Fracking Australia

by on July 3, 2014 at 11:33 am in Books, Economics | Permalink

As growth in China slows and Australia’s mining boom ends, Australians are asking, Can our luck last? Australia’s Lowy Institute asked me to discuss John Edward’s new monograph Beyond the Boom. My comments and those of a number of experts can be found here. Here is one bit of interest at both antipodes:

As Jon Stewart memorably illustrated, every US president since Nixon has called for freeing the US from ‘dependence on foreign oil’ (within ten years!). Every president has failed. Fracking, however, has delivered the goods. Fracking has reduced the price of energy while generating millions of jobs and reducing net emissions of greenhouse gases. The fracking revolution has only just begun in Australia. Australia has abundant supplies of natural gas and if it creates a national market and avoids parochial calls for price controls and environmental NIMBYism it will certainly become the world’s largest exporter. While profiting from natural gas production and infrastructure investment, Australia will also help the world to move closer to greenhouse gas targets.

y81 July 3, 2014 at 11:53 am

Yes, but fracking was not developed by either government employees or academics, so the chattering classes are very disdainful of it. (See if you can find anyone in NoVa who says anything good about it.) Fortunately, in America the chattering classes have very little power, all things considered (part of the reason they are so grumpy), but I’m not sure if that is true in Australia.

prior_approval July 3, 2014 at 12:07 pm

ExxonMobil’s downstream HQ is still in Fairfax – and I’m pretty sure that Fairfax is still a part of NoVa. Here is the address – Downstream Operations, 3225 Gallows Road, Fairfax, VA 22037 (703) 846-3000 – http://corporate.exxonmobil.com/en/company/contact-us/directory/business-headquarters

y81 July 3, 2014 at 8:22 pm

I highly doubt that Prof. Tabarrok ever hangs out with anyone who works at ExxonMobil, so he won’t find anyone.

JCW July 3, 2014 at 9:39 pm

Irony is . . . commenters on message boards complaining about “chattering classes.”

prior_approval July 4, 2014 at 6:12 am

‘that Prof. Tabarrok ever hangs out with anyone who works at ExxonMobil’

You really need to see who is a significant contributor to several institutions Prof. Tabarrok is associated with – I recommend Sourcewatch, and use such search terms as Mercatus Center and Independent Institute. He may not ‘hang out,’ but I would be surprised if the Bartley J. Madden Chair in Economics at the Mercatus Center is unaware of major contributors – or those contributors’ perspectives. Or has never run across ExxonMobil employees at various forums, presentations, seminars, brainstorming sessions, etc.

The Other Jim July 3, 2014 at 12:40 pm

Saudis and Enviros have invested a lot into slandering fracking, and the chattering classes are invested in whatever Enviros are clamoring for this week. And it certainly doesn’t help that fracking is creating jobs in red states.

The good news is that all the taxpayer-funded studies predicting climate disaster will prove wrong, as they always have, and the warmmongers will credit “reduced carbon emission” (though they obviously won’t use the word fracking). I think everybody wins here. Except the Saudis.

prior_approval July 3, 2014 at 1:16 pm

‘hat all the taxpayer-funded studies predicting climate disaster will prove wrong’

Shame that the studies predicting the collapse of the West Antarctic Ice Sheet, and the accompanying major rise in sea levels, have nothing to do with climate science.

But the apparently inexorable and volcanic based disaster of the sea level rising multiple feet in a century or two will be able to be empirically tracked – assuming an adequate amount of taxpayer funded studies. Though how Dutch research on protecting their nation will benefit the U.S. escapes me at the moment.

