Can The US Afford A Fracking Ban?

The United States is now the #1 producer of natural gas in the world with arguably the lowest price gas in the world. There is a movement to ban horizontal hydraulic fracking in the US, however, we need to evaluate the facts and benefits of fracking before such a monumental action is taken. Can the US really afford to ban fracking?

Let’s take a look at the historical data on US oil and natural gas production as shown in Graphs 1 and 2.

Graph 1 – US Oil Production In Thousands Of Barrels Per Day 1986-2018

Graph 2 – US Natural Gas Production In Trillion Cubic Feet Per Year 1986-2018

With the advent of horizontal hydraulic fracking in the 2000-2010 decade, the volume of US oil and natural gas production has increased dramatically.

In addition to increased gas supply, Graph 3 underlines the fundamental economic law of supply and demand upon price: more supply / stable demand yields lower prices for gas at the Henry Hub (Louisiana).

Graph 3 – Henry Hub Natural Gas Spot Price History

Source: https://www.eia.gov/dnav/ng/hist/rngwhhdm.htm

Advantages of increased US natural gas production:

Lower CO₂ emissions by replacing coal-fired electricity generation with gas
Lower gas prices, reducing energy cost burden to American consumers
Attraction of industry to US with increased domestic investment
Export of LNG and liquefied petroleum gas (LPG) with more favorable balance of trade and geo-political power balance
Export of higher-valued ethylene, propylene products further down the value chain

Lower CO₂ emissions by replacing coal-fired electricity generation with gas

The US reduced CO₂ emissions by 0.90% in 2017, and energy-related CO₂ emissions by 2.9% in 2019. A large contributor to this favorable development has been the replacement of coal-fired electricity generation with natural gas, made economically-possible due to natural gas abundant supply and low market price. What other country has replaced coal plants at the rate and effectiveness in reducing CO₂ emissions as the US since 2017?

Graph 4 illustrates the change in source of electricity generation in the US as more economical natural gas (and renewables) have replaced higher-cost coal.

Graph 4 – Electricity Generation Sources 1990-2050 In Billion Kilowatt-hours

Methane, or natural gas, is up to 10% of US greenhouse gas (GHG) emissions with gas providing 31.5% of U.S. electricity. Without the incremental supply from shale gas since 2006, the US could have replaced shale gas with coal and the annual US CO₂ emissions could have increased by up to 582 million tonnes of CO₂ after netting for methane leakage.

Using the European Union’s carbon price on 10 Jul 2019 of 28 euros per tonne, this translates to US$30.88 per tonne, and the increased carbon cost to US consumers from not fracking for natural gas would have amounted to an increased energy cost of $17.97 billion for the period 2006-2018.

Lower gas prices, reducing energy cost burden to American consumers

If the US had not fracked from 2006 to 2019, and depending upon the 2006 natural gas production of 21 million MMCF (million cubic feet) for 2006 to 2019 at the 2006 price of $8.86 per million British Thermal Units (MMBTU), the next 12 years would have cost American natural gas (and electricity) consumers $1.32 trillion. Without fracking, the US would have foregone the production of 70 million MMCF during that same 12 year period, or about 3.5 times the 2008 US natural gas production volume.

Graph 5 illustrates the increased penalty to US consumers in $/MMBTU over 2008-2019 for not fracking. The blue are is the actual market price of natural gas at the Henry Hub. The orange area of the graph is the penalty.

Graph 5 – Incremental Gas Cost Without Fracking 2008-2019 In $/MMBTU

Less natural gas production would have forced alternative means of electricity production, i.e. coal.

Graph 6 illustrates the impact of natural gas fracking on US delivered natural gas prices in 2015 dollars for residential, commercial, and industrial customers.

Graph 6 – US Delivered Natural Gas Prices In 2015 $/MMBTU

Attraction of industry to US with increased domestic investment

The presence of abundant and relatively-cheap natural gas in the US has provided a low-cost petro-chemical (petchem) feedstock supply of natural gas and LPG (ethane, propane, and normal butane). These low costs for ethylene and propylene production have driven the siting of petchem plants to the US vs. foreign investment while taking advantage of the US supply of 600,000 barrels per day (BPD) of ethane and 200,000 BPD of propane. US ethane and propane have a decided advantage over higher-priced, foreign crude-based naphtha for their petchem plants.

In the last 10 years companies have invested $89 billion in 210 chemical projects in the US due to the shale boom. Dow, ExxonMobil, Chevron Phillips, OxyChem, and Formosa have all announced plans for new ethylene plants in the US, fueling an investment of over $18 billion.

Export of LNG and liquefied petroleum gas (LPG) with more favorable balance of trade and geo-political power balance

US gas production and its sale to Western Europe and our NATO allies via liquefied natural gas (LNG) is a significant deterrent to that area’s dependence upon Russia for gas and its inherent political overtones. With a sole supplier of Russia for natural gas, NATO decisions could be compromised by the threat of natural gas shutoff from the east. US fracking for natural gas and its subsequent export as LNG to Western Europe provides competition for natural gas supply and an alternative to potentially-increasing Russian gas prices.

If the US banned fracking, production of oil and natural gas would diminish dramatically, and placing the US at the mercy of major international suppliers of oil and natural gas, including Russia and members of OPEC. Do we want $150/barrel oil and gasoline lines reminiscent of 1973?

Summary:

Fracking in the US has:

Contributed to the wealth of the US via lower oil and gas costs to consumers
Increased oil and gas supply for both the US and the world
Reduced CO₂ emissions
Increased investment in the US
Lowered the US balance of trade deficits
Allowed the export of higher-value products (ethylene, polyethylene, propylene, polypropylene) from the US
Provided a safe-guard for supply of necessary energy against those countries using energy as an economic weapon.

I welcome your comments and questions, and the opportunity to assist you with your energy questions and concerns. You are welcome to review my previous energy articles at my LI profile. I am the principal at Reliant Energy Solutions LLC, a Certified Energy Manager, and can be reached at [email protected] . My website is: www.reliantenergysolutions.com