A Star is Born

SHALE Featured 6
SHALE Featured 6

It seems that, from the very beginning, oil has always gotten all of the attention. Striking oil was the goal — hitting a gusher; dancing and getting covered in a fountain of black was a symbol of sudden and unknown wealth; black gold; Texas tea. Floating to victory in world wars on an ocean of oil.

But with the highly sought-after oil there always seemed to be what was considered a nuisance, if not a hazard, that came up the wellbore — natural gas. Drillers had to get through the gas to get to the oil. Sometimes the gas created hazardous conditions that caused kicks and blowouts, damaging the well and injuring, even killing, personnel. If the dangers caused by high-pressure gas weren’t enough to make you wary, there were also the lethal consequences of drilling into sour gas — even minimal levels of hydrogen sulfide could kill you instantaneously. Simply put, natural gas was viewed as a headache, or a hazard, or both.

Over time, however, that has changed in a big way. Now, natural gas is playing an increasingly important role in generating electricity, providing fuel and serving as the feedstock for the manufacture of an endless list of technological, industrial, commercial, and consumer products. “Ol’ King Coal” is fading into the sunset, and natural gas is replacing it as the preferred energy source for power plants. Renewables, like wind and solar, get the media coverage, but which energy source will be the one that everyone depends on when the wind isn’t blowing and the sun isn’t shining? Natural gas. According to the Energy Information Administration (EIA), in 2017, 62 percent of the electricity generated in the U.S. was by power plants run on fossil fuels; 32 percent was natural gas, and only 29 percent was coal.

Natural gas has also made its mark in the fuel sector. Companies like UPS, AT&T, Waste Management, and Frito-Lay, as well as state and local governments, are converting their fleet vehicles from diesel to compressed natural gas. Of course, consumers are most familiar with using natural gas to heat their homes and power their home appliances. Natural gas also provides us with propane, used for fuel and outdoor cooking; and butane, used in lighters, aerosols, and as a source for petrochemicals.

It is likely that the most anonymous, but extremely significant, role that natural gas has played in our modern economy is in providing the essential feedstock for plastics, in the form of ethane, which is turned into ethylene, then polyethylene, and then into countless forms of packaging and products. Ethane is the feedstock for almost one-half of all plastics production in the U.S.

In addition to the ever-increasing market for plastics domestically and exporting polyethylene pellets around the world, there is also now a significant increase in exporting liquefied natural gas (LNG) from the U.S. to the world market. Only 15 years ago, the Texas Legislature was planning to permit import facilities for LNG along our Gulf Coast because the conventional wisdom was that the U.S. was running out of natural gas.

Then the shale revolution happened. Now, LNG export facilities can’t be built fast enough. The U.S. first started exporting LNG in 2016, when the first facility was opened in Louisiana. Since then, the rush has been on, with seven more facilities in Texas, 24 in all in the U.S., and more to come. In fact, it’s now predicted that, by the end of 2019, the U.S. will be the third-largest LNG exporter, behind only Australia and Qatar. Of course, contributing to this enormous new market is Texas, which produces nearly 30 percent of all natural gas in the U.S. If Texas were its own country (it’s always fun to write that), we would be the third-largest natural-gas producing country in the world.

Geopolitically, it’s no small thing that the U.S. can now be the source of natural gas to countries like Poland and Germany, displacing Russia from that perilous position of leverage over our allies. Our LNG exports to China and India are also rapidly increasing, which helps us politically but also is playing a significant role in reducing the CO2 emissions in those countries by replacing their coal-fired power plants. The increased use of natural gas over coal is the primary reason that the U.S. has seen it’s CO2 emissions decline every year over the past decade to 1992 levels, while CO2 emissions globally increased 50 percent during the same period.

With significant growth in any industry comes the challenge of being able to provide the supporting pieces of the infrastructure puzzle. Here, it’s the need for pipelines to transport the natural gas from production sites to refineries and LNG-export facilities. In Texas, the current challenge is building those pipelines to carry natural gas (and crude oil) from the Permian Basin to the Gulf Coast. Fortunately, the industry has been in rapid-response mode, and new pipelines are scheduled to start operating later this year and over the next couple of years. In addition, new pipelines are being built to carry even more natural gas to Mexico.

The shale revolution seemingly awakened a sleeping giant because, not only are we producing enough natural gas in the U.S. to now be a net exporter, but we have an incredible supply into the distant future. The Potential Gas Committee (an industry group that regularly assesses our domestic natural-gas supply) estimates that we have 2.817 quadrillion cubic feet of technically-recoverable natural-gas reserves — in laymen’s terms, that means “a helluva lot of gas.”

Even so, it’s painful to realize that an awful lot of natural gas will never be put to good use because it has had to be flared into the sky. To produce oil, you have to take the gas, too. When you produce too much oil, you can store it in tanks until you can sell it. When you produce gas, you have to put it into a pipeline immediately — there’s no way to store it. Since we’re producing more gas than we have pipelines to take it, the only option is to dispose of it. In the Permian Basin alone, operators are having to flare about 320 mmcfd (enough to take care of the daily needs of Montana or New Hampshire) — roughly $1 million going up in smoke.

Natural gas has become a star in its own right. It’s part of an all-star cast of abundant natural resources in the Lone Star State; those stars are big and bright — deep in the heart of Texas.


About the author: Bill Keffer is a contributing columnist to SHALE Oil & Gas Business Magazine. He teaches at the Texas Tech University School of Law and continues to consult. He also served in the Texas Legislature from 2003 to 2007.


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