Chapter | 17 ❖ Will Texas be able to tap the market potential of an underground gold mine?

shale deposits under the ground in Texas, Introduction Pennsylvania, Colorado and elsewhere in New natural gas discoveries in Texas North America, oversupply caused natural and nearby states are causing many people gas prices to plummet to the point that the in the energy industry to reevaluate the industry came to a virtual standstill. The commodity fuel. The has low price of natural gas may be attractive to 35% more natural gas reserves than consumers, but Americans are not buying was thought to exist just two years ago. more natural gas–powered automobiles or Economists at the Colorado School of building new homes outfitted with gas. Mines estimate that the United States has The automobile industry drives a lot of enough natural gas to last the next 118 innovation in America and creates much of years. This enormous supply has helped the demand in the energy industry. But the push natural gas prices down — to $3 per auto industry has been in its own disarray, thousand cubic feet in mid-2009 from and automakers have been unable to deliver the previous year’s high of $13. Industry natural gas vehicles to the market. leaders are watching to see if the lower “The logic for natural gas is prices lead more consumers to switch to overwhelming as energy for homes, power natural gas to power their vehicles and plants and automobiles,” said one Houston other needs. energy executive. “Logic would tell us that In 2004, Texas produced 5.1 trillion the invisible hand would push us toward cubic feet of natural gas. Texans consumed natural gas. But it hasn’t happened. The only 3.4 trillion cubic feet, and the natural gas industry is in a wait-and-hold natural gas companies exported the rest, mode. The industry is not adding more according to the U.S. Energy Information natural gas pipelines. And there has not Administration. From 2004 to 2008, new been increased demand.” drilling technology helped gas companies According to industry experts, the open shale deposits near Fort Worth tipping point at which gas is both and then across Texas for natural gas profitable to extract and distribute and extraction. Natural gas production rose cost effective for residential and industrial 37.5% by 2008. According to estimates by consumers is $6. If prices stabilize at a energy economists, the extractable natural point where the natural gas industry can gas deposits in Texas doubled in just the move forward, Texas stands to benefit. past four years. Texas is home to 9 of the 20 largest Still, natural gas production has stalled natural gas producers in the United States. as producers wait for prices to rise to a These include ConocoPhillips, Anadarko profitable point. , XTO Energy, ExxonMobil, EOG Resources, Apache, El Paso Energy, | What’s Happening Newfield Exploration and Marathon Oil. Oil billionaire T. Boone Pickens pushed The 2008–2009 recession, in which his Pickens Plan in an effort to make the extreme structural changes and cyclical United States more energy independent by downturns converged, was especially 2018. His plan calls for a $1 trillion federal bad timing for the natural gas industry. and state investment along with private As new drilling technology opened huge 120 | CHAPTER 17 84.9%

Natural gas 43%

Coal 37%

Nuclear 13%

Wind 5%

Other* 2%

0 20 40 60 80 100 Percentage

Sources of in Texas

Coal 37% Nuclear 13%

Wind 5% Natural gas 43% Other* 2%

* Other includes energy sources such as hydroelectric, solar and . Figure 17.1

investments to build wind farms across the sources of electricity generation, as shown as well as new service stations in Figure 17.1. to fuel natural gas–powered vehicles. The Pickens Plan focuses on domestic natural gas as a clean, plentiful (but finite and | The Data nonrenewable) to bridge Employment in the combined oil and consumers until nuclear, and natural gas industry dipped from the sources, such as wind and highs reached in 2008 due to business solar, fully replace fossil fuels. President cycle changes, but the combined industry Obama endorsed the plan, and 14 grew during the past decade, according governors (including Texas Governor Rick to data compiled by the Texas Workforce Perry) signed it at the 2009 winter meeting Commission (TWC). of the National Governors’ Association. More than 6,000 well operators are Even leaders at the called actively registered with the Texas Railroad the Pickens Plan extremely aggressive. Commission. They operate more than Pickens has backed off a bit from his plan 74,000 natural gas wells and gas-fired because transmission lines are utility plants, which generate 15.5 million proving costly and Americans are still not megawatt hours of electricity annually flocking to new natural gas vehicles. Still, — or 26% of the total U.S. share. The Pickens proclaims natural gas adoption by combined oil and natural gas industry American consumers will soon grow. entered January 2000 with 65,500 workers Many U.S. utilities executives express in Texas and, despite the recession, interest in shifting from coal-fired power employed more than 75,000 workers in plants to less-polluting natural gas–fired the fall of 2009. On the flip side, natural generators. This shift has already started gas pipelines and distribution industries in Texas. In 2008, the Electric Reliability declined by 8,901 jobs between the first Council of Texas, which runs the ERCOT quarters of 2001 and 2009, according to electric grid for 85% of Texas, reported the TWC data. CHAPTER 17 | 121 Known Reserves of Natural Gas, 2007

Volume Location U.S. Total (%) (billion cubic feet)

United States 237,726 100%

Texas 72,091 30.3%

U.S. federal offshore waters 14,439 6.1% Table 17.1

So u r c e U.S. Energy Information Administration.