It is always nice to see how climate skeptics act when it is proven that they were right to be leery of the climate models, as compared to geologically based sea level rise based on empirical data. Which is pretty much the same way as the climate change model proponents, it appears. Both preferring to basically ignore geology while continuing their endless (and increasingly meaningless) dispute.

dirk July 3, 2014 at 4:08 pm

A big reason shale plays (I hate to misuse the term “fracking” but we are talking about the same thing) took off in the US but can’t get started elsewhere is very elementary: onshore mineral rights in the US are owned by private citizens. Private citizens who own oil & gas are usually happy to make a deal with oil companies to drill for it. In almost every other country (I can’t think of an exception, but I’d be happy if someone would point out one) the government owns the mineral rights, not the citizens who own the land on top of it. It’s a whole lot harder to make a deal with a government to drill for oil than it is to make a deal with a farmer. So the oil is more likely to sit in place when the government owns it. Look at Mexico.

Marie July 3, 2014 at 7:11 pm

Where is this? Where I come from, out West, I’ve always understood that mineral rights do not normally come with the land. There’s some right to give or deny access over your land, but the minerals do not belong to the landowners. Old Homesteading stuff. Is it different in Texas or Alaska or somewhere?

Water rights sometimes do, but as a separate thing and subject to getting in line behind folks with older rights.

Mr. Econotarian July 3, 2014 at 9:54 pm

The original owner of private property in the US owns the mineral rights.

It is possible to convey the surface land while the original buyer holds on to the mineral rights, so in practice they can get split up (probably more of an issue where there has been historic mining as opposed to some of the new shale plays). But a private agent owns the mineral rights under private property.

However in Europe, the government owns the mineral rights under private property. In the US, the government only controls mineral rights under government-owned land.

prior_approval July 3, 2014 at 12:03 pm

‘Fracking, however, has delivered the goods.’

Well, if needing to import 7,809 b/d of crude oil a day into the U.S. is delivering the goods, compared to domestic production of 8.2 million b/d in March ( http://www.eia.gov/todayinenergy/detail.cfm?id=16711 and http://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=WCRIMUS2&f=W)

Back in 1990, the U.S. was importing around 6.5 million b/d, while producing around over 7 million b/d. http://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=MCRFPUS2&f=A

And when was the U.S. last producing that mighty figure of over 8 million b/d of crude? Why, the 1980s, though in comparison to the 1970s, today’s U.S. oil production is still looking to be in the sort of crisis that Nixon and Carter decried. Back when the U.S. was importing easily less than 50% of what it does today. The EIA oil import data series tend to come from the 1980s – back when importting a few million barrels of oil a day was considered to be a problem, unlike today, when fracking has delivered the goods, managing to restore American crude production back to the glory days of the first and second oil crisis.

But hey, why bother with data when there is a narrative to be shared among the like minded.

‘it will certainly become the world’s largest exporter.’

Well, maybe not the same like minded – I’d read that the U.S. is supposed to be the glorious new energy exporter of unsurpassed size, blowing right past Saudia Arabia and Russia. Different messages for different audiences, I guess.

Keith July 3, 2014 at 2:41 pm

Due to fracking and horizontal drilling the US is now the #1 natural gas producer and self-sufficient. Export terminals are getting built.
By the end of 2015 the US will be pumping oil at a rate not seen since the record year of 1972. We might need more oil now than previously, but fracking and horizontal drilling are delivering the goods.

prior_approval July 4, 2014 at 6:29 am

‘Due to fracking and horizontal drilling the US is now the #1 natural gas producer and self-sufficient.’

The EIA disagrees with the idea that the U.S. is ‘self-sufficient’ (note the ‘net’ part of the import figures), though the trend is certainly more justifiably in the direction of self sufficiency, compared to oil –

‘Net imports

Natural gas net imports fell by 14% to 1,311 Bcf in 2013, the lowest level since 1989.

* Total imports decreased by 8% to 2,883 Bcf in 2013 from the previous year’s level. Pipeline imports decreased by 6% to 2,786 Bcf, and LNG imports decreased by 45% to 97 Bcf.

