Fracking Revolution Misunderstood by Oil and Gas Industry
By Yossie Hallander
The fracking revolution is still largely misunderstood by the oil and gas industry. It helped the US attain a measure of independence from imported oil but even today we import about 6.5m barrels a day, equivalent to one-third of US consumption.
However, the current low price of oil is making many shale operations unprofitable, causing massive lay-offs and threatening to bankrupt many companies in the oil patch. US oil production is declining again.
Here is where oil and gas companies get it wrong. The fracking revolution is not about oil; it is about natural gas and natural gas liquids such as ethane and propane.
Most fracking wells produce more hydrocarbons, in the form of natural gas and natural gas liquids, than oil.
That is one of the main reasons the price of these energy sources has collapsed. In many cases, the wells have been shut down, or the excess of these gas and liquids are flared, or burnt off, into the air.
The solution is to use them in the transportation sector, specifically to turn natural gas into alcohol fuels to run millions of vehicles that are already on the road. This will increase the revenue from each fracking well and the industry will become profitable at oil-price levels under $50 a barrel.
The US is awash with natural gas. Last year, the average Henry Hub price per million British Thermal Units — the standard industry benchmark for gas contracts — was $2.61. This was equivalent to about a third of the of cost of oil calculated by the calorific measure over the same period.
However, in the most important shale-oil regions the price is even as low as $1.
The price of natural gas liquids is much lower still and is often measured in cents. Sometimes it turns negative.
Much of this resource continues to be unexploited. In 2014, drillers flared 288.7bn cu ft of gas, compared with 91.2bn in 2000. That amounts to more than $10bn worth of natural gas simply wasted.
Of course, cheap natural gas has become a favoured fuel for power generation as coal-fired plants are slowly phased out. But the transition is costly and time-consuming. Even if natural gas reached 100 per cent adoption (something that is not likely to happen in the next two decades) it would only replace $28bn of coal-related costs a year.
The largest opportunity is to replace $135bn worth of imported oil a year, or more than $300bn of oil used overall, largely in the transportation sector.
Natural gas has been used as a vehicle fuel for years, in compressed form known as CNG. It is mostly used in larger vehicles such as refuse trucks and city buses. The fuel is an ideal replacement for the diesel market and should grow in the coming years.
But it is not a solution for the gasoline or petrol markets. Passenger vehicles that run on CNG cost thousands of dollars more than their gasoline-powered counterparts. Conversions of the current fleet are similarly expensive.
Even so, there are 250m gasoline cars, trucks and SUVs on US roads today that could potentially run on alcohol fuels like ethanol and methanol.
Most ethanol in the US is derived from corn. However, ethanol could also be produced from natural gas at prices much lower than gasoline. Methanol, for example, is already made from natural gas.
As part of taking economic advantage of low commodity prices, the conversion of gas could be done close to the wellhead and, once converted to liquid, there would be no need to expand pipeline infrastructure to transport it.
The most convenient aspect of fuel derived from the conversion of natural gas to alcohol is that it can be used immediately in more than 19m flex-fuel vehicles already on the road.
These are factory-built to use any combination of gasoline or ethanol blends up to E85, the specification for a fuel blend containing 85 per cent of denatured ethanol fuel and 15 per cent gasoline.
Additionally, tens of millions of other gasoline-only vehicles could potentially be modified to run on alcohol fuels simply through software changes to the on-board computers.
There is no need to wait decades for a new fleet of high-tech vehicles, or massive taxpayer investment, to bring alcohol fuels based on natural gas to market.
The current US fleet is ready to consume cheaper fuels, as shown by the many E85 stations in the country that earn higher revenue and margins on their ethanol-based E85 fuel sales than gasoline.
All that is needed to make this a reality is the will, and the vision, to diversify our transportation fuels market.
The result would be an entirely new revenue source for oil and gas companies, increased employment, a reliable, cheaper price for consumers and a stronger and safer US economy that keeps more of its fuel expenditures at home.
The opportunity is right beneath our feet.
Yossie Hollander is co-founder of the Fuel Freedom Foundation and founder of Our Energy Policy Foundation, a non-partisan group that promotes fuel choice in the transport sector
Read more: http://www.fuelfreedom.org/wp-content/uploads/Yossie-Hollander-piec...
Republished with permission.
Views: 3370
Replies to This Discussion
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Permalink Reply by john p halloran on
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Kerosene is derived from coal.
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Permalink Reply by Mike Fulper on
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Rats... I forgot that.. .that's why they called it "coal oil" huh....dumb me....
But since there is TONS AND TONS OF COAL out there not being used.....
I would think kerosene would be REAL CHEAP...... ??
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Permalink Reply by Thomas Lilli on
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It can be but not always. Jet fuel and deisel fuel are all forms of kerosene.
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Permalink Reply by Thomas Malcolm Pendergast on
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re the statement as well as other comments in the article Keith posted:
". . .Here is where oil and gas companies get it wrong. The fracking revolution is not about oil; it is about natural gas and natural gas liquids such as ethane and propane. . . ."
Why do you think Marathon Pipeline Partners bought MarkWest? Why do you think Shell Chemical, PTT Global/Marubeni and Appalachian Resins (and Odebrecht/Braskem too at one point but now out of the running due to problems in Brazil) are seriously moving forward with plans to build ethane crackers in the Ohio Valley? Why are virtually all of the ethane crackers on the Gulf Coast and all of the ethane crackers operating in Sarnia, Ontario now run on ethane rather than naptha feedstock?
Clearly, it is because they recognize the value of NGLs. I don't think they've got it wrong at all.
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Permalink Reply by Jim Litwinowicz on
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Interesting post. There are several alternatives to utilizing the cheap and abundant nat gas like this including CNG and LNG. There are several gas to alcohol plants under construction now but I believe most of their output is targeted for industrial and pharmacological use. Would be nice to see transportation added to nat gas use but don't expect a rush to do it any time soon.
The problem is that switching transportation to run on nat gas would displace a whole lot of oil. Just converting the truckers to some form of nat gas would reduce US oil demand by 40%. The big boys, the major integrated oil companies, do not want to lose such a huge market for their oil. BP, Exxon, Mobil, Shell all would fight such efforts and stop any governmental push to make the switch.
About the only way for it to happen is if the companies that are much heavier concentrated in nat gas work together towards that goal. Problem is that they are so far in debt that they have little resources to finance any alcohol plants. Perhaps they could work with a few major chem companies like Koch, Dupont, Dow, or others to put together some projects.
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Permalink Reply by Joe on
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Jim: After being involved and watching for about 3 years I have come to the conclusion the Investors, oil companys, speculators, politicians and others with their hand in the recipe. Never had a clue of what the hell they were doing, what was going to happen or what is going to happen. I would not believe anything anyone has to say about the future of anything to do with gas and oil. They have lied, cheated, stole, deceived the land owners, the government, and anyone they could in the name of greed. To line their own pockets with no regard the out come and welfare of others. What ever happened to morality?
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Permalink Reply by Joseph-Ohio on
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I say giddyup with all that and more (transportation conversion too).
Develop alternative uses for our oil to fill the oil usage void due to conversions.
Need to get ingenious about it all.
More and varied refinery configurations too.
Put our people to work (myself included even in retirement !).
I think we lost about 24 years of growth (at the least) and need to make it up as quickly as we can and sustain it too.
As it always is JMHOs here as an 'outsider' straining my eyes peering thru the smoke.
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Permalink Reply by Thomas Lilli on
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In my opinion, there is a good reason why liquid fuel is the best form of portable fossil fuels.
It is the most efficient to transport, carry, and it has a very high BTU rating.
For doing work with a machine where portability is a factor, gasoline and diesel fuels make the most sense.
Electric requires batteries, LNG requires a complex containment system and delivery system. Not that we could not transition, it's just that it would not be as convenient and mobile as what we currently use.
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BP, ExxonMobil, Shell, Chevron . . . aren't fighting switchovers to natural gas as a transportation fuel (CNG & LNG). They all produce natural gas and market it.
Many city bus systems such as Columbus, Ohio, now run their fleets on natural gas. As do such companies as Waste Management, Rumpke and Republic.
Clean Fuels is steadily expanding its network of CNG/LNG refueling stations across America and Canada.
Kellog, Pepsico (including Frito Lay) are a couple of more examples of companies adopting CNG/LNG.
Interlake Steamship is now converting its entire laker fleet to LNG engines to be bunkered exclusively by Shell.
It's a growing market for "Big Oil", not a threat. Diesel and gasoline engines are still going to be around for a long time.
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Permalink Reply by Thomas Lilli on
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Agreed, but those applications can be considered institutional, not consumer.
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The Ford F-series pickups (the most popular pickups for the past 25 years) are now offered with Cummins/Westport Innovations High Pressure Direct Injection LNG/CNG-fueled engines and Honda has offered a Civic running on CNG for several years now (although it's still not a big seller). The consumer market is growing; slowly, but growing.
If you live near Wooster, Ohio, you're welcome to fuel up your CNG vehicle at the Smith Dairy station. Smith's fleet runs on LNG. Same for Columbus and Dublin, Ohio.
And as for the compressors used at those stations, they're all made by Aeriel Corporation of Mount Vernon, Ohio. Ariel compressors are also used on the Rover Pipeline and the Mariner West pipeline to Sarnia, Ontario and the MarkWest/Sunoco Mariner East pipeline to Marcus Hook (near Philadelphia on the Delaware River). Those pipelines are transporting ethane and propane. The ones to Sarnia feed ethane/propane crackers operated by Imperial Chemical (majority owned by ExxonMobil) and Nova Chemicals (owned by Abu Dhabi) at Canada's largest petrochemical complex to make polyethylene and polypropylene. The ones to Marcus Hook deliver ethane/propane loads to Very Large Ethane Carriers called Dragon Ships (three at the moment; five more in a few years) owned by INEOS Chemicals for delivery to their ethane crackers in Grangemouth, Scotland and Norway.
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Permalink Reply by Joseph-Ohio on
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It could grow a lot faster if our government got behind it (instead of / at least sharing) the intermittent solar and wind subsidy programs that I've read / heard of.
I've written that more than once over the years I'll say !
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