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Impacts of shale boom in the U.S. and beyond
shale-oil-monterey-california-drilling

By Joseph Nyangon
January 26, 2015
The unconventional oil and gas boom has shaken up energy markets in the U.S. and beyond. Across many American states, the energy sector is experiencing a number of changes far larger than in its history including improvements in policies, business models, technologies, and investment options to make energy cleaner, more plentiful and diversified, cheaper to store and capable of handling increased demand more intelligently. Technological advances have significantly enhanced production of oil and gas from shale, turning the U.S. into a major oil producer, with most of the new production coming from unconventional sources.

The U.S. Bureau of Labor Statistics estimates a drop in the producer price index for natural gas of nearly 57% between 2007 and 2012 because of increased supply from unconventional oil and gas sources.[1] Unlike other countries with abundant shale resource potential in Europe, Asia and Latin America, the U.S. enjoys some big advantages, such as solid financial foundation for risky projects, open access, a well-developed supply chain built upon many years of serving communities and rewarding shareholders. This is allowing sufficiently robust domestic supplies to meet even significant growth in demand across major sectors of the economy for example transportation, electric power generation, and manufacturing. The U.S. Energy Information Administration (EIA) estimates the growth in natural gas in the U.S. will increase by an average of 1.6% annually between 2012 and 2040.[2] This is more than double EIA’s projected 0.8% annual growth rate in consumption over the same period.

Yet the long-term trend in shale boom is clear. The projection by EIA points to a continuing supply growth for oil and gas out of the shale regions in the U.S., with composition of shale energy expected to reach 56% of total production by 2040.[3]

new production

Source: U.S. Energy Information Administration[4]

Because of the big shifts in production now underway, the industry is continuing to attract more domestic and foreign private investment, which is introducing strong competition in a sector that only a decade ago was deemed obsolete and high cost. A declining trend in U.S. power generation emissions attributed to fuel switching from coal-fired power plants to natural gas systems provides conditions, economic and environmental, that enable electric utilities to improve their operations because shale can come online and offline more quickly. This enhances the capacities of utilities to implement demand-side management strategies more effectively.

Consider the following recent developments:

1. Since 2007, annual production of shale gas in the U.S. has increased by nearly 51% and technically recoverable reserves have grown five-fold, according to EIA.[5] In particular, increased drilling in the Marcellus Shale has stimulated economic growth in places like Pennsylvania, traditionally a coal-producing state. At the same time, hydraulic fracturing (“fracking”) and horizontal drilling have caused concerns about their impact on the environment.

2. The EIA predicts that liquefied natural gas (LNG), as a share of U.S. natural gas consumption will grow to 12.4% by 2030 from current levels of around 3%. As energy consumption in general has grown, so has the demand for natural gas. Investment in new LNG gasification terminals will continue to become attractive because of the rising shale boom, flexible contracting arrangements, and falling liquefaction and shipping costs making LNG shipments more responsive to natural gas prices.

3. Promising oil “plays” (i.e. a commercially exploited energy deposit) in the Niobrara in Northern Colorado and parts of Kansas, Nebraska and Wyoming have revived big local economic gains. Introduction of advanced technologies in oil and gas extraction has led to significant rise in production in the Barnett Shale in Texas since 2003.[6] Drilling has also expanded in other areas, such as the Haynesville and Fayetteville shale plays in Texas, Arkansas, and Louisiana.

4. For now, rising U.S. shale supply is exerting pressure on global energy markets, pushing oil and gas prices to record lows. The upside of the falling oil prices is that it provides the U.S. with a unique opportunity to reform its energy policy towards a path of low-carbon future our society so clearly needs. Globally, more effective management of supply and demand is required to catalyze further investments and competition in energy markets, especially in Asia, Europe, and parts of Africa.

So far, the expansion in production points to continued market stability and economic gains in the long term. Domestically, more U.S. output will likely shield the country from frequent price spikes and seasonal price volatility. In the short term, a shortage of skilled engineers, seismologists, geologists and other experts may hamper production though, forcing energy companies to increase specialized training in oil and gas operations.

