Why The Debate Over The Fracking Fallacy Is A Big Deal

The debate about “The Fracking Fallacy” is a big deal because EPA’s* plan to regulate coal out of existence is based on EIA’s* forecast of abundant and cheap shale gas for decades.   If U.S. natural gas production is in decline by the early 2020s as described in the Nature article, there won’t be enough electric power supply without more, rather than less, coal. And power will cost more. In addition, DOE’s* approvals for natural gas export to Asia, Europe and Mexico may now become truly awful and misinformed decisions.

The magazine Nature published “Natural gas: The fracking fallacy” on December 3, 2014.  The article’s author Mason Inman described how the expectation of decades of abundant natural gas in the United States might be wishful thinking. He compared the Bureau of Economic Geology (BEG) and EIA gas supply forecasts in the nearby figure.   The BEG forecast has U.S. gas production peaking in about 2020 and then, declining sharply.  The EIA prediction is for gas supply to continue increasing into the mid-2020s and then, to remain strong into the 2030s.

Source:  Bureau of Economic Geology (click the figure to enlarge)

Both the EIAand BEGwrote letters to Nature last week stating that Inman’s article was misleading and biased.  More importantly, both letters emphasized that there really isn’t any disagreement between the two forecasts but that there are many differing scenarios that each group has developed because of the many variables and uncertainties involved with supply forecasting.

The Nature article has succeeded in casting doubt for the first time on the beautiful dream that fracking shale reservoirs can restore youth to an ageing American energy industry.  For years, a few industry insiders like me have urged caution about the jubilant projections for U.S. shale gas abundance coming out of EIA, the research departments of investment banks, and industry consultancies.  Things that sound too good to be true often are.
Why did the EIA and BEG jump into the fray when they might have chosen to say nothing and assume that this too would pass as, for instance, the New York TimesDrilling Down” series did in 2011? 
First, because the BEG is recognized as a major force in institutional and academic research with close ties to the oil and gas industry.  The BEG evaluated the performance of every individual well in all of the major U.S. shale gas plays.  Their work is the authoritative standard in my view.

And second, because of timing:  EPA air quality regulations go into effect in April 2015 that will greatly reduce the role of coal in electric power generation as shown in the nearby figure.  Resulting retirement of more than 60 coal-fired plants in 2015 would increase demand for natural gas as the substitute fuel.  Coal plant retirements will continue though 2025 and have been ongoing for several years already in anticipation of the new regulations. 

Source:  GAO (click the figure to enlarge)

EIA’s gas supply and price forecast formed the technical basis that justified EPA’s regulations that did not require congressional approval.  If BEG’s forecast is correct, U.S. gas supply will have peaked before the last coal plants are retired and after the majority have been shuttered.  What will the U.S. do for electric power if gas production is in serious decline?  The only options are to revert to more coal, quickly build nuclear power plants or somehow greatly accelerate development of wind and solar installations (but what to do about the necessary natural gas backup generators?).
Moreover, EPA regulations have relied on EIA gas price projections to further justify coal plant retirements.  These price forecasts say that gas will continue to be inexpensive for decades because of the abundant supply.  If that supply begins to decline, the price will increase meaning higher costs for U.S. homes and businesses.
To make matters worse, DOE has already given approval for natural gas exports by pipeline to Mexico and in the form of liquefied natural gas (LNG) to Asia and Europe.  

Source:  SENER and EIA  (click the figure to enlarge)

These contracts were also approved based on EIA supply and price projections.  Many industry advocates have stridently opposed these approvals arguing that gas export will increase their costs and diminish competitive advantage over foreign manufacturers.

Add it all up and it’s potentially a huge mess.  Interestingly, EIA Administrator Adam Sieminski did not sign the EIA letter to Nature.  We can only speculate why.

*EPA:  United States Environmental Protection Agency
*EIA:  Energy Information Administration, part of the U.S. Department of Energy.

*DOE:  United States Department of Energy

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