Why Shale Gas is the Future of Energy

So argues the ever stimulating author Matt Ridley

A chap called George Mitchell turned the gas industry on its head. Using just the right combination of horizontal drilling and hydraulic fracturing (fracking) – both well established technologies -- he worked out how to get gas out of shale where most of it is, rather than just out of (conventional) porous rocks, where it sometimes pools. The Barnett shale in Texas, where Mitchell worked, turned into one of the biggest gas reserves in America. Then the Haynesville shale in Louisiana dwarfed it. The Marcellus shale mainly in Pennsylvania then trumped that with a barely believable 500 trillion cubic feet of gas, as big as any oil field ever found, on the doorstep of the biggest market in the world.

The impact of shale gas in America is already huge. Gas prices have decoupled from oil prices and are half what they are in Europe. Chemical companies, which use gas as a feedstock, are rushing back from the Persian Gulf to the Gulf of Mexico. Cities are converting their bus fleets to gas. Coal projects are being shelved; nuclear ones abandoned.

Rural Pennsylvania is being transformed by the royalties that shale gas pays (Lancashire take note). Drive around the hills near Pittsburgh and you see new fences, repainted barns and – in the local towns – thriving car dealerships and upmarket shops. The one thing you barely see is gas rigs. The one I visited was hidden in a hollow in the woods, invisible till I came round the last corner where a flock of wild turkeys was crossing the road. Drilling rigs are on site for about five weeks, fracking trucks a few weeks after that, and when they are gone all that is left is a “Christmas tree” wellhead and a few small storage tanks.

The International Energy Agency reckons there is quarter of a millennium’s worth of cheap shale gas in the world. A company called Cuadrilla drilled a hole in Blackpool, hoping to find a few trillion cubic feet of gas. Last month it announced 200 trillion cubic feet, nearly half the size of the giant Marcellus field. That’s enough to keep the entire British economy going for many decades. And it’s just the first field to have been drilled.

Read the rest here

Natural Gas prics shown in the 3 year chart above from stockcharts.com appears to have indeed decoupled from Oil (WTIC)

I would even suppose that the current prices of oil have also been affected by conversions or the expanded use of natural gas.

Shale gas is not only abundant and economically feasible but also environmental friendly and importantly representative of market’s preference as energy alternative over the favorites of politicians: renewables

Professor Mark Perry adds,

The chart above is from the Energy Information Administration and illustrates graphically the significant increases in natural gas production in recent years from increased drilling activity in the Marcellus Shale region of Pennsylvania. In only about a three-year period, natural gas production in the northeast United States has tripled from 1.5 billion cubic feet per day in July 2008 to more than 4.5 billion cubic feet per day by July 2011, with almost all of the increase coming from new drilling in Pennsylvania. The shale gas revolution in Pennsylvania has been responsible for America going from the ninth largest producer in the world ten year ago to the No. 1 producer in the world starting last year.

I would guess that the shale gas revolution will be a worldwide phenomenon which should wean away our dependence on oil. The net effect outside manipulation of money by governments should be to materially bring down or lower prices of energy.

On an investment perspective, prices of listed shale gas companies may reflect on such sanguine dynamic overtime.

Quote of the Day: Trade Made Us Superior

Fantastic quote from the prolific Matt Ridley (bold emphasis mine)

There was no sudden change in brain size 200,000 years ago. We Africans—all human beings are descended chiefly from people who lived exclusively in Africa until about 65,000 years ago—had slightly smaller brains than Neanderthals, yet once outside Africa we rapidly displaced them (bar acquiring 2.5% of our genes from them along the way).

And the reason we won the war against the Neanderthals, if war it was, is staring us in the face, though it remains almost completely unrecognized among anthropologists: We exchanged. At one site in the Caucasus there are Neanderthal and modern remains within a few miles of each other, both from around 30,000 years ago. The Neanderthal tools are all made from local materials. The moderns' tools are made from chert and jasper, some of which originated many miles away. That means trade.

Evidence from recent Australian artifacts shows that long-distance movement of objects is a telltale sign of trade, not migration. We Africans have been doing this since at least 120,000 years ago. That's the date of beads made from marine shells found a hundred miles inland in Algeria. Trade is 10 times as old as agriculture.

