Posts Tagged ‘Fracking’


Coal mine, early 20th century

“Friendly fire” is one of those euphemisms that’s hard to square with reality. It occurs when some of your troops are out ahead, most likely going toe-to-toe with enemy forces. Reinforcements arrive. But the reinforcements mistake their own troops for the enemy and start firing at them. Whoops.

It’s nothing new. In Britain’s First Afghan War (1839-42), a contingent of Indian troops were arriving by sea at Karachi, Pakistan, the closest port of call to the front lines. They were to join up with other local troops from the Sindh who were also allied to the British. These Sindhi soldiers were stationed at a combination lighthouse-fortress that guarded the mouth of the harbor at Karachi.

When the warship carrying the Indian troops arrived in the harbor, the commander of the fort made the unfortunate decision to greet it with an artillery salute. The ship mistook this for an attack and opened fire. Within a very short time many of their Sindhi allies lay dead underneath the smoking rubble of what used to be a lighthouse and a fort.

And that’s the problem with the war on coal. There is no war on coal, but politicians can use it to get votes. Get people angry. Make them feel like victims. Then they’ll vote for you. Remember “Trump Digs Coal”?

CNN (yes, I know, it’s CNN) put out an interesting clip yesterday on whether Trump has fulfilled his promises on restoring coal mining jobs. Electricity generation is the leading use of coal in the United States, but the fact is that more and more  coal-fired generation is shutting down not  because of any Obama-era war on coal, but because coal-fired generation just cannot compete on price with natural gas-fired generation and, increasingly, with renewables.

But it’s easier to win votes if you can say there’s a war on. Then you have an enemy. In fact, it’s pure economics.

The reason that natural gas is cheaper is because of fracking and the development of reserves in what were previously hard-to-reach (if not impossible-to-reach) shale formations. Fracking and natural gas spurred economic development in Texas and Louisiana, along the Gulf Coast, in an area running through Pennsylvania, Ohio and New York known as the Marcellus shale, and in North Dakota in the Bakken.

Cheap natural gas is good for the manufacturing sector. You need steel to drill for natural gas. With cheaper natural gas, steel manufacturing costs go down. Which makes steel equipment for fracking less expensive. Which makes for more natural gas…and so on.

Cheap natural gas is a feedstock for other products, such as ethylene for plastics. You may not like plastics, but, face it, you use them every day without noticing it.

One of the concerns sparked by the recent death of FERC Chairman Kevin McIntyre is whether natural gas projects, such as pipelines, might be delayed. FERC has tried to allay those fears, but the magnitude of the concern shows one of the economic differences between coal and natural gas: transportation. Natural gas moves by pipeline. Coal moves by railroad. Large portions of the railroad infrastructure in the United States is in a dangerous state of decay, and needs to be rebuilt. In terms of economic returns, railroad repair would be a much better use of $5 billion than a wall along the Rio Grande.

Sure, environmental regulations hamper coal-fired generation, but the real deciding factor is the price of the coal-fired kilowatt-hour.

Coal-fired generation will continue to be used in the U.S., but it will decrease. If the government decides to keep coal alive, that’s a subsidy no matter what it’s called. To the extent you subsidize one player (coal) in a market (electricity), you hurt others (natural gas, renewables), and the other industries that depend on those other fuels — whether in North Dakota, along the Gulf Coast, or in the Marcellus.

And that’s why the war on coal is a war of 100% friendly fire.

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Exelon CEO Chris Crane

Exelon CEO Chris Crane

A week or so ago, the Illinois General Assembly failed to pass Senate Bill 1585, the Exelon Bailout Bill. The bill failed despite a series of full-page newspaper ads and a robocall campaign touting how great the Exelon bailout would be for consumers. Exelon CEO Chris Crane even went so far as to set a deadline for the Illinois Legislature: Unless you pass the bailout bill by May 31, we’ll close two nuclear generating stations (Clinton and  Quad Cities).

Mr. Crane apparently remains unaware how much his threat to kill off two of his own nuclear plants resembles the threat made by Cleavon Little, playing the unforgettable role of new Sheriff Bart in Mel Brooks’s Blazing Saddles (1974).  Just after new Sheriff Bart arrives, the townspeople (nearly all of whom are surnamed Johnson) threaten to shoot him because he’s not quite who they expected. Bart then draws his pistol, holds the muzzle to his own head and threatens to shoot the sheriff (i.e., himself) if the townspeople don’t back off:

Sheriff Bart (as gunman): Hold it! The next man makes a move, the #$%^& gets it!

Olson Johnson: Hold it, men. He’s not bluffing.

Howard Johnson: Listen to him, men. He’s just crazy enough to do it.

Sheriff Bart (as gunman): Drop it! Or I swear I’ll blow this #$%^&’s head all over this town!

Sheriff Bart (as hostage): Oh, Lordy, Lord, he’s desperate! Do what he say! Do what he say!