* Total exports, which increased in all but two years from 1997 to 2012, decreased by 3% to 1,572 Bcf in 2013. Pipeline exports decreased by 1% to 1,569 Bcf, while LNG exports, already lower than 2% of total exports, decreased to 3 Bcf. For the first time, the United States exported a small amount of compressed natural gas (CNG) to Canada by truck, totaling 0.1 Bcf.’ http://www.eia.gov/naturalgas/importsexports/annual/#tabs-prices-1

‘By the end of 2015 the US will be pumping oil at a rate not seen since the record year of 1972. We might need more oil now than previously, but fracking and horizontal drilling are delivering the goods.’

Well, if by ‘delivering the goods’ means a shortfall in oil supply not met by American production that is at least double of the shortfall during the 1970s, when importing a couple of million barrels a day of crude was seen as an existential threat to America – something brought home during two oil shocks.

I understand that actual discussion of empirical data is not what this web site is interested in, but really, the EIA has a lot of data available. It helps to get past the narratives which any number of people seem willing to provide, confident that most people are unlikely to actual look at the fairly indisputable figures of America’s energy supply.

Steven Kopits July 3, 2014 at 12:40 pm

Australia may have some success with fracking, but its resources are located in the center of the country with little access to water or pipelines. They are unlikely to see the explosive growth of the US.

The US has three major unconventional basins: the Eagle Ford, the Bakken, and the Permian. The former two provide most of the production growth, and indeed, these two basins alone probably account for all of global oil production growth in the last three years. The Permian is a huge, traditional (conventional) oil producer in Texas (neither the Bakken nor Eagle Ford saw material conventional production). Permian production has increased, but ‘only’ 200 kbpd in the last year. That’s actually terrific growth, but if that’s all the net growth in the world, it’s nothing. And that’s the problem. The Bakken and Eagle Ford are looking to peak in the 2016/2017 time frame. What comes after that?

At present, I really don’t see any other material source of supply growth–and that includes Australia and Argentina. So, on the long range radar, we can now see an oil shock beginning to form. It may dissipate or grow, but it’s out there.

Steve Sailer July 3, 2014 at 4:11 pm

How would you get the water to frack in the Outback? Desalinate ocean water and pipe it a 1,000 miles?

Marie July 3, 2014 at 7:12 pm

Is salt water to corrosive or reactive to use?

Tom from Calgary July 3, 2014 at 8:08 pm

Piping it wouldn’t be the issue. Alberta has roughly 60,000 kilometres of water pipelines in operation supporting our oil industry.

It’s not unusual to use brine from non-potable sources for injection into wells as part of the drilling and completion phases so you could potentially use salt water straight up or after some sort of filtration but it would really depend on the reservoir’s composition and how it would react with salt water and what by-products it generates.

Alex' July 3, 2014 at 11:35 pm

You don’t need to desalinate water if you’re drilling for dry gas. Piping it is the bigger issue.

NateP July 3, 2014 at 12:56 pm

http://www.eia.gov/analysis/studies/worldshalegas/images/fig1map_large.jpg

It’s all a game of catch-up. I’m guessing by the time the U.S. production reaches it’s peak, shale development elsewhere will hit the market.

Bill July 3, 2014 at 1:07 pm

Energy Independence has been an excuse to give more tax breaks and subsidies to the domestic oil industry.

Ask yourself: If US oil is being exported, should we net out the subsidies we gave to produce it because the oil is not being consumed in the US.

Of course we will talk about Energy Independence, then export subsidized oil.

Moreover, we can never have independence, but we can have independence alternatives…many countries, non-OPEC countries–exporting oil as trading partners. And, we don’t have to subsidize them to buy their oil.

Dan Weber July 3, 2014 at 1:44 pm

For economists, why is buying energy from people who produce it bad? Comparative advantage and all.

dead serious July 3, 2014 at 3:18 pm

Re: fracking NIMBYism, I truly and sincerely hope that the Fredericksburg operation makes it way a bit north to Fairfax.

