March 9, 2016 | Earlier this month, natural gas prices dropped to their lowest level in 18 years, with spot Henry Hub prices hitting $1.57 per million Btu. … Read MoreGet Gas Stock Investor Kits
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Natural gas is an odourless, colorless hydrocarbon gas mixture composed mostly of methane, but also contains ethane, propane butane and pentane. It is combustible and burns more cleanly than many other energy sources, making it one of the most highly used sources of energy. It is a fossil fuel, meaning it comes from the remains of plants and animals from millions of years ago that have since been buried deep into the earth and exposed to heat as a result of high-compression from thousands of meters of soil and rock.
The fuel created from this process gets trapped in large layers of rock in areas referred to as pools although they are really held in small holes and cracks throughout the rock formation.
There are endless uses for natural gas and its a very efficient, clean and low-cost source of energy. Household uses include heating homes, through furnaces and hot water tanks. It can also be used to operate various household appliances, including stoves, clothes dryers, fireplaces, and barbecues. It is also used commercially and industrially for a number of things including heating, cleaning and cooking and running machinery.
What is fracking?
Drilling natural gas out of the ground is no easy task because it is contained within rock that must be broken in order to release the gas. If this is done incorrectly, you run the risk of contaminating the groundwater supply surrounding it. The most common method of retrieving natural gas from underground is through hydraulic fracturing, more commonly known as fracking, which is a controversial process by which energy companies stimulate the extraction of natural gas and oil from underground wells. This method is often criticized by environmentalists as it releases chemicals into the ground and the rock fractures can cause earthquakes.
Essentially, the gas company will drill a hole into the ground then line the hole with materials meant to keep the gas contained. The next step involves sending electric charges down the well, affecting the rock around it and after the charges are set off, a highly pressurized liquid solution is sent down in the well. The fracking solution, which is made up of water, sand and chemicals, creates fractures in the rocks that contain the gas and the gas is released while the solution holds the rock mass open. According to FracFocus, the national hydraulic fracturing chemical registry, the first commercial application of the process as a way to produce oil or gas occurred either in Kansas in 1946 or Oklahoma in 1949. Since then, fracking has become a widespread practice throughout the industry and has been used on more than 1 million wells across the globe.
Why is fracking needed?
The world’s massive supply of gas resources is useless if it can’t be accessed. Fracking helps energy companies reach oil and gas reserves that would otherwise remain untapped. This could be the case for a number of reasons, such as a shale formation that is very tight. Fracking also helps extend the life of older oil and gas wells that may have soon discontinued production.
According to FracFocus, experts believe that over the next 10 years, hydraulic fracturing will be necessary to keep 60 to 80 percent of all wells in the United States in production. Fracking is also frequently combined with the horizontal drilling method, thereby becoming an even more successful way to extract fossil fuels.
A controversial method
As mentioned fracking has been criticized by many because of the dangerous chemicals involved and the process of breaking up rock mass. The method runs the risk of releasing the harmful chemicals into our drinking water and while the leftover solution is sometimes transferred to a treatment plant, often it is stored in underground wells. After natural gas is removed from underground reservoirs, its is taken to a gas processing plant to remove impurities and by-products, such as ethane, propane, butane and sulphur. After being process it is transferred through pipelines to various destinations.
Opponents of hydraulic fracturing are also staunchly against the amount of water it uses. According to a report from the U.S. Department of Energy, drilling and fracturing a horizontal shale gas well, for instance, can usually require anywhere from 2 million to 4 million gallons of water. On the other hand, the DOE points out that this amount is small compared to what is used in other industries such as agriculture. Still, the fracking process also produces wastewater after the fact, which tends to go unused. This adds to the amount of water consumed and wasted.
A main concern is that the fracking process contaminates drinking water supplies because it might be leaching methane gas and toxic chemicals into the ground. According to a study by Duke University, methane concentrations are 17 times higher in drinking-water wells located near fracking sites compared to other wells. The fear is that this contaminated water is then used as drinking water in nearby cities and towns.
Why invest in gas?
Besides being directly affected by the rise and fall of the oil price, the price of natural gas is affected by a variety of other factors – from geopolitical issues all the way down to weather – which can make it difficult to predict. What’s more, retail gasoline prices at the pump vary between markets and even within the same city. According to Suncor (TSX:SU,NYSE:SU), “[w]hile retail prices follow changes in crude and wholesale commodity prices, both up and down, they are also heavily influenced by local conditions. Factors such as market size, the level of competition, taxes, and retailing and distribution efficiencies can lead to situations where prices vary considerably between communities or change dramatically within a short period of time.”
In terms of supply, the US, which is the top dry natural gas producer, is expected to shift from being a net importer to a net exporter by the year 2017. The second highest producer of natural gas is Russia, which also came in as the second-highest consumer and also hold the highest proven reserves.
On another note, the gas space is filled with huge companies, which means there is a lack of competition within the industry. When these companies make big deals with each other it rocks the market and some feel that it worsens this lack of competition. This has led some countries to take action, with organizations like Manufacturing Australia, a CEO-led coalition of Australia’s largest manufacturers, creating action plans for gas market reform.
As with oil, there are other energy methods that will eventually takeover as the world looks to lighten its carbon footprint, which could mean the demand for it will eventually be non-existent. However, as it stands the amount of houses that rely on gas heating and the amount of cars that depend on gas will likely keep the demand for the energy source high for years to come.