $80 a barrel. The price is getting close to the cost of drilling. Comments from producers and oil experts seem to suggest that $70-75 per barrel would begin to generate negative risk analyses.
Low prices for oil and gas will make it tough on Russia to avoid the impact of U.S. and EU sanctions. Russia needs to export oil and gas to secure revenue to meet budget constraints. Its drilling and distribution costs will remain higher than current low global and U.S. prices.
Low prices of oil and gas will reduce U.S. need to import oil and help improve U.S. balance of payments. Imports now are about 30 percent of oil used in the nation.
Low prices of oil and gas will further reduce dependence on Middle East oil and enhance U.S. security as well as reduce the need to rely on military intervention. While the Saudis and allies in OPEC may try to undercut the price of oil per barrel in the U.S., it is not likely that they can sustain a lower cost and meet domestic budget needs.
Low prices of oil and gas will create tension within OPEC. Some nations desiring to improve market share may desire to keep oil prices low to sustain market share, others may want to increase prices and production to sustain, if not increase, revenue.
Low prices of oil and gas will spur growth in developing economies.
Low prices for oil and gas will likely secure oil company interests in alternative fuels. It may also compel coalitions of environmentalists and others concerned with emissions and other pollutants to push for open fuel markets and natural gas based ethanol, methanol and cellulosic-based fuels as well as a range of renewable fuels.

We haven’t reached fuel Nirvana. The differential between gasoline and corn-based E85 has lessened in most areas of the nation and now appears less than the 20-23 percent needed to get consumers to think about switching to alternative fuels like E85. But cheaper replacement fuels appear on the horizon (e.g., natural gas-based ethanol) and competition in the supply chain likely will reduce their prices. Significantly, in terms of alternative replacement fuels, oil and gas prices are likely to increase relatively soon, because of: continuing tensions in the Middle East, a change of heart on the part of the Saudis concerning maintaining low prices, the increased cost of drilling for tight oil and slow improvements in the U.S. economy resulting in increased demand. The recent decline in hybrid, plug-in and electric car sales in the U.S. follows historical patterns. Cheap gas or perceived cheap gas causes some Americans to switch to larger vehicles (e.g., SUVs) and, understandably, for some, to temporarily forget environmental objectives. But, paraphrasing and editing Gov. Schwarzenegger’s admonition or warning in one of his films, unfortunately high gas prices “will be back…” and early responders to the decline of gasoline prices may end up with hard-to-sell, older, gas-guzzling dinosaurs — unless, of course, they are flex-fuel vehicles.

Methanol — the fuel in waiting

November 6, 2014/1 Comment/in Over a Barrel Blog, World wtucker, newleaf /by Arctic Leaf

Methanol is a bit of a mystery. It is the simplest form of a hydrocarbon, one oxygen atom attached to simple methane molecule. Therefore, it burns. Methanol is one of the largest manufactured trading commodities after oil, and has about half the energy value of gasoline (but its high octane rating pushes this up to 70 percent). It is a liquid at room temperature and would therefore fit right into our current gasoline infrastructure — as opposed to compressed natural gas or electricity, which require a whole new delivery system.

Methanol made from natural gas would sell for about $1 less than gasoline. Methanol can also be made from food waste, municipal garbage and just about any other organic source.

So why aren’t we using methanol in our cars? It would be the simplest thing in the world to substitute methanol for gasoline in our current infrastructure. Car engines can burn methanol with a minor $200 adjustment that can be performed by any mechanic. You might have to fill up a little more often, but the savings on fuel would be significant — about $600 a year. So what’s stopping us?

Well, methanol seems to be caught in a time warp. It is the dreaded “wood alcohol” of the Depression Era. Methanol is poisonous, as opposed to (corn) ethyl alcohol, which only gets you drunk. (In fact, commercial products such as rubbing alcohol are “denatured” by adding methanol so people will not drink them.) But if methanol is poisonous, so is gasoline, as well as many, many other oil products. Yet methanol is somehow caught up in old EPA regulations that make it illegal to burn in car engines — even though it is hardly different from the corn ethanol that currently fills one-tenth of our gas tanks.

Methanol’s main feedstock is natural gas, and for a long time that was seen as a problem. “Methanol wasn’t practical because the price of natural gas was so high and we seemed to be running out of it,” said Yossie Hollander, whose Fuel Freedom Foundation has been promoting the use of methanol for some time. “But now that natural gas prices have come down, it makes perfect sense to use it to make methanol. We could do away with the $300 billion a year we still spend on importing oil.”

The EPA actually granted California an exemption during the 1990s that allowed 15,000 methanol-powered cars on the road. The experiment was a success and customers were happy but natural gas prices reached $11 per million BTUs in 2005 and the whole thing was called off. Only a few months later, the fracking revolution started to bring down the price of natural gas. It now sells at $4 per mBTU. Yet, for some reason the EPA has not yet reconsidered its long-standing position on methanol.

At the Methanol Policy Forum last year, Anne Korin of the Institute for the Analysis of Global Security (IAGS), made a very insightful remark. “I think methanol fares poorly in Washington precisely because it doesn’t need any subsidies or government assistance in making it economical. For that reason you have no big constituency behind it and no member of Congress crusading on its behalf.”

That may be about to change, however. China has a million cars burning methanol on the road and wants to expand. In the past few weeks alone, Texas and Louisiana have been hit with what is being called “Methanol Mania.” The Chinese are planning to build six major processing plants to turn the Gulf Coast into the world’s biggest center of methanol manufacture. One project will be the largest methanol refinery in the world, two times the size of one located in Trinidad.

All this methanol is intended to be sent back to China. The Chinese want to employ it as a feedstock for their own plastics industry, plus use it in Chinese cars. They will be shipping it the expanded Panama Canal, which will be completed in 2015.