At first it was a peculiarity of us Africans. It gave us the edge over Neanderthals in their own continent and their own climate, because good ideas can spread through trade. New weapons, new foods, new crafts, new ornaments, new tools. Suddenly you are no longer relying on the inventiveness of your own tribe or the capacity of your own territory. You are drawing upon ideas that occurred to anybody anywhere anytime within your trading network…

That is what trade does. It creates a collective innovating brain as big as the trade network itself. When you cut people off from exchange networks, their innovation rate collapses. Tasmanians, isolated by rising sea levels about 10,000 years ago, not only failed to share in the advances that came after that time—the boomerang, for example—but actually went backwards in terms of technical virtuosity. The anthropologist Joe Henrich of the University of British Columbia argues that in a small island population, good ideas died faster than they could be replaced. Tierra del Fuego's natives, on a similarly inhospitable and small land, but connected by trading canoes across the much narrower Magellan strait, suffered no such technological regress. They had access to a collective brain the size of South America.

Quote of the Day: Fatalities from Organic Farming

From a comment on an article (source: Matt Ridley)

One German organic farm has killed twice as many people as the Fukushima nuclear disaster and the Gulf Oil spill combined.

Has Human Evolution Been Culturally Driven?

The ever spectacular author Matt Ridley proposes a thesis where our genes evolved from cultural developments.

Mr. Ridley writes,

The human genome provides penetrating and unexpected insights into human individual and collective history. Among them is the counterintuitive idea that genes are at the mercy of experience – that what we do in our lives affects which genes are switched on and off.

A stressful experience, for example, can make you more vulnerable to infection, because stress hormones indirectly alter the switches that control the expression of genes.

So, far from genes being the cause of how we act, the new understanding sees them as just as much a consequence of how we act. This subtler view of genes has yet to colonise the popular imagination.

On a much longer, evolutionary timescale, the same reversal of causation is necessary.

We now know that many genetic changes in human beings are driven by cultural ones, at least as much as the other way round.

For example, the ability to digest lactose as adults spread among Africans and Europeans because of dairy farming, rather than vice versa.

Read the rest of the fascinating theory here

Quote of the Day: Focusing Effect

Focusing effect is a mental heuristic where

we tend to weigh attributes and factors unevenly, putting more importance on some aspects and less on others

Again from the prodigious Matt Ridley on interpreting events, (emphasis added)

Another way of making the same point is that good news tends to be gradual, incremental and barely visible, while bad news almost by definition comes in sudden, newsworthy lumps: wars, crashes, disasters, epidemics. It is impossible to see a field of wheat growing, but easy to see it washed away by a flood.

Awesome.

Are Renewable Energy ‘Renewable’?

One of the most valuable lessons I have learned in life is not to see things as presented or as they are. That’s because things or events that we see or sense does not cover on how they existed or how they got there in the first place.

I am indebted to the late great proto-Austrian Frederic Bastiat, who inspired an overhaul of life’s outlook personified by this stirring passage

In the department of economy, an act, a habit, an institution, a law, gives birth not only to an effect, but to a series of effects. Of these effects, the first only is immediate; it manifests itself simultaneously with its cause - it is seen. The others unfold in succession - they are not seen: it is well for us, if they are foreseen. Between a good and a bad economist this constitutes the whole difference - the one takes account of the visible effect; the other takes account both of the effects which are seen, and also of those which it is necessary to foresee. Now this difference is enormous, for it almost always happens that when the immediate consequence is favourable, the ultimate consequences are fatal, and the converse. Hence it follows that the bad economist pursues a small present good, which will be followed by a great evil to come, while the true economist pursues a great good to come, - at the risk of a small present evil.

This applies to everything we do.

And these have been most pronounced especially in the domain of politics where populist political solutions are sold on the merits of superficiality or visibility.

In the realm of environmental politics, one good example would be the politically correct populist practice of ‘Earth Hour’.

We are told to close lights for an hour so that we can symbolically celebrate on ‘saving the environment’ by reducing carbon footprints.

However in reality, unless we decide to stop living, we will be using energy. PERIOD.

And the alternative to using ‘environmental hazardous’ conventional fossil based energy would be to revert to the medieval age and use candles. People hardly see that candles signify as more environmental unfriendly than the conventional energy.

Of course by proposing to cut lights also extrapolates to stopping or to reducing production and trade. Doing so means creating shortages in people’s needs. This means widespread hunger and famine. This brings the Malthusian nightmare to a reality.

How do you suppose that we would be able to survive 6.77 billion people by reverting to the medieval age of economic system?

So saving the environment means we end up killing one another (politics of plunder-via war) or killing ourselves (man made catastrophe).

It isn’t that Malthus was right. Instead, it is because political correctness founded the concept of saving earth signifies as concealed misanthropy.

The same blight haunts proponents of renewable energy.

From the surface, renewable energy would seem as environmental friendly. That is what is seen. What is not seen is how environmental damaging renewable energy would be when they are constructed for commercial operations.

