Call in the Green Natural Gas Bulls

In many ways fracking is America's miracle drug. It turned the energy industry on its head. A recent study has found that fears about environmentally damaging methane releases from fracked natural gas wells are overrated. This is good news for the entire industry. It will help it to promote natural gas as a clean fuel, even if has been extracted through fracking. 

The methane controversy
According to the EPA, it is estimated that methane is the second common greenhouse gas released by human activity in the U.S. Regardless of your personal beliefs about global warming; low greenhouse gas emissions help to decrease public opposition to drilling.

The previously mentioned study found that the drilling industry can further decrease its methane emissions by making parts and equipment to higher standards. Given that these challenges are not related to the fracking process itself, a little R&D could make natural gas even cleaner. 

The drillers
Proving that natural gas is a clean fuel makes it even more attractive for utilities. Drillers like Chesapeake (NYSE: CHK  ) and ExxonMobil  (NYSE: XOM  ) will be some of the biggest beneficiaries from stronger consumption. Oil and gas drillers are continuously criticized for their carbon emissions, and many new techniques like carbon capture and storage have not been commercialized to point where they can significantly decrease industry emissions. Simply using high quality equipment that limits methane emissions at the point of extraction and transportation is a simple and cost effective method. 

When ExxonMobil bought out XTO Energy in 2010 for a total of $41 billion it became one of America's top natural gas producers and frackers. In the last quarter alone it produced 11.4 billion cubic feet of natural gas per day or bcfd; more than three times Chesapeake's production. ExxonMobil is a diversified player with refineries, but as of the second quarter of 2013 it made 91.9% of its net income from drilling and upstream activities. 

Right now oil shale plays like Eagle Ford and the Bakken are all the rage, but ExxonMobil has a significant amount of natural gas acreage from its XTO acquisition. As natural gas demand grows the price will rise; thus allowing ExxonMobil to bring more of its reserves online in a profitable fashion. The firm has a small debt load and a total debt to equity ratio of 0.12. Higher natural gas prices would allow it to deploy more of its balance sheet within politically stable U.S. borders. 

The news that fracking is relatively clean will help out the large natural gas fracker Chesapeake. The company is trying to brand itself as a diversified driller of natural gas liquids and crude oil, but it cannot deny its history. Before the crash in natural gas prices it was the star example of America's natural gas frackers, and this tradition can still be seen in its production. 

Its natural gas production is expected to fall slightly in the coming years, but the company managed to produce 3.1 bcfd in the second quarter of 2013. Natural gas was a full 44.6% of the company's total revenue, making it a very significant item. Chesapeake still has a large amount of debt to worry about, with a total debt to equity ratio of 1.02. Rising natural gas prices will help it to clean up its act. Excluding gains and losses on derivatives, in this most recent quarter it received just $2.81 per million cubic feet of natural gas, leaving lots of room for improved pricing.

The exporter
Another firm that benefits from strong natural gas drilling is the export company, Cheniere Energy (NYSEMKT: LNG  ) . The firm is building facilities to take natural gas and cool it so that it can be transported overseas. Cheniere Sabine Pass trains one to four are already full subscribed. Train four is not expected to become operational until 2016 or 2017, but by then the company expects that $365 million in distributed cash will flow every year to Cheniere Energy Partners (NYSEMKT: CQP  ) . Cheniere Energy will see an immediate boost as it owns 55.9% of Cheniere Energy Partners.

Henry Hub Natural Gas Spot Price Chart

Henry Hub Natural Gas Spot Price data by YCharts

With low methane emissions from natural gas drilling, it will be easier for drillers to maintain a large supply of natural gas. Cheniere depends on the price differentials between the flooded North American market and more constricted Asian and European markets, making U.S. natural gas production a very important factor. Stronger U.S. demand will put upward pressure on natural gas prices, but it is very unlikely that they would rise to Japanese levels.

Conclusion
Drillers are constantly being accused of destroying the environment and creating a global environmental disaster. There is no way to completely remove their impacts on the environment, but the latest data shows that methane emissions are not as prevalent as they were once thought.

By improving equipment drillers like Chesapeake and ExxonMobil will be able to further reduce their emissions and boost demand for natural gas from environmentally conscious consumers. Low methane emissions and strong production levels will benefit U.S. LNG exporters like Cheniere, as it increases the probability that U.S. drillers will keep prices low relative to international levels.

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  • Report this Comment On September 18, 2013, at 7:29 PM, VarneyVictor wrote:

    Sounds so simple. Fracking's mostly hidden beneath the surface. The results of tracking will and have destroyed groundwater supplies for 100's of miles around areas where this is done. It also leaves the rocked fragmented, weak and prone to collapses. But, it is convenient and cheap. That's why it is being pushed as a method of extraction of methane. The consequences are of little concern for the extractors, profit would be the main motivator. We cannot 'fix' the geological destruction that fracking creates and it will be a permanent problem wherever it is done. If you don't feel any guilt for supporting fracking that is a problem.

    Man made emissions into the atmosphere are rising dramatically. Over the past 600,000 years atmospheric CO2 concentrations ranged between 180 ppm during glacial times to 280 ppm during the interglacials. This trend changed with the beginning of industrialisation as a result of our increasing exploitation of fossil fuels (coal, oil, gas) as energy sources. Since the industrial revolution, CO2 emissions have increased exponentially and atmospheric concentrations are currently around 385 ppm (2008). This rapid increase in CO2 concentrations is primarily the result of human activity. It has crossed the 400ppm barrier in 2013, so do the math, this is

    a HUGE problem that we are causing.

    And if you don't believe in global warming then why did Exxon Mobil (the largest oil company in the world) finally admit it gloabal warming caused by human interaction. Exxon ceased their propaganda campaign which was done through 14 NFP's that flat out lied about it for 20 years with paid off scientists. So we must look at the alternatives. The real alternatives do not use fossil files and do not get combusted.

    Lifecycle greenhouse gas emissions by electricity source. Technology Description 50th percentile (g CO2/kWhe)

    FROM BEST TO WORST EFFECT including all

    production to manufacture, install, run, transport the various technology:

    Hydroelectric reservoir 4

    Wind onshore 12

    Nuclear various generation II reactor types 16

    Biomass various 18

    Solar thermal parabolic trough 22

    Geothermal hot dry rock 45

    Solar PV Polycrystaline silicon 46

    Natural gas various combined cycle turbines without scrubbing 469

    Coal various generator types without scrubbing 1001.

    As you can see above, CH4 is not so great and coal is even worse. Invest wisely Motley Fools for the future is in your hands.

    Natural Gas, or 'Methane' as it is known to be is cleaner than coal and creates less CO2 when combusted than coal but, coal should not be a benchmark for the future. Natural Gas is still a fossil fuel and we still are burning, actually combusting a gas that creates heat and CO2 as well. Methane (CH4) is unto itself a problem where global warming is concerned. Methane's global warming potential (the ability to trap infrared light and heat) is about 25 times higher than CO2! But CH4 atmospheric lifecycle is shorter, around 12 yrs compared to 50-200 yrs for CO2 and % of CH4 in the atmosphere right now, is about 6% vs around 20% for CO2 with water vapor and clouds as the biggest contributor at around 65% but with an atmospheric lifecycle of 9 days. The biggest source of CH4 from man is from rice farming, second is cow farting and industrialized animal farming and third is oil And if you don't believe in global warming then why did Exxon Mobil (the largest oil company in the world) finally admit it is caused by human interaction. Exxon ceased their propaganda campaign which was done through 14 NFP's that flat out lied about it for 20 years with paid off scientists. So we must look at the alternatives to contain the runaway problems caused by man made atmospheric gases.

  • Report this Comment On September 19, 2013, at 9:59 AM, Walnut01 wrote:

    There is a major, comprehensive, study currently underway by the EPA. Let’s see what they find. The full 140 page study plan is posted, and it outlines all of the different ways that it would be theoretically possible for problems to occur. The official web site for the study is at

    http://yosemite.epa.gov/sab/sabproduct.nsf/02ad90b136fc21ef8...

    That said, fears appear to be overblown. To date there have been no verified reports of any aquifer contamination by the actual stimulation (fracking) of deep shale.

    Pennsylvania: The EPA examined reports of water contamination at Dimock PA and found no evidence of any fracing fluids or any drilling caused water contamination. In Pennsylvania the shale is very deep and the ground water is shallow. There is naturally occurring methane in the ground water in the area, and the casing failed on one well by Cabot which released additional methane (natural gas, but no fracing fluids) which may (or may not) have added to the methane in a half dozen water wells. Cabot provided venting systems for the affected water wells and says they have upgraded their wells so this should not recur. Many water wells in the area not impacted by gas wells also require venting of methane. Water wells in that area usually do not have casing and often suffer from surface contamination such as leaks from septic fields and/or dumping of used motor oil in back yards.

    Wyoming: The EPA examined reports of pollution at Pavillion WY involving a much shallower shale and much deeper water wells. It looked like there might have been a possibility that the gas wells had caused water pollution. The EPA •Pavillion Groundwater Investigation (WY) data is at http://www2.epa.gov/region8/pavillion However, the EPA did not find evidence that the gas wells had caused any such pollution, and abandoned the study.

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