Despite major errors in EIA’s reporting of natural gas supply and demand, inventories that have remained at or above the five-year average for the last nine months will likely keep short-term prices low. (image: thomsonreuters.com)

The US Department of Energy announced on Monday that it would implement sweeping changes to its data collection on natural gas supplies to address “overestimates” in production, according to the Wall Street Journal. The DOE’s Energy Information Administration (EIA) currently collects data from large natural gas producers and extrapolates that data across the industry, omitting data from hundreds of smaller producers. The EIA will begin using new data collection methods this month to correct the problem, which will likely lead to a substantial reduction in US supply estimates.

In addition to excluding data from smaller producers, or perhaps as a result of it, recent natural gas estimates have shown huge margins of error, leading many analysts to question the overall validity of the data. The Journal explained:

Analysts also point to the discrepancy between supply (how much gas is produced or imported) and demand (the amount that is stored or used). Those two figures should cancel each other. While there always is a margin of error, that margin has widened sharply in recent months. In December, the agency reported total new gas supply at 87.8 billion cubic feet a day and total demand of 80 billion, leaving 7.8 billion cubic feet unaccounted for—a margin of error of 10%.

The EIA’s announcement drove up the price of natural gas by 11 percent earlier this week, as traders anticipated a tightening of supplies as a result of the data collection changes. According to a Reuters report published on Tuesday, however, “analysts said that will not change the fuel’s weak near-term fundamentals.” Although recent data may be inaccurate, US supplies of natural gas still surpass demand, and that trend will likely continue over the next few months.

Last month, a report by Dow Jones Newswires found similar inaccuracies in the EIA’s reporting of oil inventory data that had major effects on crude (and, by extension, heating oil, diesel, and gasoline) prices in the last six months. The reception of that finding was more muted, as deficiencies in the oil supply reporting process—like reliance on storage firms’ self-reporting and human error—were fairly widely known.

EIA officials have pledged to address reporting issues, but have not offered any specifics on how they will do so. It appears that weekly oil inventory reports will likely remain unchanged and continue to influence oil prices, flawed though they may be. Changes to natural gas supply and demand data collection are forthcoming, and will certainly affect the long-term view of natural gas supplies and drive up prices in the long term.

Jack Gerard, API president, exchanging a gift with the secretary general of the Gulf Petrochemicals and Chemicals Association. (image: ameinfo.com)

When it comes to energy policy, there are perhaps two types of people: those who worry that the United States is too dependent on oil, a carbon-emitting fossil fuel of diminishing supply and increasing price; and those who see oil as an American staple, plentiful as long as crude providers find innovative ways to extract it. Positioned squarely in the second camp is the president and CEO of the American Petroleum Institute, Jack Gerard, who described a bright future for the oil industry in a speech he delivered at the Sixth Annual State of the Energy Industry USEA Conference on Wednesday. According to Gerard, the biggest challenge facing oil is not desiccated reserves or inflated prices, but the proposed energy policies of the Obama administration, which not only misestimate the global oil supply and the damage done by carbon emissions, but seem designed to stifle a thriving industry and keep millions of Americans out of a job.

To Gerard, such needless legislation can only make matters worse. If left alone, he contends, the oil industry would continue to supply the United States with near-limitless energy. “We are not running out of oil or natural gas,” he pronounced at Wednesday’s conference. “Technology and innovation keep finding new supplies and squeezing out more resources from existing fields than ever thought possible.” Gerard counts among the world’s “new supplies” the recently discovered reserves in the Gulf of Mexico, onshore reserves in the United States (including natural gas in Pennsylvania’s Marcellus Shale), and the oil sands of Canada. In the face of these reserves and those not yet discovered, the threat of Peak Oil, a theory that postulates the eventual exhaustion of the world’s oil supply, is rendered a mere specter.

Gerard’s confidence in the potential of new oil reserves, and his tacit dismissal of Peak Oil, puts him in step with other chief executives of the oil industry. Recall that in November of 2009, Leonardo Maugeri, senior executive vice president of the Italian oil company Eni and author of The Age of Oil (2006), made similar pronouncements regarding the robustness of the world’s oil supply. Maugeri predicted that by 2030 “more than 50% of the known oil will be recoverable. At the same time, the amount of known oil will have significantly grown…and a larger portion of unconventional oils will be commonly produced, bringing the total amount of recoverable oil reserves to something between 4.5-5 trillion barrels.” That is, Maugeri thinks that in the next twenty years, we will more than double our available oil reserves.