Along with employment, the level of “Our studies in the United Kingdom natural gas reserves is also growing. Table show that, everywhere wind energy was 17.1 shows known Texas reserves of natural built, demand for natural gas went up,” gas, which make up 30% of the nation’s said Michael Economides, an international total natural gas reserves. Another 6% energy consultant and petroleum engineering of the nation’s reserves lie in federally professor at the University of Houston controlled coastal waters. Despite these who claims that natural gas turbines at reserves, the Texas natural gas production power plants can fire up within hours to peaked in 1972 at 8.6 trillion cubic feet meet power demands. “Alternative energy then declined steadily through 2004, chiefly needs the support of natural gas. Wind because the cost of production was too high turbines make people feel good, but wind relative to market pricing. turbines don’t provide power all day long,” However, the industry is changing. continued Economides. Additional new natural gas reserves have “Texas could also benefit from enhanced been discovered. In 2003, explorers made infrastructure with Mexico to increase 174 new natural gas discoveries, and natural gas exports south of the border,” “Texas could in 2008 gas companies marketed more Economides said. “Mexico is hungry for than 6.9 trillion cubic feet of natural gas. gas.” also benefit New techniques have created more cost- The hottest areas for natural gas from enhanced effective methods of gas extraction, and extraction and exploration are in the new exploration technology has identified infrastructure Barnett Shale and Fort Worth Basin in the reserves of unconventional gas, such as North Texas area; the Overton, Carthage, with Mexico to coal bed methane and shale gas reservoirs. and Joaquin fields and the Bossier Sand increase natural gas Natural gas now fuels most electric plants in East Texas; and the Hugoton field and in Texas. But while the cost of production exports south of Granite Wash in the Panhandle region. has fallen, market prices have fallen to an All of these areas are seeing increased the border. even greater extent. employment in and revenue growth for Mexico is hungry oil field service companies and oil and gas extraction. Comparable employment for gas.” | So What? growth has not yet occurred in the pipeline and transportation, petroleum merchant “Energy will continue to be a key driver — Michael Economides, wholesaling and natural gas distribution of the Texas economy; there’s no two sectors but could likely follow. However, University of Houston ways about it,” said the president of an oil current exploration and drilling activities and gas exploration firm in Midland. “Oil are stopped just before extraction begins as and gas have been paying a lot of the bills Texas producers wait for the international in Texas, and that will continue, especially market to push the price of natural gas into for gas.” a higher profit range.

122 | CHAPTER 17 Chapter 17 | Suggested Strategies

 Think Globally, Plan Regionally Furthermore, geothermal-powered electricity can be used to meet the off-grid Texas has 42 of the 100 largest natural gas power supply needs of the drilling rigs fields in the United States, according to the and pumps, creating self-powered drilling U.S. Energy Information Administration. equipment and lowering extraction costs. Texas also has an abundance of natural gas Regional economic developers, state officials at a time when American political interests and even those in charge of the Emerging are pushing the country away from “dirtier” Technology Fund could consider providing energy sources, such as oil and coal. Natural financial incentives to firms in the oil and gas creates about half as much harmful gas extraction and services industries so they emissions as its rival energy sources. can modify their equipment and processes Pummeled by low prices and unchanging to tap geothermal energy. Federal funds demand, the natural gas industry in Texas is have been set aside under the Environmental frozen. But that can change because sustained Policy Act of 2005 for geothermal research low prices tend to attract demand. and development. Texas researchers and If Texas wants to grow its natural gas entrepreneurs, with the help of the Governor’s industry, the state could consider expanding Office for Economic Development, local its natural gas infrastructure. Assisting in the workforce boards and economic development building of new gas service stations to supply organizations, could aggressively pursue those natural gas–powered automobiles and pushing funds. for terminals a few miles Proponents of natural gas argue that it off the coast in the Gulf of Mexico (federal is the most underused fuel source in the authorities have permitted eight such terminals marketplace. Although many commercial for Texas) could propel the industry forward. companies and public utilities have substituted While Texas waits for natural gas demand natural gas vehicles for buses, trash trucks to rise, the Lone Star State can tap other gases and other diesel-burning heavy equipment within its borders, including methane, which at significant cost savings, few Texans have is produced in vast amounts in municipal followed suit with passenger cars. Honda landfills, wastewater treatment systems and makes some of the few production passenger feedlots. The technology exists to capture, cars that run on natural gas. It is unclear if purify and use methane for generating heat or when the market for a natural gas car will and electricity, and methane can eventually be improve. In the meantime, as Texans look for used as another source of hydrogen. Regions all manner of energy alternatives, natural gas should look beyond current funding resources looks like it will remain a potent and viable and pursue outside grants and private funds to option for a century. promote methane-based combined heat and power systems.

CHAPTER 17 | 123