As tersely reported in the Canadian business press—
A long anticipated development
By Michael McCullough | CanadianBusiness.com
(Originally: March 19, 2012)
U.S. President Barack Obama has made clear that when it comes to “fracking,” he is siding with the oil and gas industry. (Photo by Owen Sweeney / Rex Features)
Environmentalists heartened by Barack Obama’s refusal to issue a permit for the Keystone XL oil pipeline didn’t have long to bask in their victory. Just days later, the U.S. president made clear in his State of the Union address that when it came to the other big eco-controversy in America—hydraulic fracturing, or “fracking,” to access natural gas reserves—he was siding with the oil and gas industry.
“We have a supply of natural gas that can last America nearly 100 years, and my administration will take every possible action to safely develop this energy,” Obama proclaimed. His remarks were a clear indication that, while environmental groups, celebrity protesters and a handful of jurisdictions including Quebec and New York state continue to resist, the mainstream is prepared to ramp up gas production—and abide with the environmental risks involved.
Obama later spelled out that his administration’s support of the natural gas economy would entail a requirement that gas producers disclose the chemicals they pump under public lands to crack gas-bearing rock. But he also revealed plans to promote consumption by converting federal fleets to natural gas, offering tax incentives to transport companies for converting their vehicles, and creating five highway corridors, each with a string of natural gas fuel stations.
For Canada, America’s commitment to gas is a mixed bag. On the plus side, it promises to boost demand for gas producers hit by the lowest prices in 14 years. Right now, prices are so low leading producers such as ConocoPhillips and Chesapeake Energy are not only slashing budgets for new drilling but shutting inactive wells. As EnCana Corp. CEO Randy Eresman noted in the Calgary-based company’s 2011 year-end results: “For the industry as a whole, near-term natural gas prices are at levels below what it costs to add most new production, and in some places, may even be below what it costs to produce from existing wells.” In many cases, it’s only use-it-or-lose-it land leases, pipeline contracts and forward hedging that keeps the gas flowing.
Obama’s gas stimulus will likely make the U.S. more self-sufficient, which could accelerate the slide in Canada’s market share. The value of Canadian gas exports last year fell to $13.1 billion, from a peak of $35.6 billion in 2005, and analysts project the U.S. will become a net gas exporter within a decade.
Hope for exporting Canada’s surplus production, especially from the mammoth shale fields in northeastern B.C., now rests on the construction of terminals on the B.C. coast to liquefy the gas and ship it to Asia, where prices are currently six times higher than they are here. But though the N a t i o n a l Energy Board has granted permits for two such terminals, neither project has yet broken ground, and the window for taking advantage of high prices in Asia could soon close a North American production techniques spread to shale-rich China.
U.S. presidents since Richard Nixon have talked about weaning America off imported oil, but Obama is the only one who can claim to have succeeded in any great measure. Much of that is due to the drop in demand during the recession, combined with the growth in domestic oil production from states such as North Dakota. Natural gas is poised to further displace oil imports, especially in the commercial transportation sector.
That is no comfort to fracking opponents such as the Natural Resources Defense Council, who fear for everything from surface and groundwater contamination to the unintentional release of greenhouse gases.
“We don’t know anything about this. There’s been no credible study,” actor Mark Ruffalo says in a video on the NRDC’s website. Such complaints gained credence last December when a preliminary Environmental Protection Agency study found fracking by EnCana had sullied groundwater in Wyoming.
But when weighed against the need for energy security, all that now looks like a tolerable risk to Democrats and Republicans alike. America, desperate for a break on fuel, may well settle for a fracture.
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