And as long as oil suppliers continue to find and extract crude, US workers will continue to have jobs. According to Gerard, “the oil and gas industry is one of the nation’s premier job-creating engines today.” He pointed to an ICF International study which estimates that “developing the nation’s federal non-park oil and natural gas resources could create 160,000 new direct jobs while also generating more than $1.7 trillion in government revenue.” Even oil reserves in Canada translate to American prosperity: Gerard cited a CERI study which suggests that “future Canadian investment in oil sands development would generate 342,000 additional U.S. jobs. That’s in addition to the thousands of U.S. jobs created by U.S. pipeline and refining companies to prepare the infrastructure to receive and process that oil.”

To Gerard’s mind, all that stands in the way of a prosperous oil industry are a handful of intrusive energy and environmental bills proposed by the Obama Administration and Congress. “Some of the policies advanced recently seem aimed at chilling the job creation potential of domestic oil and natural gas development,” he said on Wednesday, continuing:

Some climate proposals would put U.S. refiners at a competitive disadvantage, driving jobs out of the country, along with their emissions. Other proposals would increase costs on the oil and natural gas industry, depressing new investment in domestic oil and gas prospects. Still other initiatives would adversely affect leasing and development on federal lands and U.S. waters.

Yet, in describing a rosy picture of the oil and gas industries unregulated by Obama’s legislation, Gerard neglected a few important details. As Kristin Korosec of BNET points out, the United States is not the only country in the world that consumes and produces oil. Much of our oil is still imported from oil producers like Saudi Arabia, a situation that is unlikely to change much even if new domestic reserves prove profitable. As emerging industrial nations like China and India begin to import greater amounts of crude, global supplies may be stretched, and Americans could find themselves paying more for oil than they would like.

Just as importantly, Gerard is perhaps guilty of exaggerating the benefits of increased oil production in the United States. According to energy expert Thomas Ballentine, the promise of offshore oil and natural gas drilling is “vastly overblown.” In fact, the US Minerals Management Service has estimated that the Eastern Planning Area of the Gulf contained only 1 million barrels of crude oil, which isn’t even enough to supply the US for one hour. Add to this the fact that, according to Interior Secretary Ken Salazar, leasing public lands for oil drilling (which Gerard heartily promotes, and which new legislation seeks to limit) has led to a slew of legal disputes that have ended up costing taxpayers millions of dollars.

Suddenly, the future of the oil industry begins to seem less bright.

Sure, natural gas is an important commodity that’s “giving people warmth and light for office and for home,” but does it deserve three and a half minutes of exultation that borders on religious fanaticism? It’s clear that natural gas is one of the main (if not the most important) factors that maintain Russia’s political relevance in our global society, as then-president Putin showed when he cut off Russia’s gas supply to the Ukraine in the dead of winter last year.

Crucial domestic resource, chief export, invaluable revenue source, political weapon…you can see why the Russians love their gas. However, I doubt average Russians share the unconditional love and reverence for Gazprom that the anthem expresses, or if the song is even known in the country (or anywhere outside the snickering group of 67,950 YouTube viewers), but I do know that they’ll “never ever find a surer friend than Gazprom.”

So pour yourself vodka straight up so we can “drink to all the Russian gas, that it never comes to an end, though it’s so hard to obtain!”

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Hydraulic fracturing and drilling can reach into water supplies as well as natural gas-laden shale formations. (image: journeyoftheforsaken.com)

“Introduction of hundreds of tons per day of fracturing chemicals into the watershed over a period of several decades will likely be accompanied by the gradual dispersion of low levels of toxic chemicals into the environment and potentially the [New York City] water supply via multiple transport pathways.”

That’s from the just-released “Final Impact Assessment Report” by the NYC Department of Environmental Protection on the risks posed by natural gas production in upstate New York. Normally, engineer- and scientist-speak tends to understate risks; they’re the kind of people who’d call what happens when you hit the pavement after falling off the observation deck of the Empire State Building “Sudden Deceleration Syndrome.” However, even couched in scientific-ese, the conclusion reported above is frightening—any time you put “toxic chemicals” and “water supply” into the same sentence, you have a problem.

Other conclusions from the DEP’s report include:

• “Withdrawals [of water to support hydraulic fracturing] during dry periods could increase the duration of drought watch, warning, or emergency conditions.”

• “[C]hronic and persistent occurrence of small scale surface spills and contamination incidents will inevitably accompany . . . hydrofracking . . . [and will] reduce public and regulatory agency confidence in the quality and safety of the water supply.”

• “[H]yrodfracking . . . will produce an industrial-strength waste stream characterized by exceptionally high concentrations of a wide range of substances with the potential for adverse health and water quality effects which can be expected to exceed existing treatment and assimilative capacities. . .”

• “There is high level of uncertainty as to whether effective waste treatment processes and sufficient capacity will be available in the future.”

All of which led NYC’s acting Department of Environmental Protection Commissioner, Steven Lawitts, to say that “high volume hydrofracking and horizontal drilling pose unacceptable threats to the unfiltered fresh water supply of nine million New Yorkers.”

Hyrdrofracking, or hydraulic fracturing, is the use of high-pressure fluids to force open seams in natural gas-rich rock, to allow the gas to be extracted. While it is an old technique, hydrofracking has gained currency in the last few years as a way to extract gas from sizeable but hard-to-reach deposits, such as those in the Marcellus Shale of upstate New York and Pennsylvania.

Hydrofracking uses vast quantities of water—enough, as the DEP report noted, to exacerbate drought during dry spells. However, that’s a just a sideshow to the real hazard, which is the toxic brew used in the hydrofracking process. While it could technically be done using just water, that’s costly and inefficient; hyrdrofracking works much better—and is kinder to drilling companies’ bottom lines—when chemicals such as diesel fuel, methanol, hydrochloric acid, and formaldehyde are added to the mix. Since the whole purpose of hydrofracking is to force open channels in rock to facilitate the upward movement of liquids and gases, it should be no surprise that despite drillers’ best efforts, hydrofracking chemicals get out into the environment. That’s bad under any circumstances, but worse when it occurs in or near the water source for millions of people, such as the New York City watershed.

That’s why acting Commissioner Lawitts is asking for a ban on gas drilling in the watershed; when you’re talking about potentially introducing toxic chemicals into New York City’s water supply, “[t]he risks are simply not worth it.”
To their credit, a number of gas companies (such as Chesapeake Energy Corp.) have already voluntarily announced that they would not drill in the NY watershed. The question is whether corporate good citizenship and judgment can be trusted, or whether a formal ban is necessary.

The issue is going to keep coming up: much of the vast quantities of natural gas that have been discovered in the last few years are in reserves that require hydrofracking to exploit. Without hydrofracking, a large percentage of this gas can’t be reached—to a considerable extent, domestic natural gas supplies and hydraulic fracturing are inextricably intertwined.

Hydrofracking’s not all or always bad: there are locations where it can be done with little environmental or societal impact, and there are techniques that are relatively safer or cleaner. Very few people in government or otherwise are calling for broad, outright bans on hyrdrofracking, though momentum seems to be building for restricting where it can be done, as well as for requiring greater transparency from gas companies in terms of disclosing the chemicals they use. That’s the purpose, for example, of the so-called “Frack Act” that’s working through Congress—to mandate disclosure of hydrofracking chemicals.
On all sides, the stakes are high: in the Marcellus Shale alone, the water supply for 9 million people and the upstate environment is balanced against a 20-year supply of natural gas, several thousand jobs, and considerable tax revenue. Getting that balance right will not be easy, but it is vital.

ExxonMobil CEO Rex W. Tillerson. (image: planetark.org)

In its latest report, ExxonMobil said that rising energy demand over the next two decades will require investment in the development of all potential energy sources, United Press International reported on Wednesday. The report, “New Outlook for Energy: A View to 2030,” predicted that energy demand in 2030 would be about 35 percent higher compared to demand in 2005, and meeting that demand would require “trillions of dollars of investment and a commitment to innovation.”

ExxonMobil’s outlook included the potential effects of carbon emissions reduction policies (the same policies being discussed at the Copenhagen conference this week) on energy demand and the global share of different energy sources. The company said that imposing higher costs for carbon emissions would drive energy prices higher and provide an incentive to switch to less carbon-intensive fuels such as natural gas.

The oil giant said that fossil fuels such as oil, coal, and natural gas will continue to meet most global energy needs in the near future, “because no other energy source can match their availability, versatility, affordability, and scale.” It added that the use of natural gas will grow the fastest, because of “its abundance, versatility, and economic advantages as an efficient, clean-burning fuel for power generation.”

The report also stated that the natural gas supply is set to increase, particularly in the U.S. Unconventional gas supplies (supplies accessed with relatively new technologies like hydrofracking) in the U.S. are expected to meet more than 50 percent of domestic gas demand by 2030.

Although turning energy sources with a smaller carbon footprint into practical solutions will be a major challenge, ExxonMobil remains optimistic about the future. “We see many hopeful things — economic recovery and growth, improved living standards and a reduction in poverty, and promising new energy technologies,” said Chairman and Chief Executive Officer Rex W. Tillerson.

However, the company also sees a tremendous challenge, and “that is how to meet the world’s growing energy needs while also reducing the impact of energy use on the environment,” Tillerson said. He went on to say that supplies of all economic fuel sources must increase to meet projected increases in global energy demand.

The global population is projected to rise to almost 8 billion, so the demand for energy indirectly applied to serve growing societies will also increase.

ExxonMobil said that gains in energy efficiency are expected to accelerate rapidly between now and 2030, compared to historical trends. It said that efficiency gains will suppress growth in energy demand through 2030 by about 65 percent.

If and when petroleum refiners are forced to pay for carbon emissions through cap and trade and/or carbon taxes, ExxonMobil’s predictions would mean higher prices for energy users, and for heating oil consumers specifically. Over time, prices should decrease however, as renewable fuels become a bigger part of the heating oil mix, and the overall demand for petroleum-based fuel decreases.

Pipeline transporting Russian natural gas. (image: visitbulgaria.info)

A new coalition of natural-gas-producing countries, called the Gas Exporting Countries Forum (GECF), had its first official meeting this week, the New York Times reported on Thursday. Members of the GECF convened in Doha, Qatar, where they elected Leonid V. Bokhanovsky as the coalition’s secretary general and discussed ways to fix the price of natural gas, which has been plummeting in recent months because of a glut in supply. Attending the meeting were energy ministers of the eleven member countries: Algeria, Bolivia, Egypt, Equatorial Guinea, Iran, Libya, Qatar, Nigeria, Russia, Trinidad and Tobago, and Venezuela.

The prenominate countries have been meeting informally since 2001, finally adopting a formal charter in Moscow a year ago. Some critics have labeled the group a “cartel,” applying the dubious informal title ‘Gas OPEC’ (presumably because ‘ONGEC’ is not all that catchy). Many analysts worry that the gas-rich GECF will have the power to drive up natural gas prices by constricting supplies, much in the same way that OPEC ostensibly spiked oil prices in the 1970s. Indeed, the eleven members of GEFC seem to have a tight grip on the market: Russia, the world’s biggest producer, alone supplies roughly 25 percent of Europe’s gas, while the three biggest gas-producers in the coalition control more than half of the world’s proven gas reserves.

Despite their clout, the members of the GECF are worried by the sinking price of gas. Over the last twelve months, oil prices have climbed about 40 percent while the price of natural gas has fallen by roughly the same percentage. The big reason for the price drop is a perceived overhang in supply—there’s just too much gas being produced and not enough demand for it. Most of the new gas has been coming from the United States, where new drilling technology—known as hydraulic fracturing (or ‘hydrofracking’)—has allowed gas to be extracted from geological formations previously considered impenetrable. This so-called ‘shale-bed gas’ poses a threat to Russia and other gas-producing nations, who have recently seen their market shares diminish.

Thus, the GECF’s first order of business was to figure out a way to maintain the link between natural gas and oil contracts; doing so would mean that the higher oil prices go, the higher gas prices go, too. And with oil hovering around $80 a barrel, this is an appealing arrangement for the members of GECF. If the group evolves into a cartel, it could prevent market forces from making relatively clean-burning gas less expensive than oil, said Ian Cronshaw of the International Energy Agency, which is opposed to the idea of strengthening links between oil and gas contracts. “Our position is that the market should set prices,” he said.

Be apprised: If GECF does begin driving up the price of natural gas, consumers who have the option of using either oil or gas to heat their homes and businesses will most likely begin using more heating oil. If this happens, the demand for oil will increase, thus driving up oil prices. In other words, nobody wins—except, of course, the oil and gas companies.