I’ll be curious how you like the new and improved taste – plus the new pyrotechnical qualities! – of your water.

Brian Donohue July 3, 2014 at 4:37 pm

Dude, you mean well, but you’re several years behind the curve on this. Gasland was basically a work of fiction.

dead serious July 3, 2014 at 5:20 pm
Brian Donohue July 4, 2014 at 9:42 am

Sir,

For disseminating the first link, you stand accused of intellectual dishonesty. The story cops to the fact that NONE of the confirmed cases of contamination are related to fracking, yet the AP chooses to pepper the article with fracking. Reminds me of how Bush tied Saddam Hussein to Al Queda. Very shoddy.

As to the second link, you should have clicked through to the rebuttal.

http://energyindepth.org/marcellus/five-facts-about-dukes-latest-anti-shale-study/

dirk July 3, 2014 at 3:58 pm

It still annoys me that “fracking” is the popular term for the recent technology pioneered by George Mitchell to extract hydrocarbons from shale plays. Fracking is a technology first commercially used in 1949. Can we give a new name to a new technology? I’m pretty sure developments in lateral and *smart* drilling had more to do with the recent breakthroughs than old school hydraulic fracturing.

Spencer July 3, 2014 at 4:50 pm

This blog is called Marginal Revolution, right.

Fracked oil and the tar sands are the marginal supply of oil that determines the price of oil and the cost of a barrel of oil from fracking is in the $80 to $100/ bbl range., if not higher. I have not looked at the data for a year or two.

So exactly how has fracking reduced the price of oil.

I guess that you could argue that without fracking we would have to pay even more for an alternative marginal supply of oil

Clover July 3, 2014 at 7:09 pm

The price of Oil is determined by supply and demand(accounted for the fact that suppliers participate in more cartel-like behavior than buyers).

Tom from Calgary July 3, 2014 at 8:24 pm

Current cost per barrel is currently in the range of $70-90 per barrel actually.

JWatts July 3, 2014 at 6:16 pm

Increased Fracking in Australia will likely lead to lower natural gas prices, which will have the side benefit of boosting the effectiveness of solar and wind electricity production. Currently, peaking natural gas plants are the most cost effective way of dealing with the intermittencies of solar and wind electrical production.

Clover July 3, 2014 at 7:10 pm

Australia shows the benefits of having a lot of land and not many people to share it with.

HankP July 3, 2014 at 7:35 pm

NIMBYism is always and everywhere a bad thing, until it’s your backyard.

Ronald Brak July 3, 2014 at 9:50 pm

I see some people are probably not aware of the following points:

1. There is very little fracking done in Australia. Mostly it is coal seam gas which requires much less in the way of water than fracking.

2. Coal seam gas extraction is pushing up the price of gas in Australia resulting in more electricity being generated from coal, wind, and solar. This is because Australia’s gas used to be stranded without access to the international market resulting in low prices. Now that new Liquid Natural Gas export facilities are nearing completion prices in Australia are rising to parity with internatonal prices. This is resulting in much less gas use in Australia. One gas generating plant has shut down as they can make more money selling the gas overseas than producing domestic electricity with it while load following gas plants are being converted to peak plants.

3. The future does not look good for gas. Point of use solar is being installed in Australia for an average of around $2.35 US a watt with the cheapest installations are being done for under $1.90 US per watt. Note this is before any subsidy. Meanwhile utility scale solar is being installed in India and China at or close to $1 US a watt. This is clearly not good for natural gas exporters. Wind also outcompetes natural gas which is why the Australian state that uses the most gas per capita now gets over a third of its electricity from wind.

Keith July 3, 2014 at 10:44 pm

Natural gas will supply factories, skyscrapers, hospitals, trains and long haul trucks. Solar will power houses and some large buildings in sunny areas. The general grid will be powered by a mix of coal, gas, solar, wind etc.

All this will take many years to arrive. The future of natural gas is sunny.

