Gurcan Gülen: New infrastructure is needed to support drilling expansion

Thursday, 10 May 2012 01:53:21 (GMT+3)   |  
       

Gürcan Gülen, Ph.D., Senior Energy Economist, Center for Energy Economics, discussed the current drilling trends for oil and gas in the United States at SteelOrbis' Steel Scene conference in Houston, Texas on May 8. Gülen first explained that while the US is moving toward natural gas and unconventional (shale) gas drilling has been the main contributor, the natural gas boom has been driven by resource availability, lower emissions as well as the low cost of building gas-fired power plants. He noted that there is a ban on shale in some other parts of the world such as Europe, particularly in France. While gas has been replacing coal for about a decade now, the US has not stopped mining for coal, but much of domestically produced coal is now exported to China and other places.

The use of natural gas has been going up substantially over the last 10 to 15 years, Gülen explained, which has in part been driven by growing electricity demand. In the last 15 years, natural gas was the most increased energy source, surpassing nuclear, coal, etc. Because of this expansion in natural gas, the US' crumbling infrastructure needs to be addressed; recently, we have seen continuous drilling, hydraulic fracturing (fracking), water recycling, new pipelines if production is located in non-traditional regions and new liquids pipelines and processing facilities. As liquids production increases, the US needs to build more pipelines and infrastructure to support the growth--the US has fallen to 27th in the world in terms of infrastructure.
Gülen detailed the importance of not discounting the boom/bust cycles, explaining that 35 years ago, the US was running out of gas, and 25 to 30 years ago, we were in a bubble of gas overcapacity, much like we are today. And even without a Greenhouse Gas control policy, the "gas push" has been strong.

Although drilling in the US remains robust, there remain uncertainties on both the supply and demand sides. Regarding the former, natural gas prices have tumbled as of late, and $2/MMBtu is not enough to cover costs of new gas supply. Environmental regulations and public acceptance are a big risk factor; even without regulation, $20 billion is needed over the next 18 years in just generation-related expenses. On the demand side, there is the recent discussion of a possible end to the Eurozone and weather-related uncertainties: gas prices have gotten so low recently because the US has such a mild winter.

Despite the great strides that the US has made in trying to move toward more energy independence, Gülen said while the US is becoming more energy secure, complete energy independence is unlikely, as there continues to fierce opposition in the US to drilling.


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