For a generation that’s supposed to start cleaning up its energy mix, I find it disturbing that the big money is flowing toward dirtier and dirtier sources instead. Take the case of shale gas, which is plentiful and now economical to develop in North America. Shale gas, at the point of combustion, is no cleaner or dirtier than conventional natural gas, and a heck of a lot better than coal.
But it’s the way we get the shale gas that’s the problem. The hydraulic fracturing process used to release methane from shale rock formations disrupts and pollutes local water tables by contaminating them with a nasty chemical cocktail. Now, as recently reported in the news (and what you’ll hear more about from me tomorrow), there’s rising concern that the methane leaks that result during shale-gas development are substantial and that this makes shale gas just as bad, or worse, than coal with respect to its climate impacts. But the picture gets a whole lot worse.
Let me explain: Because shale gas is plentiful and an increasing amount of it is filling market demand for natural gas, it has kept natural gas prices low. This is expected to be the case for the foreseeable future. By 2035, shale gas will represent nearly half of all U.S. natural gas production, according to the U.S. Energy Information Administration. The low prices are great if you’re a business or consumer, and wonderful if you’re an oilsands developer. That’s because natural gas is the single-largest operational cost for many oilsands projects, particularly steam-assisted gravity drainage (SAGD) projects and other in situ developments that require enormous amounts of the gas to make steam.
In fact, it’s never been so good for them. Gas is about $4.50 per million BTU and oil is at about $106 a barrel right now on NYMEX — that’s a 24-1 spread! Now think about the spread at the height of the 2008 oilsands boom. Oil peaked at $147 a barrel and gas bounced between $11 and $12 per MBTU, giving a spread of 13-1.
So what am I getting at here? Oilsands developers are more profitable than they’ve ever been, and as a result there has been a burst of development activity likely to lead to a sustained boom. (I get into more detail in this story I wrote for MIT Technology Review). I’m also hearing that things are so good that oil companies are starting to throw more money into shale oil development. We’re going down a dirtier path, folks.
Bottom line: a dirty form of natural gas is helping spur development of a dirty form of oil.