The Potentials and Problems of Expanding Use of Shale Gas in the Continental U. S

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The Potentials and Problems of Expanding Use of Shale Gas in the Continental U.S.

December 3, 2014

Group 6

Cammie Chan, Brendan Fan, Ayhan Kucuk, Crystal Meng, Roberta Weiner, Rongchen Zhu


I. Introduction 3

Use of Natural Gas 5

US Demand of Natural Gas 5

Factors Influencing Demand 6

Supply in the US Market 6

II. Benefits of Shale Gas 8

1. Environmental Benefits 8

2. Economic Benefits 10

Need for Infrastructure Development 10

Economic Impact on the U.S. Economy 19

The Impact of Shale Gas on the Electric Generation Industry 25

The Impact of Shale Gas on the Manufacturing Industry 30

III. Costs of Shale Gas 33

1. Environmental Costs 33

Worker Mortality and Morbidity 34

Fracking Fluid Effects on Public Health 37

Value of Health and Human Lives 40

Potential Effects on Water Resources 42

Resource-Intensiveness of the Hydraulic Fracturing Process 43

Toxicity and Obstacles for Treatment of Wastewater 43

Contamination of Groundwater 44

Induced Seismicity 45

Greenhouse Gas Footprint 48

2. Economic Costs 51

Regional Economics 51

Infrastructure 54

Regional Industrialization’s Impacts on Local Industries 56

Ineffectiveness of Taxes as a Solution 57

Producer Costs 57

3. Social Costs 63

Disruption of the Social Fabric 64

Decreases in Availability and Quality of Housing Stock 65

Increases in Road Congestion, Number of Traffic Accidents and Maintenance Cost 66

Increases in the Level of Social Disorder and Crime Rates 67

Impacts on Local Governments 69

IV. Cost-Benefit Analysis 71

1. Benefits 72

Economic Benefit 72

Carbon Benefit 74

2. Costs 75

Carbon Cost 75

Costs Associated with Shale Gas Wells: Costs of Greenhouse Gas Emission from Upstream Production, Air Impact from Diesel Use during Hydraulic Fracturing, Forest Disruption, Road Disruption, and Worker Mortality 76

Cost of Construction of Shale Gas Wells 79

3. Sensitivity Analysis 80

V. Conclusion 81

VI. Policy Recommendation 83

VII. Limitations and Next Steps 84

Cost-Benefit Analysis 85

Research Availability and Quality 86

VIII. Appendix 89

IX. References 93

I. Introduction

Natural gas is a fossil fuel that is formed in the Earth’s crust, created from organic matter that has been exposed to heat and pressure of overlying rock for thousands of years. It consists of mostly saturated aliphatic hydrocarbons like methane. When combusted, natural gas mainly produces carbon dioxide and water vapor, which makes it the cleanest of all fossil fuels. In comparison, coal and oil are composed of more complex molecules and, when combusted, release harmful emissions such as nitrogen oxides and sulfur dioxide. As a result, natural gas has been touted as a potential way to reduce emissions of pollutants into the atmosphere and reduce America’s reliance on oil as an energy source [1].

The natural gas supply in the US has experienced a great increase recently with the advent of hydraulic fracturing, an innovation that allows gas trapped in shale to be released. This process, also called “fracing” or “fracking”, involves pressurizing a horizontal section of a well by pumping in 3 or 4 million gallons of water to pressures of up to 7,000 kilopascals [2]. This horizontal drilling contrasts the conventional method of vertical drilling. The resultant extreme pressure cracks the rocks and carries a material such as sand into the resultant fractures. The sand is the “proppant”, because it keeps the fractures open, which allows hydrocarbons to flow out of the surrounding rock and into the wellbore [3]. This process is repeated up to 30 times in one well, with tens of wells drilled at a single drill site.

Figure . Fracking process [133]

The new technology is unique because it allows drillers to go right to the source. Conventional deposits of oil and gas are actually composed of far-traveled hydrocarbons that were originally in deeper “source beds”. In contrast, shale gas is an unconventional resource because it is still in its source bed whose organic matter gave rise to the gas [2]. Horizontal drilling and fracking technologies have allowed shale gas to become accessible. The propagation of fracking is widely traced to 1998, when success was first seen in the Barnett Shale in Texas [3]. Since then, shale gas has increased from comprising 1% of the US gas supply in 2000 to 20% in 2010. In the Barnett Shale alone, production increased 3,000% from 1998 to 2007 [2]. The prevalence of shale gas basins across the US can be seen in Figure 2.

Figure . Shale gas basins in the US [2]

Use of Natural Gas

Unlike oil, natural gas is segmented in consumption. Residentially, natural gas is used for heating and cooking. It is the most popular fuel for residential heating and is even cheaper than electricity as a source of energy. Commercially, natural gas is mainly used for space heating, water heating, and cooling. Industrially, natural gas helps to provide base ingredients for various products, including plastic, fabrics, and fertilizer.

US Demand of Natural Gas

The North American gas market is the largest in the world, with 773 bcm (billion cubic meters) consumed in 2001. This was 29% of global gas demand. Since the 1980s, US demand has been steadily rising, a pattern that is consistent with the great increase in supply of natural gas since the advent of fracking technology and the related price decrease. Currently in the US, natural gas heats 50% of existing homes and nearly 70% of newly built homes [1].

Demand has also increased with recent emphasis on environmental sustainability and energy efficiency. For some companies, there is external pressure from investors who want to see the companies engaging in sustainable practices. For example, the Carbon Disclosure Project urges major companies to disclose their climate change strategies publically, which incentivizes them to promote environmentally-friendly activities [1].

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