Over the long-term, that expertise may be exported to other countries, providing positive balance of trade benefits to the U.S. Even so, the decision by OPEC not to cut back on its production quota in November 2014 in an attempt to prop up oil prices has exerted pressure on non-OPEC producers especially the U.S. and Canada to reduce their production. But this has not stopped oil-prices from tumbling to fresh lows (settling below $50 a barrel) and forcing Goldman Sachs and Société Générale to sharply reduce their oil-price forecasts.[7]

However, increased production may not keep oil and gas prices down in the long-term as a prolonged price slump could tighten profit margins forcing energy companies to cut or delay investment projects. Escalating conflicts of attrition among top oil-producing nations are also possible as countries scramble for new energy markets. The resultant price rout, if that happens, would weigh on other markets and sectors devaluing currencies exposed to oil exports as well as intensifying risks to oil-dedicated sovereign wealth funds.


Notes:
[1] U.S. natural gas gross withdrawals, U.S. Energy Information Administration (U.S. Department of Energy, Jan. 12, 2015), www.eia.gov/dnav/ng/hist/n9010us2m.htm.
[2] “Annual energy outlook 2014,” Figure MT-43. U.S. natural gas production, 1990-2040 (U.S. Energy Information Administration, May 2014), http://www.eia.gov/forecasts/aeo/MT_naturalgas.cfm.
[3] “Annual energy outlook 2014,” Figure MT-44. U.S. natural gas production, 1990-2040 (U.S. Energy Information Administration, May 2014), http://www.eia.gov/forecasts/aeo/MT_naturalgas.cfm.
[4] Drilling Productivity Report, U.S. Energy Information Administration (U.S. Department of Energy, Jan. 22, 2015), http://www.eia.gov/petroleum/drilling/#tabs-summary-1
[5] EIA, 2008. U.S. Energy Information Administration (EIA). U.S. Department of Energy (2008). U.S. Natural Gas Supply, Consumption, and Inventories. In STEO Table Browser. Retrieved from http://tonto.eia.doe.gov/cfapps/STEO_Query/steotables.cfm.
[6] “Technology drives natural gas production growth from shale gas formations” (U.S. Energy Information Administration, July 2011), http://www.eia.gov/todayinenergy/detail.cfm?id=2170.
[7] Nicole Friedman (2015). Oil Prices Fall to Fresh Lows. The Wall Street Journal. Accessed on January 12, 2013, Available at: http://www.wsj.com/articles/brent-crude-falls-below-50-in-asian-trading-1421039495?KEYWORDS=Goldman+Sachs+

Photo Credit: Reuters

Frankensalmon: A growing concern over GMO farmed salmon
Atlantic Salmon/Photo Credit William W. Hartley, U.S. Fish and Wildlife Service

By Cheng-Hao (Jeff) Shih
The first genetically modified edible fish. Created by the Canadian scientists, the AquAdvantage salmon combined the genes from the large King Salmon and the eel-like ocean pout [1]. This combination allows sterile female salmon to grow faster and larger in land-based fish farm setting [2].

The company that supports this research prepares to commercialize this “food product” after it receives approval for human consumption from the USFDA. It is believed that this new GM fish can effectively lower the cost for fish farms and may help to feed the hungry planet in the future.

GMO products have already existed in our food and life for decades. Today, numerous genetically modified soybean and corn products were processed and consumed by our society. As the global economy continues to grow, there is an increasing demand for more protein in people’s daily diet. It is possible that genetically modified salmon will be the next to present on our dinner table by food corporations. Supporters claim that this genetically modified food could provide more affordable protein for households in every economic class.

Claims of economic benefits are disputed. Importantly, an additional question has been raised. Should the evaluation of GM foods depend primarily on the economic criteria? There are still unsolved issues regarding GMO products such as the unknown health risks and unknown impact to the environment and ecosystem.

A growing chorus of concerned researchers and citizens is urging caution. Vandana Shiva commented on GMO food, “Life cannot be manufactured. It is not an invention. It is not engineered, piece-by-piece, by a worker on an assembly line. Living organisms are self-organized complexity [3].”

