As California phases out coal power under its climate protection law, AB 32, utilities are turning to renewable energy—and to natural gas power plants to meet electricity demand. As this transition progresses, an economist is warning Californians that geology is destiny. “Wherever you are, whatever the cost, the price is going to increase,” Robert Logan, California Energy Commission consultant, told commissioners July 2. “It’s a geological certainty. It can’t be avoided.” The reason, the economist explained, is that 20 or more years ago it was possible for producers to “just stick a pipe into the ground” and obtain a good flow of gas for years to come. The industry could find gas readily in large geological formations that were relatively easy to tap. Today, however, North American gas producers have to drill into increasingly small and remote pockets of gas that lie in locations often difficult to access. More gas is being produced from thin deposits of coal, as well as so-called tight sands and shale formations, Logan explained. These deposits are more expensive to exploit and generally produce lower flows. For instance, increasingly the geological formations in which the gas is trapped must be fractured by injecting pressurized hydraulic fluids, an added and expensive step in the drilling process that wasn’t needed yesteryear. Consequently, the production price for gas has risen from around $2 - $3/MMBtu to $5/MMBtu—or even more in some situations. The trend toward tapping so-called unconventional gas resources will continue, Logan said, particularly as traditional gas fields decline. Meanwhile, he added, it is likely that the cost of gas from traditional fields will rise as their production declines because fixed costs will have to be spread over a decreasing amount of gas. The bottom line? Short of “a flood” of liquefied natural gas or Alaskan gas, according to Logan, the price of natural gas and electricity made from it can be expected to climb.