But at some point someone in this country is going to look around and say, “Hey, why don’t we use some of this methanol to power our own automobiles.” At that point the methanol industry, along with the Texas and Louisiana, may have enough political leverage to get the EPA off the dime and see a decision about using methanol in our cars as well.

(Photo credit: Stockcarracing.com)

The decline of oil and gas prices, replacement fuels and Nostradamus

November 3, 2014/in Economy, Over a Barrel Blog mkaplan, newleaf /by Arctic Leaf

“It’s a puzzlement,” said the King to Anna in “The King and I,” one of my favorite musicals, particularly when Yul Brynner was the King. It is reasonable to assume, in light of the lack of agreement among experts, that the Chief Economic Adviser to President Obama and the head of the Federal Reserve Bank could well copy the King’s frustrated words when asked by the president to interpret the impact that the fall in oil and gasoline prices has on “weaning the nation from oil” and on the U.S. economy. It certainly is a puzzlement!

What we believe now may not be what we know or think we know in even the near future. In this context, experts are sometimes those who opine about economic measurements the day after they happen. When they make predictions or guesses about the behavior and likely cause and effect relationships about the future economy, past experience suggests they risk significant errors and the loss or downgrading of their reputations. As Walter Cronkite used to say, “And that’s the way it is” and will be (my addition).

So here is the way it is and might be:

1. The GDP grew at a healthy rate of 3.5 percent in the third quarter, related in part to increased government spending (mostly military), the reduction of imports (including oil) and the growth of net exports and a modest increase in consumer spending.

2. Gasoline prices per gallon at the pump and per barrel oil prices have trended downward significantly. Gasoline now hovers just below $3 a gallon, the lowest price in four years. Oil prices average around $80 a barrel, decreasing by near 25 percent since June. The decline in prices of both gasoline and oil reflects the glut of oil worldwide, increased U.S. oil production, falling demand for gasoline and oil, and the likely desire of exporting nations (particularly in the Middle East) to protect global market share.

Okay, what do these numbers add up to? I don’t know precisely and neither do many so-called experts. Some have indicated that oil and gas prices at the pump will continue to fall to well under $80 per barrel, generating a decline in the production of new wells because of an increasingly unfavorable balance between costs of drilling and price of gasoline. They don’t see pressure on the demand side coming soon as EU nations and China’s economies either stagnate or slow down considerably and U.S. economic growth stays below 3 percent annually.

Other experts (do you get a diploma for being an expert?), indicate that gas and oil prices will increase soon. They assume increased tension in the Middle East, the continued friction between the West and Russia, the change of heart of the Saudis as well as OPEC concerning support of policies to limit production (from no support at the present time, to support) and a more robust U.S. economy combined with a relaxation of exports as well as improved consumer demand for gasoline,

Nothing, as the old adage suggests, is certain but death and taxes. Knowledge of economic trends and correlations combined with assumptions concerning cause and effect relationships rarely add up to much beyond clairvoyance with respect to predictions. Even Nostradamus had his problems.

If I had to place a bet I would tilt toward gas and oil prices rising again relatively soon, but it is only a tilt and I wouldn’t put a lot of money on the table. I do believe the Saudis and OPEC will move to put a cap on production and try to increase prices in the relatively near future. They plainly need the revenue. They will risk losing market share. Russia’s oil production will move downward because of lack of drilling materials and capital generated by western sanctions. The U.S. economy has shown resilience and growth…perhaps not as robust as we would like, but growth just the same. While current low gas prices may temporarily impede sales of electric cars and replacement fuels, the future for replacement fuels, such as ethanol, in general looks reasonable, if the gap between gas prices and E85 remains over 20 percent — a percentage that will lead to increased use of E85. Estimates of larger cost differentials between electric cars, natural gas and cellulosic-based ethanol based on technological innovations and gasoline suggest an extremely competitive fuel market with larger market shares allocated to gasoline alternatives. This outcome depends on the weakening or end of monopolistic oil company franchise agreements limiting the sale of replacement fuels, capital investment in blenders and infrastructure and cheaper production and distribution costs for replacement fuels. Competition, if my tilt is correct, will offer lower fuel prices to consumers, and probably lend a degree of stability to fuel markets as well as provide a cleaner environment with less greenhouse gas emissions. It will buy time until renewables provide a significant percentage of in-use automobiles and overall demand.

Energy Quote of the Day: ‘Natural Gas is Often Described as a Bridge Fuel…How Long Should that Bridge Be?’

October 30, 2014/in Environment /by Fuel Freedom Staff

A new report released by the Canadian Pembina Institute and the Pacific Institute for Climate Solutions looks at British Columbia’s (B.C.) liquefied natural gas (LNG) strategy to serve the lucrative Asian gas market through the prism of global climate change in a carbon-constrained world. “Natural gas is often described as a bridge fuel. The question is, how long should that bridge be?” says Josha MacNab, B.C. Regional Director for the Pembina Institute.

North Dakota taking steps to use more of its natural gas

October 30, 2014/in What's The Buzz /by Fuel Freedom Staff

North Dakota flares more than 25 percent of the natural gas it extracts from the Bakken oil-shale play. Not only is natural gas cheaper (i.e. not as profitable) than the oil that comes out of the same wells, there’s a lack of pipeline and storage capacity in that region. Texas, by comparison, flares only 1 percent of its natural gas.

But the state is taking steps to build the infrastructure to capture and use more natural gas. As Adam Belz of the Minneapolis Star Tribune notes:

A quiet transformation is underway, however, as the state bids to turn natural gas into a native business and drive down flaring.

A growing network of pipelines and processing plants has made North Dakota a recent target for billions of dollars of investment toward factories that convert natural gas into other products like fertilizer and plastic.