Natural Gas, "Fracking", Water and $500 Billion

Natural Gas, Fracking, Water and $500 Billion

There is a parallel, shifted in time by 5 years, debate raging in the United States and Australia. This debate involves natural gas production, the only way to actually do it through hydraulic fracturing and the purported environmental risks to the land and to drinking water aquifers.

Buoyed by fatally flawed and alarmist documentaries like Gasland and stories in newspapers like the New York Times, a cottage industry of rumors and innuendo has emerged, totally unfounded but still strong, spreading fear among ill-informed people.

Last year more than 35,000 wells were drilled in the United States and 120,000 hydraulic fracturing treatments were executed, more than three stages per well on average. Not one case of drinking water contamination was reported. Case closed one would think. The refrain is even more impressionable: Sixty years of fracturing, covering more than 1.2 million wells and the only “news story” in the latest NYT piece is one from 1984 in West Virginia? Case closed again, one would reasonably think even further.

By comparison, less than 800 fracturing treatments are performed in Australia per year, a pittance compared to the United States but a number that will have to increase dramatically very quickly.

The anti-fracking crusaders, have never bothered to distinguish or explain, that leaking from the very rare, badly cemented or cased well, even if the well was fractured (almost all are) does not make fracking the culprit. There is no physics to support connectivity between the induced fracture, done thousands of feet underground, that would contaminate drinking water aquifers, found at a few hundred feet depth. An occasional “scientist” may be enlisted to offer a fanciful connecting theory whose possibility is just south of being hit by lightning. Communicating through the well itself, undesirable as it may be, has nothing to do with fracking.

So what gives here?

Many of the opponents should fess up that their motive is an aversion to all fossil fuels in an era of presumed alternatives. A renaissance of natural gas in the United States and Australia of all the places does not bode well in future energy central casting. Fracking is an interesting culprit selection. It has been given a sinister moniker, it is indispensable to producing gas (“no frac-no gas”) and the physical modeling of fracture height migration is clearly beyond the capabilities of the general public and, of course, journalists.

Why does all this matter to Australia and why the public must become aware of the debate and take sides? Simply because $500 billion of opportunity is around the corner.

The Japanese reactor meltdown brought about an even bigger meltdown in public perception of nuclear power, which was barely showing some signs of life after decades following the accidents at Three Mile Island and Chernobyl. While before the accident the Japanese were talking about increasing nuclear’s contribution to 37 percent before the end of the decade, the recent events will create considerable incremental need for natural gas.

Japan now uses about 3.5 Tcf of natural gas of which 3.3 is imported in the form of liquid natural gas. The new reality will force LNG imports to escalate to over 4.8 Tcf to meet the new power market share from natural gas.

The incremental 1.5 Tcf of gas translates to an increase in LNG imports of 27 additional million metric tons per annum (MTPA) of LNG trains. That is about 44 percent of current Qatar LNG capacity, 1.35 times the current Australian capacity of a little over 20 MTPA, with plans calling for increasing the capacity to 50 by 2017.

But the Japanese opportunity for Australian gas that was born in the recent misfortune pales by the Chinese prospects.

The Chinese use today right about 3.3 Tcf of natural gas, of which more than 95 percent is produced domestically. This amount of gas accounts for less than 4 percent of total energy demand, with coal providing more than 70 percent. This kind of energy mix, with all the resulting horrible environmental malaise, has not been seen in the developed world since the nineteenth century. The Chinese government has already decreed that by 2020 the natural gas share of their energy mix should climb to 10 percent. Depending on whose estimate of total Chinese energy demand by 2020 this would translate between 10.6 Tcf and 12 Tcf of natural gas.

Of course no matter which of these estimates materializes it will amount to a huge elevation in the demand from international supply, anywhere from 7.3 to 9 Tcf of incremental natural gas per year. Other than sketchy shale gas, China does not come close to have any large domestic resources. The Chinese needs would dwarf any Japanese demand. For a good measure, the larger figure is about 8 times the current Australian LNG production. Adding the Japanese demand, as much as 10.5 Tcf of natural gas must somehow be found for the two largest economies in the East.

How much of this demand can be met by Australia, the obvious source, or by Qatar which will have to increase its already burgeoning industry? How much can it come from Russia via pipeline, a dependence that is not looked favorably by the Chinese.

The face value of this natural gas at current prices is over $100 billion. With an economic multiplier of four the total economic activity in the originating country would surpass $500 billion. In simple English this is about a $25,000 boost to Australian per capita GDP.

There is nothing comparable to this tempting Australia because there are no other nations that have enough resources to actually compete credibly in this massive venture. To participate will be the defining socioeconomic and political issue of the next several decades for Australia.

© 2013 Energy Tribune

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