Notes:
[1] Rachel Kaufman, GM Salmon Safe to Eat? Not so Fast, Critics Say, National Geographic, 2010.
[2] Why Do We Need GMO Farmed Salmon? Huffington Post, 2013.
[3] Vandana Shiva, Corporate Fiction in the Age of GMOs. CommonDreams, 2015
[4] Hannah Sentenac. GMO salmon may soon hit food stores, but will anyone buy it?, Fox News, 2014.
[5] Ocean Robbins. Is Genetically Engineered Salmon Safe? Huffington Post, 2013.

Atlantic Salmon/Photo Credit: William W. Hartley, U.S. Fish and Wildlife Service

Enhancing resiliency and adaptive capacity of indigenous peoples to climate change risks in Philippines
Dr. Jessie B. Manuta

The 2014 recipient of CEEP Alumni Achievement Award, Dr. Jessie B. Manuta, spoke at this year’s colloquium on, Enhancing Resiliency and Adaptive Capacity of Indigenous Peoples to Climate Change Risks: Some Lessons Learned from the Philippines. He  also chaired this year’s Annual EEPSA Conference which took place on May 3, 2014.

Dr. Manuta is a research fellow of the Tropical Institute for Climate Studies (TropICS) in Ateneo de Davao University. He has been a board member of the Foundation for the Philippine Environment (FPE) since 2010. He was a Research Fellow of the Advanced Institute on Vulnerability to Global Environmental Change Programme funded by the Systems for Analysis, Research, and Training (START) in 2004. He was a postdoctoral fellow of the Unit for Social and Environmental Research (USER), in Chiang Mai University, Chiang Mai, Thailand in 2003.

His current engagement in the Philippines focuses on creating spaces and platforms for partnership and capacity-building among different stakeholders, especially the vulnerable groups, in “climate-proofing” development interventions in the region. He provides guidance and assistance in mainstreaming disaster risk reduction and climate change adaptation in the planning and development programs of local communities, civil society organizations (CSOs), and local government units (LGUs).

His work merges critical analysis, research and engagement in the climate change- environment-development nexus with pragmatic aspiration and action towards transformation of social, economic, and power relations and structures underpinning the vulnerability of people in the margins, especially indigenous communities. He advocates a transformative social inquiry that generates new perspectives and knowledge resulting in progressive, just, and sustainable possibilities and outcomes.

 

Dr. Byrne interviewed by South Korean TV
JB in South Korea

In November 2013, Dr. John Byrne visited S. Korea as a member of the advisory panel on improving Seoul’s energy self-sufficiency. He was also interviewed by Arirang TV, a S. Korean TV.

MEEP Student draws parallels between Triangle Factory and Karachi’s Ali Enterprises factory fires
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As the closing hours of the day approached on March 25, 1911, a fire broke out at the Triangle Waist Factory in New York City that resulted in 146 people losing their lives in 18 minutes. The company was a typical textile manufacturing unit based in Manhattan, characterized by long working hours, low wages, and unhealthy, unhygienic working conditions.

Over a century later on September 11, 2012, as the closing hours of the day approached, a fire broke out at Ali Enterprises Factory in Karachi, killing almost 300 people. The company was a typical textile manufacturing unit characterized by long working hours, low wages, and unhygienic working conditions. Workers were unable to leave the office premises because the doors were locked – a practice to prevent them from leaving their shifts early. The fumes became increasingly toxic in the presence of textile chemicals present in the factory. There was no emergency exit and the only way for the workers to escape was to smash iron bars on the windows to jump from the four story building. The company thrived on immigrant worker population, both from within and outside borders, willing to work in compromising conditions and low wages.

There were no significant protests against the lost lives of all the fathers, mothers, children, husbands and wives in the brutal factory fire. The incident faded away like a random ‘breaking news’ event, receiving a full day’s coverage and so, with each passing day, the dream of a better workplace environment remains as far-fetched as do the rights of the poor.

CEEP researchers investigate SEU strategy for Indian city
ceep_ thane_India

According to a recent census report, the population in Thane, India, has more than doubled in 20 years — from just over 800,000 in 1991 to more than 1.8 million in 2011. When India created its National Solar City Program to increase renewable energy use in its urban centers, Thane was named one of the first municipalities to lead the effort. During its January 2013 visit, the CEEP study team found the Thane community to be supportive of public-public partnerships for effective implementation of the city’s ‘Solar City Project’ through a sustainable energy utility based on the CEEP-initiated SEU model for providing bottom-up green energy investments.

White House recognizes the leadership of SEUs in Delaware and the District of Columbia
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White House recognizes leadership of SEUs on December 2, 2011, in commitments announced by President Obama and former President Clinton on December 2, 2011, along with representatives from more than 60 organizations as part of the Better Buildings Challenge. The Challenge is part of the Better Buildings Initiative launched in February by President Obama, and is spearheaded by former President Clinton and the President’s Council on Jobs and Competitiveness to support job creation by catalyzing private sector investment in commercial and industrial building energy upgrades to make America’s buildings 20 percent more efficient over the next decade, reducing energy costs for American businesses by nearly $40 billion. The announcement included a recognition of the $70.2 million bond offering executed by the Delaware Sustainable Energy Utility. The Delaware SEU is based on 10 years of CEEP research and was co-chaired by CEEP’s Director at the time of the bond sale. Over 1,000 jobs were created, and State Agencies realized a premium of $26 million as a result of savings created by this investment. A Better Buildings Challenge Financial Ally, Citi, will pursue at least $500 million in financing based on the SEU model.

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Western U.S. cities consider the SEU
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In the November 2012 issue of Western City a publication of the California League of Capital Cities featured CEEP’s Sustainable Energy Utility model. Cities and counties are at the forefront in adopting strategies to invest in energy efficiency in ways that blend economic and environmental sustainability. Their efforts have produced net zero energy and green building codes, solar programs for agency and community buildings, property-assessed clean energy (PACE) financing and many other innovative initiatives. The magazine issue reports that cities and non-profit organizations can realize substantial utility cost savings, using the SEU performance guarantee which ensures that project investments result in savings to cover the cost of all retrofit work. All projects are financed through tax-exempt bonds.

FREE and CSCDA team to develop SEUs in California
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CSCDA and the Foundation for Renewable Energy and Environment are teaming together to provide public agencies and nonprofit organizations throughout California with access to tax exempt financing for critical sustainable energy investments. Under the Sustainable Energy Bond Program, participating entities and organizations will contract with an Energy Service Company (ESCO) to complete energy and water conservation measures. Improvements could include street lighting, building lighting, pumps, HVAC, system controls, boilers, chillers, ducting, windows, partial roofing, toilets and others. The program participants will receive substantial utility cost savings, including a contractual guarantee sufficient to cover the full cost of all retrofit work. All projects are financed through tax exempt bonds. The partnership creates innovative, low-cost, pooled finance programs to respond to the energy needs of city and county participants. FREE is a non-profit corporation that has supported a number of CEEP researchers for the past several years.

SEU’s $70 million green energy savings bond receiving national attention
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A Sustainable Energy Utility (SEU) operates differently from traditional utility companies in that its mandate is to create a market for energy efficiency and renewable energy projects. It does so by issuing bonds to fund these as infrastructure investments.  The first SEU was set up in Delaware in 2008, and was adopted by Washington, D.C. in 2010. The model was also endorsed by the Asian Development Bank in a communiqué in June 2011, which recommended that its member countries consider the financing model. “Asia’s growing so fast and is putting new structures in so fast, if you put in poor performing new structures, you are going to have 30 or 50 years of inefficiency,” said John Byrne, a professor of climate policy at the University of Delaware and co-chairman of the SEU. “So this is the right time to create an SEU. That is the reason why ADB promoted this model at the forum.” The $70 million green energy savings bond in Delaware received a AA+ rating from Standard & Poor’s. Citi served as underwriter for the bond transaction.

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