Monday, November 7, 2011

More Benefits of Shale

In an editorial in the New York Times last week, conservative columnist David Brooks expounded upon the "blessings" of the shale gas revolution in the U.S.  It's a good article that gives an overview of shale gas and talks about the current politics and issues.  Among the issues Brooks notes is the impact that shale gas has made upon the chemical and manufacturing industry.  I think this issue has been overlooked as a positive impact of shale gas.

Before shale gas extraction became feasible, chemical companies were closing U.S. facilities and relocating them offshore where natural gas prices were lower.  Now that feedstocks look to be cheaper for a long time to come, we are slowly starting to see new investment in facilities in the U.S.  This means lots of capital spending and jobs, both in construction and operations.  These are good jobs that were evaporating five years ago.

No stimulus, no subsidies, no bailouts, just market-driven jobs and investment.

But many of Brooks' arguments are predicated on the current low price of natural gas.  As we have seen, this is not a sustainable long-term condition, at least for drilling in the dry gas shales.  Prices will stay low for a while and they are unlikely to go back over $10/MMBtu any time soon, but I think building a business model around $3-4/MMBtu gas is a mistake.  Hopefully the price of gas will stay reasonable and steady enough so that we will see a steady march of manufacturing and chemical facilities (and jobs) returning to our shore.

One bone I do have to pick with Brooks is his statement that "there have been instances of contamination" of fresh water supplies from drilling.  It is not true that hydraulic fracturing has contaminated any underground water supplies.  This is a popular misconception that Brooks blithely assumed.  The few accidents have been from mishandling chemicals and water at the surface, not from fracking wells.

No comments: