It's NOT Alright Now - In fact it's a Gas

Pointing out that liquefied natural gas (LNG) shipped overseas causes more greenhouse gas (GHG) emissions than domestically burning an equally energetic amount of coal omits the fact that, in Maryland's case, we are the second largest exporter of coal in the country. A case could be made that exporting LNG will be less carbon polluting than exporting coal if the coal shipments were set to decrease as LNG shipments increased. Since Arch Coal just filed for bankruptcy and President Obama has made the executive decision to ban coal extraction on federal lands, it's becoming more likely that the trend of decreasing coal exports will continue, lending support to this rationalization for LNG exports.

No more coal allowed out of 30% of U.S. ground

Obversely, while Maryland's endogenous electricity generation from natural gas amounts to only 5 to 15% of its total generating capacity, 44% of Maryland's electricity comes from outside the state. The U.S., as a whole, relies on natural gas for at least 27% of it's electricity generation.  As coal declines and natural gas prices slump, the amount of U.S. capacity for generating electricity from the former is likely to decline, raising the reliance on natural gas and exposing large sections of the country (including Maryland) to dramatic price swings in electricity. The reputation of natural gas (fracked gas, especially) is sullied each week by infrastructure failures that cause egregious violations of public health and safety. We should do our best to divest ourselves of gas power, while taking additional measures to prevent leaks like the catastrophe in California.

Coal's Downturn

In some states, coal is being run out of business, but the "war on coal" hasn't reached that far yet in Maryland. We still make about half of our electricity from coal. Two coal-fired plants (1,200 MW in Montgomery and Prince Georges Counties) are expected to be retired by 2017 due to environmental regulations. In recent developments:

• Coal mining faces the prospect of tighter regulation to restore streams in order to reduce aquifer pollution. 
• Arch Coal, the most diversified coal mining company in the U.S. is about to be delisted by the NYSE. 
• Coal's dirty nature and regulations at the federal level are having major effects across the industry.
• Maryland claims to have the toughest clean air regulations on the east coast, and they just added some additional restrictions on NOx emissions, 

but there are still seven coal powered electric plants in the state.  Having the toughest air pollution restrictions on the east coast is admirable, but Baltimore still suffers from unhealthy air (a plight common to 85% of the world's population).

Yet, the nominally cleaner natural gas has its own set of problems. In the way of pollution, its greenhouse gas effect is 30 times worse, pound for pound, than CO2. It sometimes (more than we realize) gets loose on its own, like the 1 cubic mile of 1,500 psi gas being released from cracks that recently developed in a storage facility pipe under Los Angeles. As I pointed out in my last post, the prospect of less fracking (who wants to live in Oklahoma now, earthquake center of the U.S?) and the need to follow-through with plans to reduce global emissions makes investment in more gas-powered generation look pretty short-sighted. Solar and off-shore wind are looking better and better.

Fuel Switching

Nassim Nicholas Taleb's prognosis for 2016 sees commodities, rather than banks, as the locus of the next Lehman moment.  Countries and corporations whose continuance depends on stability of certain commodities are at most risk.  The U.S. economy is probably diverse enough to ride out the effects of commodity price swings, but some states will suffer more than others.  Maryland's diverse economy is among the strongest, so we don't need to be concerned that coal will continue to fall in production from its peak of 5 million below the current 2 million tons/year across 60 mines, all located in the two westernmost counties.  (John Michael Greer's Cumberland is at risk, though.)

The commodity that puts Calvert County's economy at risk is natural gas, though little is produced in Maryland. When Dominion Resources sought their approval for constructing the LNG export facility at Cove Point, our county commissioners acceded to deferring tax revenue from Dominion until the plant began to ship product.  That probably won't happen until 2018, if at all.

Initially, my doubts about the prospects of exporting natural gas were based on the high rates of depletion from fracking wells, leading to a precipitous drop in productivity.  While that alone may preclude exports a couple years from now, there are even more reasons to doubt now and they stem from economic causes.

Commodities volatility seems to favor exports from Cove Point, since fewer export facilities will likely be built in such an environment than the 18 originally envisioned.  Yet, the same volatility is causing mayhem among natural gas drillers.  As pointed out in my previous post, Chesapeake Energy, the second largest producer in the U.S., is headed for the junk pile.  Many others, whose business models were based on low-interest leverage and speculative land leases, will suffer the same fate.  With so many companies going under, the growth of fracked gas that has occurred over the past 5 years will level off and decline.  With coal being black-balled as a fuel due to its effect on the world's climate, it, too, will quickly decline in use.  This puts the onus on natural gas to fill some of the domestic demand.  Since 2000, the share of electricity produced by natural gas has risen 10%, replacing coal as the fuel.  The momentum of this fuel switching will be maintained, though farsighted power companies will opt for renewable sources instead, given the limits of natural gas reserves.

Just one-third of natural gas is used for electricity production.  The other uses are mainly for industrial and residential heating processes.  Something's got to give.  We don't have enough natural gas (especially if fracking is deemed environmentally untenable) to follow the current growth trend. Conservation will smooth our descent, but remember we also have lots of wood. It has an energy density about 1/3 of oil, but any able-bodied man with a sharp ax can get all he needs.

The Fracking Gamble

+Gail Tverberg 's theory about the deflationary spiral of oil prices (she thinks we are locked in to a price slide that will bottom out around $20/barrel) also applies to natural gas.  The fact that Chesapeake Energy (the U.S.'s second largest natural gas producer) is headed toward junk status supports this corollary.  A lot of Chesapeake's problem stems from land speculation with the intention of drilling and fracking.  These land deals were conducted with money from bright-eyed investors who never understood the economics of fracking and are now realizing how little real value most of the shale plays held.  Chesapeake's co-founder, Aubrey McClendon, seemed to know when to leave the party, as he departed the company in 2013.

He chose the name for the company out of a liking for the Chesapeake Bay area, despite the company's Oklahoma roots.  From Oklahoma, Chesapeake Energy's gas pipelines grew toward the Chesapeake Bay like a mycelium seeking humid climes to sprout its mushrooms.  After the fracking potential of the Marcellus Shale became known, the company surged further, to Pennsylvania. The pipeline assets were spun off years ago and now belong to Williams.

With the current demise of fracking due to the inability of the market to support the infrastructure and loss of investor interest, many natural gas companies will go under.  The price of natural gas should rise, however, once the markets have sloughed off the non-performing suppliers.  As coal is replaced by natural gas electricity generation, demand for gas should continue to grow.  The long-term damage to prices that Tverberg expects for oil may not apply to natural gas.

While the Chesapeake Bay region may have been the divining rod for Aubrey McClendon's vision of where Chesapeake Energy should go, it is there that he met the greatest opposition over the environmental repercussions of fracking.  Fracking has emboldened the U.S. to rescind laws against oil exporting and to build natural gas export facilities, such as the Cove Point Plant expansion underway a few miles from my home.  Aside from the public outcry against fracking, there are geological limits, climate considerations for which we are now internationally accountable, and the impending economic recession wrought largely by the same commercial ennui that brought about the energy price slump.  Fracking may never come back.  Cove Point may never export any liquefied natural gas.