Harriet Johnson: Isn’t anybody going to help that poor man?

Howard Johnson: Hush, Harriet. That’s a sure way to get him killed.

Sheriff Bart (as hostage): Help me, help me……somebody help me!

Sheriff Bart (as gunman): Shut up!

Just as Sheriff Bart managed to escape unscathed, so we learned the next day that Exelon and the legislature are working on a “new compromise” that would prop up Exelon’s two troubled nuclear plants. Expect to see Mr. Crane reprise his role as Sheriff Bart, with a renewed threat to euthanize the Clinton and Quad Cities stations, in the weeks leading up to the next legislative session.

In earlier posts, The Sparkspread explained how, more than a decade ago, the top management of Exelon embarked on a grand plan: strip the generating assets (i.e., nukes) out of the stodgy, old, regulated utility and transfer them to a shiny, new generation subsidiary called Exelon Generation. After all, it wasn’t as if the regulated utility was going to open up new markets. Its service territory was fixed. It was much better to have the generation assets in an entity that wasn’t regulated, that could make profits in a competitive wholesale market, and keep those profits without a regulatory say-so.

Once Exelon had the nukes in a separate subsidiary, it stood to earn some hefty profits because its generation costs were very stable. Sure, it had to refuel periodically, and operations and maintenance are not cheap, but on a relative basis the cost of nuclear generation was very low relative to natural gas-fired generation, and the latter sets the electricity price at the margin in this market. All of this was planned before the advent of fracking, when the price projections for natural gas all looked like hockey sticks. Well-informed market players feared that the U.S. wouldn’t have enough natural gas, and they predicted that we’d have to import it. So Exelon placed its bets. One could almost see Adam Smith smiling down from above. What could go wrong?

A couple of things, it turns out. First, the fracking revolution in natural gas turned lots of assumptions about the U.S. energy picture upside down. The U.S. with a natural gas shortage? Not now. We’ve got more than a century’s worth of supply at current consumption rates, enough to export it with the right facilities and markets. Between 2005 and 2012, natural gas production increased almost 30%, a rate of increase that triggers comparisons with the Golden Age of American Industrialization between the end of the Civil War and the turn of the 20th century. Heady stuff, but the cloud in this silver lining is that decreasing natural gas prices translate to decreasing wholesale electricity market prices.

Then the Great Recession Double Whammy hit, and the economy tanked. Production, and therefore energy demand, went down. Nowadays the Federal Reserve issues its monthly Panglossian pronouncements that the recession is over, unemployment is down, and everything is fine. The 2016 presidential primary season showed that neither the Fed nor anyone else in D.C. has a clue about anything outside the Beltway. The American voter has seen enough bogus economic data swallowed without question and regurgitated by bogus financial news media. The continuation of low market electricity prices says it all.

Make no mistake, Exelon’s fighting a war on two fronts: low energy market prices in the east and sluggish economic recovery in the west. But Exelon, its management, and its shareholders assumed that risk. They wanted to be entrepreneurs, and the Illinois General Assembly granted their wish with the necessary amendments to the Illinois Public Utilities Act.

Exelon played the market, and it lost. In Donald-Trumpese, Exelon is a “LOOZER,” just like all those poor slobs who keep demanding an increase in the minimum wage. (The nerve!!!)

When the energy market was high and Exelon Generation was making money, Crane was pleased to talk about the glories of the free market, private enterprise, shareholder value and the privatization of profits. But now that the market has turned against Crane all that shareholder value malarkey has to be swept under the rug like something unmentionable that you don’t want your dinner guests to see.

To everything there’s a season, and the time for privatizing profits is over. Now is the time for socializing losses. Crane has to talk about how “the market is flawed,” how the Exelon Generation nuclear fleet is imbued with a vast public interest, and how the citizens of Illinois are no longer just chumbolones (to borrow a John Kass-ism). Now, they’ve been elevated to the rank of “stakeholders.” Funny how that works. Crane’s worshipful attitude towards ratepayers increases in direct proportion to the magnitude of the public subsidy he’s looking for. To bail out Exelon, the Illinois General Assembly needs to hit ratepayers with a new charge called a zero emission credit. He didn’t get it this time around.

The Exelon Bailout Bill perfectly exemplifies the type of crony capitalism (or, more appropriately, Craney Capitalism) in which Exelon’s sycophants in the General Assembly are only too happy to use the state’s power to subsidize Exelon and protect its privatized profit model from the perils of a free market whose virtues it extolled when the market was high.

No wonder Trump’s popular.


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The Huff Po reports that New York will ban fracking until further notice.

The officials said the potential health and environmental impacts are too great to allow fracking to proceed in the state at this time, and pointed to a dearth of studies regarding the long-term safety of hydraulic fracturing. The New York State Department of Environmental Conservation will issue a legally binding, supplemental environmental impact statement next year outlining its findings on the issue.

Read the story here:

Gov. Andrew Cuomo To Ban Fracking In New York State.

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Baker-Hughes new breast cancer drill bit

Baker-Hughes new breast cancer drill bit

Salon reports that Baker-Hughes will be painting its fracking drill bits bright pink in support of the  Susan Komen Breast Cancer Foundation.

Fracking’s disgraceful, transparent new “pinkwashing” – Salon.com.

We’re certainly in favor of funding good causes to help fight disease, cancer, etc., and have no axe to grind (so to speak) with the Komen Foundation. But this has to be one of the most bass-ackward public relations ploys in a long time, quite apart from the fact that the connection between fracking and breast cancer is, to say the least, elusive.

Think about this for a minute. That drill bit will be on the end of a string of case hardened steel tubes forced down through layers of rock to a depth of around 10,000 feet. Then, it will be diverted from vertical to horizontal for another two to three miles. That’s about as far into the earth as Mount Everest is tall. If the intent of Baker Hughes and the Komen Foundation is to demonstrate breast cancer awareness to whatever lived during the Precambrian Period, then this is indeed a brilliant strategy.

I have just a few remaining questions.

After boring through 5 miles of rock, exactly how much pink paint will be left on that bit?

Does the fact that during every minute of its descent the bit will be befouled with drilling “mud” in any way detract from the message?

Suggestions to Baker Hughes: (1) Go back to cash donations and rent a couple of highway billboards, and (2) hire a new public relations firm.


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Flared Natural Gas in the Bakken

Flared Natural Gas in the Bakken

Today’s WSJ reports (once again) that North Dakota is flaring (meaning burning up at the wellhead) 30% of the natural gas that’s produced at its fracking sites, amounting to more than 10 bcf (billion cubic feet) per month. Dollar-wise, that works out to about $50,000,000 a month.

Imagine for a moment that the NYMEX natural gas futures contract was done on paper. Now imagine further that you walk onto the floor of the NYMEX and buy ten natural gas futures contracts. That’s 100 million cubic feet of natural gas. Now take all of those paper NYMEX contracts and use them to start the coals in your barbecue. That’s how profligate is the waste of energy in North Dakota.

The main reason for this is that there’s no gathering system (network of pipelines) in the remote areas of North Dakota. You can put Bakken crude oil in a tanker truck and drive it to a railhead, but that’s not feasible for natural gas. The lack of a gathering system conspired with very low prices for natural gas over the last few years to make flaring the only logical thing to do with the gas.

Grab a 2-liter bottle of cola, shake it up and watch the bubbles. That’ll give you a rough idea of how the Bakken crude comes out of the ground, mixed with natural gas in much the same way as CO2 is dissolved in soda. Open the bottle (or drill the well), and the whole thing schpritzes over the top, just like the “gushers” Hollywood uses to depict oil drilling. For the Bakken operators, the natural gas is “associated” gas, a euphemism for “we have to get rid of this stuff somehow.”

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A National Academy of Sciences report states that fracking sites in Pennsylvania’s Marcellus Shale are releasing on the order of 100 to 1,000 times more methane than the EPA estimates.

via Pennsylvania’s natural gas wells are leaking up to 1,000 times more methane than EPA estimates – Salon.com.

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The WSJ reported on Saturday (3/2/2013) that Germany is debating whether to allow hydraulic fracturing, or fracking, to unleash reserves of natural gas from layers of shale deep underground.

Environmental advocates want to ban fracking altogether based on concerns that it will contaminate underground water supplies. German industry, on the other hand, wants to move forward on fracking because prices for electricity in Germany have increased 40% in the last five years, and the manufacturing sector is reaching its “pain threshhold.” Electricity prices in Germany are about 15% higher than in other European countries, and a continued escalation of those prices could threaten Germany’s position as the leading industrial nation on the Continent.

Germany’s potential natural gas reserves are nowhere near as vast as those in the United States, but apparently there’s enough trapped under the Vaterland to meet its needs for the next 50 years at current consumption levels.

The situation is complicated by Germany’s “energy revolution,” the decision by Chancellor Merkel’s government made in the wake of the Fukushima disaster to abandon nuclear power by 2020. Absent development of natural gas resources, that decision will likely result in a large-scale return to coal-fired generation, thus increasing Germany’s greenhouse gas emissions. Buying natural gas from Russia isn’t a very attractive option, given Putin’s propensity to use energy as a hammer to keep Western Europe in line.

The Chancellor is no doubt worried about how to maintain a political coalition that will keep her in office, a job at which, as the past several years have shown, she has been rather adept. She wants to split the difference between industry and environmentalists by allowing pilot fracking programs that she hopes will show that the technique can be used safely, while holding certain areas such as national parks and around water resources, off-limits to fracking.

*To frack or not to frack, that is the question.

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