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The impact of shale gas on energy prices

January 19, 2011

By Drs. Robert & Sonia Vogl
President and Vice President Illinois Renewable Energy Association

As oil and coal prices have climbed, natural gas prices have remained relatively low and are expected to remain so over at least the next five years. Sean Casten, president and CEO of Recycled Energy Development, LLC, has already seen significant shifts in U.S. capital flows favoring natural gas combustion and reducing investments in renewable energy and efficiency in the industrial sector.

The reasons for the shift are based on the fact the huge shale fields have been found in the United States and are being exploited with new technologies. Casten points out that knowing where the gas exists in shale deposits reduces the risk and cost of drilling a conventional well, which may not produce commercial gas. While smaller, the shale gas deposits are able to deliver gas to the market more quickly than conventional sources, contributing to the glut and depressed prices.

Casten challenges the optimistic story of shale gas based on economic considerations. Since shale gas is inexpensive now, increased demand is likely to produce a price increase. If low gas prices undercut demand for coal, companies will switch from coal to natural gas. Since the gas infrastructure is already in place, as are natural gas electrical generation facilities, demand for natural gas could quickly rise, as would its price.

The relatively low price of $4 to $5 per million cubic feet of gas led to a 10-month low in the number of natural gas-drilling rigs in operation and an increase in the number of oil-drilling rigs in the U.S. The reduction in gas drilling in the face of a glut suggests supplies will tighten and prices will rise.

As shale gas drilling has expanded, so have the concerns about its potential adverse environmental impacts. If drilling and waste water disposal practices are forced to change to accommodate environmental concerns, gas prices would also rise. In Pennsylvania, salty wastewaters have been linked to corroded machinery in a steel mill and power plant. Questions have been raised regarding their impact on people and wildlife.

As much as 85 percent of the waste water and chemicals from the fracking process remain in the ground, raising questions about their impact on ground water supplies.

Another concern is the extent to which the fracking process can produce earthquakes, although the industry claims that is not the case. Rady Ananda writes that in Arkansas, nearly 500 earthquakes were reported during the last four months of 2010 in contrast to only 38 in the entire state in 2009. She indicates 98 percent of them were near Guy, which has the largest concentration of gas wells.

Now is the time to introduce energy conservation, efficiency and renewable energy sources to homes, public buildings and business operations to avoid the uncertainties of available supplies and prices. It increases energy autonomy, keeps more money in family pockets and the community, and reduces vulnerability in swings in energy supplies and prices. It is a good time to become an energy patriot.

Drs. Robert and Sonia Vogl are founders and officers of the Illinois Renewable Energy Association (IREA) and coordinate the annual Renewable Energy and Sustainable Lifestyle Fair. E-mail sonia@essex1.com.

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