In Shale Gas Will Rock The World, Amy Myers Jaffe of the Baker Institute at Rice University tells the world that our energy problems are over (Wall Street Journal, subscription required).
There's an energy revolution brewing right under our feet.
Over the past decade, a wave of drilling around the world has uncovered giant supplies of natural gas in shale rock. By some estimates, there's 1,000 trillion cubic feet recoverable in North America alone—enough to supply the nation's natural-gas needs for the next 45 years. Europe may have nearly 200 trillion cubic feet of its own.
We've always known the potential of shale; we just didn't have the technology to get to it at a low enough cost. Now new techniques have driven down the price tag—and set the stage for shale gas to become what will be the game-changing resource of the decade.
I have been studying the energy markets for 30 years, and I am convinced that shale gas will revolutionize the industry—and change the world—in the coming decades. It will prevent the rise of any new cartels. It will alter geopolitics. And it will slow the transition to renewable energy...Take costs first. Over the past decade, new techniques have been developed that drastically cut the price tag of production. The Haynesville shale, which extends from Texas into Louisiana, is seeing costs as low as $3 per million British thermal units, down from $5 or more in the Barnett shale in the 1990s. And more cost-cutting developments are likely on the way as major oil companies get into the game. If they need to do shale for $2, I am willing to bet they can, in the next five years.
It's always hard for me to craft a response to Fantasy on such an immense scale. Alternative responses spring to mind—
- Analytical — In A Miracle In the Marcellus? I argued that the jury is still out on what the recoverable resource will be in the Marcellus, and by extension, in all the other shale plays. Before that in Betting The House On Shale Gas, I pointed out that we will be doing well if shale gas replaces conventional gas production declines over the next decade. It's not clear what the required gas price will be, etc.
- Psychological — After 30 years of study in the energy field, Jaffe must know, at least unconsciously, that our oil situation is dire. Simple defense mechanisms explain why she must rid herself of that anxiety-provoking feeling that things are spinning out of control. In anointing shale gas as our Savior, Jaffe solves the psychological problem even if the real problem remains.
- Sarcastic — The poet T.S. Eliot wrote that humankind can not stand very much reality, and Amy is certainly no exception. After studying the energy markets for 30 years, Amy knows we're screwed. So perhaps she has turned to drugs—psilocybin would be a good bet—to cure her pain. On the other hand, no known chemical is as powerful as fully imagined, unadulterated Hope.
Let's continue, shall we?
... the rise of gas power [even before the shale plays] seemed likely to doom the world's consumers to a repeat of OPEC, with gas producers like Russia, Iran and Venezuela coming together in a cartel and dictating terms to the rest of the world.
The advent of abundant, low-cost gas will throw all that out the window—so long as the recent drilling catastrophe doesn't curtail offshore oil and gas activity and push up the price of oil and eventually other forms of energy. Not only will the shale discoveries prevent a cartel from forming, but the petro-states will lose lots of the muscle they now have in world affairs, as customers over time cut them loose and turn to cheap fuel produced closer to home.
I am reminded of a (perhaps apocryphal) story in which a physicist, in considering a new theory, allegedly said: this theory isn't right; it isn't even wrong; it's just nonsense. Jaffe's statement simply makes no sense.
So long as the recent drilling catastrophe doesn't push up oil prices? Oil prices are going to go up regardless of the tragic accident in the Gulf of Mexico, as I discussed in The Next Oil Price Shock. Deepwater oil from the Gulf is such a tiny part of the world's reserves and production that it alone could only have a minor influence on the larger future outcome. And in the last few years, gas prices are no longer highly correlated with oil prices ... but why am I arguing with this nonsense?
Amy notes that there are skeptics, citing environmental issues and price. But she knows the glass is half-full, not half-empty. In fact, the glass is brimming over with energy. I mean, what will we do with it all?
But the skeptics aren't just overstating the obstacles. They're missing two much bigger points. For one thing, they're ignoring history: The reserves and production of new energy resources tend to increase over time, not decrease. They're also not taking into account how quickly public opinion can change. The country can turn on a dime and embrace a cheaper energy source, casting aside political or environmental reservations. This has happened before, with the rapid spread of liquefied-natural-gas terminals over the past few years.
In short,the skeptics are missing the bigger picture—the picture I think is the much more likely one.
You probably didn't know until Amy just told you that as time goes on, we have more & more fossil energy at our disposal, not less. It doesn't matter how much we consume, there's always more. Molecules with carbon-hydrogen bonds are simply everywhere! We're never going to run out of those!
And if by some astonishing, unforeseen accident we should start running out of fossil energy sources like conventional oil, and can't readily replace those conveniently energy-dense hydrocarbons, there's always the Sun, the Surface Wind, the Jet Stream, the Hot Deep Earth, the Tides or, if these alternatives should fail, we can exploit the super-abundant hydrocarbons on Saturn's Moon Titan.
Amy says the country can turn on a dime and embrace a cheaper energy source. In no time you're going to be filling up your SUV with natural gas from shale. In fact, that's why they're called gas stations—we knew this day would come! And it will cost you next to nothing. Do you remember when Atomic Power would make electricity too cheap to meter?
This concludes my brief review of Jaffe's "Rock the World" fantasy article. As you can see, I readily succumbed to option #3—sarcasm. I tend to do that any time somebody tells me Lunch Is Free. Sorry.
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