Matt Ridley eloquently explains, (bold emphasis added)

It turns out that the great majority of this energy, 10.2% out of the 13.8% share, comes from biomass, mainly wood (often transformed into charcoal) and dung. Most of the rest is hydro; less than 0.5% of the world's energy comes from wind, tide, wave, solar and geothermal put together. Wood and dung are indeed renewable, in the sense that they reappear as fast as you use them. Or do they? It depends on how fast you use them.

One of the greatest threats to rain forests is the cutting of wood for fuel by impoverished people. Haiti meets about 60% of its energy needs with charcoal produced from forests. Even bakeries, laundries, sugar refineries and rum distilleries run on the stuff. Full marks to renewable Haiti, the harbinger of a sustainable future! Or maybe not: Haiti has felled 98% of its tree cover and counting; it's an ecological disaster compared with its fossil-fuel burning neighbor, the Dominican Republic, whose forest cover is 41% and stable. Haitians are now burning tree roots to make charcoal.

You can likewise question the green and clean credentials of other renewables. The wind may never stop blowing, but the wind industry depends on steel, concrete and rare-earth metals (for the turbine magnets), none of which are renewable. Wind generates 0.2% of the world's energy at present. Assuming that energy needs double in coming decades, we would have to build 100 times as many wind farms as we have today just to get to a paltry 10% from wind. We'd run out of non-renewable places to put them.

You may think I'm splitting hairs. Iron ore for making steel is unlikely to run out any time soon. True, but you can say the same about fossil fuels. The hydrocarbons in the earth's crust amount to more than 500,000 exajoules of energy. (This includes methane clathrates—gas on the ocean floor in solid, ice-like form—which may or may not be accessible as fuel someday.) The whole planet uses about 500 exajoules a year, so there may be a millennium's worth of hydrocarbons left at current rates.

Read the rest here.

What you see isn’t always what you get.

Can We Survive a World with 9 billion people?

Prolific author Matt Ridley says yes (bold emphasis mine)...

We trebled yields in the last 60 years without taking extra land under the plough. If we did that again – by getting fertilizer to farmers in Africa and central Asia, by cutting losses to pests and droughts through ever more subtle genetic manipulation, by improving roads and encouraging trade – then we could feed nine billion better than we feed seven billion today. And still retire huge swathes of land from farming to rainforest and other forms of wilderness.

The two most effective policies for frustrating this uplifting ambition are: organic agriculture and renewable bio-energy. Organic farming means growing your nitrogen fertilizer rather than fixing it from the air. That requires more land, either grazed by cattle or planted with legumes. The quickest way to destroy what wilderness we have left is to go organic. Bio-energy (growing crops to make fuel or electricity) takes food out of the mouths of the poor. In 2010, the world diverted 5% of its grain crops into making fuel, displacing just 0.6% of oil use yet killing an estimated 192,000 people by tipping them into malnutrition through higher food prices. We should stop such madness now.

...provided environmental politics would not lead to vicious government meddling which would subvert earlier victories with deleterious policies that would function as the proverbial cure which is worse than the disease.

He writes about how Malthusians like Paul Ehrlich, who wrongly forecasted for a worldwide cataclysmic famine, had mainly been foiled by creative persistency of the father of Green Revolution Nobel Laureate Norman Borlaug, one of the genuine unsung heroes of the world (my earlier post here).

He also writes about how technology has substantially increased farming efficiency which has led to a massive reduction in land usage for agriculture. (bold emphasis mine)...

We currently feed nearly seven billion people by farming about 38% of the land surface of the planet. If we wanted to feed that many people by using the techniques, varieties and – mostly organic – fertilizers of the 1950s, we would need to cultivate roughly 84% of the land surface. There goes the rain forest, the national parks, the wetlands. The intensification of agriculture has saved wilderness.

...and also how famine prevention defused the population time bomb.

Read Mr. Ridley’s fantastic article here

Bottomline: Mr. Ridley bets on human ingenuity (and not on econometric models) brought upon mostly by free trade. And so do I.

Political History: Democracy Shaped By Trade

Economics drive politics.

Author Matt Ridley points to the accounts in history where democracy had been shaped by trade (in agriculture).

From the Wall Street Journal, (bold highlights mine)

Trade is much older than farming: Australian aborigines used to trade stone axes for sting-ray barbs over long distances, showing that hunter-gatherers can benefit from exchange. The advent of agriculture accelerated the trend toward specialization—but not everywhere. In temperate zones, farming encouraged trade, but in the tropics subsistence farmers often ate and wore their own produce.

