Fracking Changes the Economics of Electrical Generation

Oil & Natural Gas / Gas Shales / Economics

Date posted: 06/22/15

A Nuscale Power Perspective - The current boom in natural gas supplies, dating from about 2003, resulted from the convergence of two technologies, hydraulic fracturing and horizontal drilling. The use of horizontal drilling allowed drillers to access much larger volumes of a target shale bed from fewer surface wells. Hydraulic fracturing was then used to open the shale beds to allow the freed gas to flow to the drill head. Together these technologies opened large tracts of shale gas deposits for exploitation that had previously been considered as not economical to recover. Today, fracking is done on a huge scale. Estimates are that around 70% of the natural gas industry in the U.S. owes its success to this technology. As both recoverable reserves and confidence in stable lower prices grew, additions to generating capacity in the U.S. strongly favored natural gas over coal. In 2013, 6,861 MWe of natural gas capacity were added. This compared to only 1508 MWe capacity in coal generating plants. Between 2002 and 2012, the annual electrical generation from coal-fired plants fell by 2%, while the amount of electricity generated by natural gas plants rose by 37%. In 2012, coal-fired plants accounted for 37.4% of electricity generation, gas-fired plants contributed 30.3%, and nuclear plants contributed 19.0%. Public concerns with fracking are exacerbated by the many exceptions granted to fracking operations from federal regulations including an exemption granted to fracking from regulation under the Safe Drinking Water Act in 2005. Changes in regulatory approaches to restrict carbon emissions or tighten regulations on fracking could dramatically alter the cost-benefit analysis for using natural gas to generate electricity.