Report: Reaping the benefits of natural gas will require action now

Fuel Fix ^ | November 14, 2012 | Jeannie Kever

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Reports about the game-changing nature of the country’s natural gas reserves, newly recoverable with the combination of hydraulic fracturing and horizontal drilling, seem to come out every week.

But Marc S. Lipschultz, global head of energy and infrastructure for KKR & Co., says the ability to reap the economic benefits are far from assured.

Among the key challenges, he said, are smoothing the boom-and-bust cycles in gas prices and mitigating the environmental impacts of gas drilling that limit social acceptance.

Lipschultz estimates gas production could increase by 44 percent between 2011 and 2035. But there’s a pricetag. He says it will take:

• $2 trillion in upstream investments. • $205 billion in capital expenditures for gas infrastructure development. • expansion of the gas transmission system by 35,600 miles and an additional 589,000 billion cubic feet of working gas storage by 2035.

The payoff could be similarly huge. Lipschultz’s paper joins other recent studies in suggesting that increased shale gas production could produce hundreds of thousands of new jobs and add to GDP. It could also save consumers $41 billion in lower gas prices in 2017, he said. That includes direct savings to natural gas consumers, indirect savings from lower electricity prices and lower prices for industrial products.

His tally suggests 330,000 additional direct jobs in natural gas, oil and natural gas liquids production, along with as many as 210,000 additional manufacturing jobs linked to the increased production of natural gas.

He also is predicting as many as 40,000 additional construction jobs.

But none of that is a given, Lipschultz writes.

He suggested four steps must be taken for all the benefits of shale gas to be achieved.

• Industry must work with regulators, the community, environmental and other stakeholders to develop appropriate regulation and “best practices” to reduce impacts and protect health and the environment. He pointed to a study announced last month in which some of the nation’s largest natural gas producers, including Anadarko Petroleum, Shell Oil Co. and ExxonMobil subsidiary XTO Energy agreed to work with the Environmental Defense Fund and the University of Texas to look at methane leaks at well sites as a positive step.

• Expanding natural-gas based transportation infrastructure, including municipal and corporate natural gas powered fleets, heavy duty trucks and consumer vehicles.

• Clearer, faster and more consistent procedures for securing permits on federal lands.

• Exports of liquefied natural gas. “LNG export sales … will directly reduce our trade deficit,” Lipschultz writes. “Additionally, because the resource base is so large, these exports are expected to have only a modest impact on domestic prices while providing a steady source of demand to support expanded production and delivery infrastructure.”

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To help you understand what happens at a Natural Gas Processing plant, here is a simplified flow diagram.