I have been pondering why this difference emerged since reading a fine new paper by Stephen Haber of Stanford and Victor Menaldo of the University of Washington. They argue that, historically, stable democracy has depended on the growing of grain, because it is a tradeable commodity and is best grown on a small scale. Therefore, they say, the parts of the world suited to grain-growing have developed the institutions that build equitably distributed human capital, and hence democracy. This explains why democracy flourishes where rainfall is modest.

Their idea has just as much to say about economic development as about politics. The key is perishability. Where farmers produced food that could be stored, especially cereal grain and pulses (peas and beans), trade flourished, specialization increased and cities emerged, filled with manufacturers, soldiers and priests who swapped their outputs for the grain supplied by the farmers.

Tropical fruit, however, was harder to store and therefore harder to trade, as were other tropical crops like cassava root, which rots after a week or so. This goes some way to explaining the lack of cities in the tropics before the industrial era: You simply cannot ship bananas to an urban elite in the way you can ship grain. Hence the invention of olive oil and wine as tradeable versions of olives and grapes. The ancient civilizations around the Mediterranean depended heavily on trading networks that brought grain, oil and wine to cities.

Read the rest here

Quote of the Day: Spending People’s Money To Lobby For More of People’s Money

Prolific author Matt Ridley on government’s funding/financing of lobby groups to argue for more taxpayer funded political projects.

You don't take money off people to spend it on getting people to argue for more money to be taken off them.

Read more here.

It’s one way to buy the mainstream. And it’s another way for politicos to have one’s cake and eat it too while taxpayers get fried on their own lard.

Reinventing Nuclear Energy: Thorium

Prolific author Matt Ridley is for Thorium, in lieu of Nuclear reactors. (From Wall Street Journal-all bold highlights mine)

Against this formidable competitor, uranium will struggle for many years to come—especially with the extra cost and political handicap that Fukushima is bound to add. So nuclear needs to reinvent itself. Because nuclear reactors were developed by governments in a wartime hurry, the best technological routes were not always taken. The pressurized-water design was a quick-and-dirty solution that we have been stuck with ever since. Rival ideas withered, among them the thorium liquid-fuel reactor, powered by molten fluoride salt containing thorium.

Thorium has lots of advantages as a nuclear fuel. There is four times as much of it as uranium; it is more easily handled and processed; it "breeds" its own fuel by creating uranium 233 continuously and can produce about 90 times as much energy from the same quantity of fuel; its reactions produce no plutonium or other bomb-making raw material; and it generates much less waste, with a much shorter half life until it becomes safe, so the waste can be stored for centuries rather than millennia.

A thorium reactor needs neutrons, and both ways of supplying these subatomic particles are relatively safe. They can be introduced with a particle accelerator, which can be turned off if danger threatens. Or they can be introduced with uranium 235, which in this process has a much lower risk of an uncontrolled reaction than it does in today's nuclear plants. The fuel cannot melt down in a thorium reactor because it is already molten, and reactions slow down as it cools. A further advantage of this design is that the gas xenon is able to bubble out of the liquid fuel rather than—as in normal reactors—staying in the fuel rods and slowly poisoning the reaction.

Nobody knows if thorium reactors can compete on price with coal and gas. India has been working on thorium for some years, but the technology is as different from today's nuclear power as gas is from coal, and very few nuclear engineers even hear about liquid fuel during their training, let alone get to work on it.

New technologies always struggle to compete with well-entrenched rivals whose costs are already sunk. The first railways couldn't rival canals on cost or reliability, let alone lobbying power.

Now is the time to start to find out about thorium's potential.

At the end of the day, energy is about economics.

People Adapt To Climates, Intervention Not Required

That’s the message of Matt Ridley and Indur Goklany, as they write against relying on climate models to argue for political interventionism. (bold emphasis mine)

Was this because we controlled the weather? No. It was because we adapted to it. So even if extreme downpours do increase, death rates as a result of them will continue to decline so long as we continue to get more people access to roads, telephones, houses and information. It’s like malaria: it retreated rapidly in the twentieth century despite rising temperatures, and it will retreat rapidly in the twenty-first century despite rising temperatures.

As the above figure shows, globally the average annual death toll from all extreme weather events is about 35,000. Compare this to the hundreds of thousands of excess winter deaths that occur annually. Perhaps we should try to control winter before we tackle climate change! Oddly enough, while we may not be able to control the weather, in the U.S., millions have done the next best thing—they have migrated from colder northeastern climes to the warmer southwestern states. This, according to a paper in MIT Press’s Review of Economics and Statistics by econometricians Deschênes and Moretti, is responsible for 8%–15% of the total gains in life expectancy in the U.S. population from 1970 to 2000.

Read more of their splendid article here

Commodities And The Good Life

In a book review, the ever brilliant Matt Ridley narrates how commodities has contributed to economic progress and our good life.

An excerpt…

The discovery of the elements shadows and to some extent explains this evolving history of specialisation. The ancients knew of just seven metals: gold, silver, copper, tin, iron, lead and mercury. By giving each specialised roles, they improved their living standards—tin for hardening bronze, lead for moulding, silver for coinage and so on. By the modern era only one more metal—zinc—had joined them (although platinum was known to natives of the Americas). But then came a steady flow of new metals, each of which finds its particular role in technology and society: tungsten for hardness, aluminium for lightness, chrome for polish, neodymium for magnets, barium for medicine. Each finds its niche as surely as each profession and vocation does in human society. Just as our story is one of specialisation, so the story of chemistry is one of purification.

Each metal marches into our lives along a path from novel to banal, says Aldersey-Williams. Aluminium was once so difficult to make that Napoleon III used aluminium cutlery for only his most favoured guests and gave his son, the Prince Imperial, an aluminium rattle. Then it became so cheap that it was considered, well, cheap. Titanium, once rare and exotic, is becoming ubiquitous. For niobium and tantalum, Aldersey-Williams writes, “the journey is just beginning.” This is a tantalising thought. There are so many elements whose talents we have barely begun to use.

Matt Ridley: When Ideas Have Sex

Great stuff from Matt Ridley, watch it....

Bad Record Of Doom Mongering And Interest Group Politics

Here is Matt Ridley on the dismal track record of doom mongerers (or the pessimism bias). [hat tip Mark Perry] (all bold emphasis mine)

``By then I had begun to notice that this terrible future was not all that bad. In fact every single one of the dooms I had been threatened with had proved either false or exaggerated. The population explosion was slowing down, famine had largely been conquered (except in war-torn tyrannies), India was exporting food, cancer rates were falling not rising (adjusted for age), the Sahel was greening, the climate was warming, oil was abundant, air pollution was falling fast, nuclear disarmament was proceeding apace, forests were thriving, sperm counts had not fallen. And above all, prosperity and freedom were advancing at the expense of poverty and tyranny.

``I began to pay attention and a few years ago I started to research a book on the subject. I was astounded by what I discovered. Global per capita income, corrected for inflation, had trebled in my lifetime, life expectancy had increased by one third, child mortality had fallen by two-thirds, the population growth rate had halved. More people had got out of poverty than in all of human history before. When I was born, 36% of Americans had air conditioning. Today 79% of Americans below the poverty line had air conditioning. The emissions of pollutants from a car were down by 98%. The time you had to work on the average wage to buy an hour of artificial light to read by was down from 8 seconds to half a second.”

The incentives for doom mongering? Apparently “interest Group politics”

Back to Mr. Ridley…

``I now see at firsthand how I avoided hearing any good news when I was young. Where are the pressure groups that have an interest in telling the good news? They do not exist. By contrast, the behemoths of bad news, such as Greenpeace, Friends of the Earth and WWF, spend hundreds of millions of dollars a year and doom is their best fund-raiser. Where is the news media's interest in checking out how pessimists' predictions panned out before? There is none. By my count, Lester Brown has now predicted a turning point in the rise of agricultural yields six times since 1974, and been wrong each time. Paul Ehrlich has been predicting mass starvation and mass cancer for 40 years. He still predicts that `the world is coming to a turning point'.

``Ah, that phrase again. I call it turning-point-itis. It's rarely far from the lips of the prophets of doom. They are convinced that they stand on the hinge of history, the inflexion point where the roller coaster starts to go downhill. But then I began looking back to see what pessimists said in the past and found the phrase, or an equivalent, being used by in every generation. The cause of their pessimism varied - it was often tinged with eugenics in the early twentieth century, for example - but the certainty that their own generation stood upon the fulcrum of the human story was the same.

``I got back to 1830 and still the sentiment was being used. In fact, the poet and historian Thomas Macaulay was already sick of it then: `We cannot absolutely prove that those are in error who tell us that society has reached a turning point, that we have seen our best days. But so said all before us, and with just as much apparent reason.' He continued: `On what principle is it that, when we see nothing but improvement behind us, we are to expect nothing but deterioration before us.'

Let us back this up with some graphs (source google public data)

Ballooning global merchandise trade soaring global GDP per capita

Lengthening of world's life expectancy

Explosion in Mobile Phone Usage

Bottom line: Beware of the false 'politically tainted' messiahs.