Ronald Brak July 3, 2014 at 11:19 pm

That’s interesting. Meanwhile, what is actually happening in Australia is the 385 MW Swanbank E gas power plant near Brisbane has been mothballed. The 630MW Darling Downs gas power station is being converted from load following to peak operation, as are other gas plants. Rooftop solar is reducing the need for both gas and hydroelectricity during the day allowing more hydropower to be saved for the morning and evening peaks, further reducing the amount of gas that is required. South Australia is the state with the most solar capacity per person and as I write this at around noon rooftop solar may be meeting about 20% of total electricity use. Rooftop solar capacity is continuing to expand and prices are continuing to decline. Our newest wind farm, Snowtown II, cost about $1,500 US per kilowatt, will has a capacity factor of about 42% and provides electricity at a much lower cost than gas. Austalia’s Coalition govenment has passed legislation in Parliment to end our carbon price and if it gets through the senate it will lower the cost of coal power relative to gas resulting in less gas use and more coal use. About 10% of Australia’s coal capacity is currently in mothballs so there is no shortage of coal capacity to take over from gas. We have so much excess generating capacity because Australian grid electricity use has fallen despite the country not having a recession after the Global Financial Crisis, having the strongest economy in the developed world, and a gradually growing population. The main cause of this decrease has been improved efficiency, with changes in industry, rooftop solar, and increased electridity prices also playing a part. It is not currently possible to build new gas or coal generating capacity in Australia because, firstly the demand is not there, and secondly because it cannot compete on cost with renewables. We are now using less gas than we were six months ago and the trend will continue.

Cliff July 3, 2014 at 11:26 pm

Australia is not the whole world, so I struggle to understand WTF your point is

Ronald Brak July 3, 2014 at 11:31 pm

The title at the top of the page will probably give you a hint.

Keith July 4, 2014 at 12:53 am

All interesting developments but according to this site hydroelectric still beats solar and wind for renewables, and 89% of electricity in Australia is still provided by fossil fuels. http://www.originenergy.com.au/energymix

This transition is a long process.

Ronald Brak July 4, 2014 at 1:56 am

Yes, Australia’s electricity sector is mostly powered by coal, but my point is there will be no increase in gas consumption and its use will decline here. For example, the link you provided got its information from 2012. In that time Australia has doubled its solar capacity, wind has increased to about 5% of supply, and grid electricity use has declined by about 5%. And as domestic gas prices reach parity with international prices they may triple from what they were in 2012.

Tom from Calgary July 4, 2014 at 2:10 am

The power company that owns Swanbank specifically stated that they were re-opening Tarong to replace the capacity and the turbines they brought back on line are coal fired and produce 350 MW each so you have a net gain.for fossil fuels right there.

Ronald Brak July 4, 2014 at 2:32 am

Tom, yes, as gas prices rise as they approach parity with international prices and with the distinct possibility that Australia’s carbon price was removed on Tuesday, the generating mix is shifitng to less gas and more coal. And, as I mentioned, this is resulting in Australia using less gas. Also, there is no increase in electricity being produced from fossil fuels in Queensland or Australia. Fossil fuel use is currently decreasing. As I mentioned above demand for grid electricity is down around 5% from 2012. Queensland’s decline will be offset to an extent as its one gigawatt natural gas liquification plants come online, but that’s likely to be a one off occurance and won’t change the trend.

Dwain July 12, 2014 at 12:34 pm

Hello! I’ve been reading your weblog for some time now and finally got the bravery to go ahead and give you a shout out from Atascocita Texas!
Just wanted to say keep up the fantastic work!

Jackson Wilson July 17, 2014 at 3:23 am

Nice Post !!! In Australia Gas And Electricity Price are hike day by day. You can use gas and electricity usage calculator you can determine where you may be able to cut back or upgrade to more energy efficient products.

Comments on this entry are closed.

Previous post:

Next post: