The American economy prospers on the new and the ingenious.
A technology that's being used to reach vast quantities of clean-burning natural gas has given us both.
In the energy sector these days, with oil prices hovering at more than $100 a barrel and gasoline at $4 a gallon in Michigan, good news is the exception. Yet the success of horizontal hydraulic fracturing of shale gas and the profound importance of natural gas on America's energy future can't be minimized any longer.
Simply put, the era of cheap and abundant natural gas has begun. The price of natural gas is now less than one-quarter that of oil on an energy equivalent basis. Indeed, it has fallen more than 25 percent over the past three years. When adjusted for inflation, American consumers haven't had cheaper natural gas since December 2002.
For Michigan, the drop in price has benefited many industries, especially petrochemical and fertilizer companies that rely on natural gas for a feedstock. But automobile manufacturers, pharmaceutical companies and other key industries have also been helped.
Less expensive gas has saved and created new jobs, and it has generated revenue for state and local governments. What's more, it has resulted in a savings for homeowners who use gas for cooking and heating, businesses that rely on gas for space heating, and consumers whose electricity comes from power plants fueled with natural gas.
Advocates of coal, nuclear power and renewable energy sources shudder at the mention of shale gas, arguing that those advocating expanded use of natural gas ignore its history of price volatility. But the availability of cheap natural gas is expected to continue well into the future. The most recent data from the U.S. Energy Information Administration shows there has been a huge increase in the estimated amount of shale gas in the United States that can be produced with hydraulic fracturing up from a year ago and expected to increase.
This indicates that the United States has about 100 years of domestic natural gas supplies at current demand levels.
What's important to recognize is that the resurgence in natural gas has been achieved based on its economic and scientific merits alone, without the need for taxpayer-funded government subsidies or mandates. It's supported simply by advancements in technology that enabled energy producers to tap into rich deposits of shale gas in Texas, Louisiana, Arkansas, Pennsylvania and New York. Experts expect that geologists will soon confirm large deposits in other states like Ohio.
With that much shale gas under American soil, successful development would mean that far-reaching and positive changes affecting the economy, environment and energy security are at hand.
Among countries with large natural gas resources, the United States recently vaulted to the No. 1 producer in the world, surpassing Russia and Iran. Thanks to the abundance of domestic shale gas, there is no longer a threat that foreign producers might conspire to form a natural gas cartel patterned after OPEC.
Here at home, electric utilities now have a financial incentive to replace small, older coal plants with combined-cycle gas plants. A 1,000-megawatt gas plant costs about $1 billion to build. By contrast, a coal plant of comparable size costs $3 billion. And a gas plant doesn't emit mercury, sulfur dioxide and other toxic particulate matter, and its carbon emissions are 60 percent lower than those of coal.
Although natural gas can play a critically important role reducing carbon emissions, some environmental groups oppose shale-gas drilling, claiming that it poses a danger to groundwater systems that supply drinking water. But the drilling is done at a considerable distance from underground aquifers, separated by thick rock.
There have been a few instances of wastewater from hydraulic fracturing reaching underground wells. But accidents, however inexcusable, take place in every type of energy production. With natural gas, effective state regulations have kept accidents to a minimum.
The surging supply of domestically-produced shale gas in the last few years provides overwhelming evidence that the U.S. has enough natural gas to easily meet demand well into the next century.
Mark J. Perry is a visiting scholar at AEI.