GUEST POST: The Not-So-Natural Gas Boom

EDITOR’S NOTE: One of WestVirginiaVille’s aims is to highlight work on significant matters deeply affecting West Virginia’s present and future. One is the song-and-dance around the promise of natural gas, which has resulted in a fracking boom in the Mountain State, as it sits on one of several large shale gas deposits. Once we get a vaccine and our attention strays away from dying from Covid-19, the 4-alarm fire of climate change—it’s clanging wildly now—is a far heavier lift. It’s getting worse and requires massive global mobilization and concerted action. Natural gas—and the fracking and pipelines needed to get it to market—is yet another fossil fuel sideshow. Sean O’Leary ably makes the case in this piece from his website “THE STATE of MY STATE: West Virginia culture, economics, and politics.”


By SEAN O’LEARY | from The State of My State | aug5.2020


CNX Resources Corporation CEO, Nick DeIuliis, is a veritable rock star proponent of what he calls “the natural gas economy”.  Videos of his speeches are widely shared within the Appalachian natural gas and petrochemical communities, he is frequently sought out for commentary by reporters, and he is generally regarded as one of the most articulate and persuasive advocates for increased reliance on carbon and fossil fuels, which he calls without irony, “the salvation of humanity”. 

The problem is that DeIuliis’ argument is mostly without foundation and ignores overwhelming evidence to the contrary. In fact, some of his assertions are so absurd that addressing them probably confers upon them more credence than they deserve. That’s apparent in a speech DeIuliis delivered to viewers of the Reuters’ Virtual Petrochemical Development Conference on July 16, 2020. The speech, which served as the basis for a recent PennLive op-ed, is titled, “Nine Irrefutable Energy Truths”.  

As DeIuliis explains in his opening remarks, he is speaking to fellow leaders of the shale gas revolution to encourage them to defend their interests and society’s well-being against “entities that are hell-bent on lying, slandering, and obfuscating”. And he proposes that they make their case on the basis of what he says are nine “truths” for which he says they have science, fact, reason, and data on their side. 



Irrefutable Truth #1—”This is the picture of epic sucess.”

DeIuliis is referring to the state of the natural gas industry in Appalachia, which he acknowledges is in “a pretty tough position” at present – an assessment that probably struck some in his audience whose companies are drowning in an industry-wide sea of red ink as a bit of an understatement. Still, he insists, “This is what we all hoped for. This is disruptive technology!”

For those who may not think getting a “technology disruptor” merit badge is adequate compensation for having their companies plunge into bankruptcy, DeIuliis offers another thread of hope. He says the dawn of the natural gas fracking industry, as chaotic and bloody as it is, isn’t any different than the dawns of the digital economy and, before that, the automobile industry, both of which went on to achieve great prosperity.

But, there are two problems with DeIuliis’ analogy. First, the breadth, depth, and duration of the wealth destruction afflicting the natural gas industry is proportionately many times worse than anything experienced by the digital economy or the automobile industry. Consider these findings from a March 2020 report by the Institute for Energy Economics and Financial Analysis:

  • The largest eight E&P companies in Appalachia reported $73.4 billion in negative free cash flow during the past decade.
  • From 2010 to 2019, these companies reported negative free cash flows every single year
  • Despite capex reductions in 2019, companies’ negative cash flow continued, spilling $466 million in the year, and $427 million in Q4 alone.
  • At the end of 2019, the 8 frackers held nearly $30 billion of long-term debt and their current market cap has declined to just $10.5 billion.

And that was all before the onset of the coronavirus crisis, which compounded the damage. So, it isn’t surprising that after the report was issued, one of the most prominent fracking companies, Chesapeake Energy, which in many ways pioneered Appalachian natural gas development, filed for bankruptcy. It joined more than 200 other American oil and gas companies that have done so in the past few years. Another major player, Chevron, absorbed an $11 billion write-down, more than half of which was associated with its Appalachian holdings. And, since 2014 when he became CEO, DeIuliis’ company, CNX Energy, has seen its stock price decline by three-quarters.


Renewable resources generate a fraction of the greenhouse gas emissions that come from gas-fired power generation.


However you cut it, that is not success, epic or otherwise. DeIuliis’ analogy of the Appalachian natural gas industry to the emergence of the digital economy and the automobile industry is also flawed in another way. Automobile companies and digital companies provided benefits consumers had never before enjoyed — life-changing mobility and unmatched access to information and communication. Consequently, they spawned what became the most highly capitalized businesses of their time – General Motors and Ford in the case of automobiles and Amazon, Google, and Facebook in the case of the internet. 

The natural gas industry, on the other hand is providing no new products or services. And, to the degree consolidation is taking place, it is being driven by value destruction rather than value creation.


IRREFUTABLE TRUTH #2—”If you’re pro-carbon, you’re pro-human being.”

DeIuliis addresses the problem of increasing amounts of carbon in the atmosphere by proclaiming it a good thing. He points out that as carbon’s prevalence in the atmosphere has grown so has life expectancy. He says that famine and pestilence have been effectively eradicated and  that the rights of women have grown as well. (Yes, he really says that. A reminder that his bar for establishing causality is low.) He concludes by saying of producers of carbon emissions, “We are the salvation of humanity”.


Natural gas has now surpassed coal as an emitter of carbon dioxide and it’s gaining on petroleum.


The meaning DeIuliis attaches to the word “carbon” is amorphous. In order to sing its praises, he seizes on carbon’s role as the foundational element of life on the planet. Of course, that has very little to do with its manifestation as a fuel, which when combusted provides heat and electricity and powers appliances and industrial processes. Nor does it take note of skyrocketing emissions of greenhouse gases that, unless stopped, will heat the planet, flood coastal regions, precipitate frequent and ferocious wildfires and storms, make deserts of currently lush regions, cause the spread of disease, and in various ways kill millions of people while playing havoc with the lives of billions.

DeIuliis’ basic argument is that, because carbon is good and necessary in one manifestation, it’s good in all manifestations and in whatever amount. Imagine if he made the same claim about water to someone whose home was just destroyed by flood or about fire to someone whose home was burning to the ground, because in effect that’s exactly what he’s doing. 


IRREFUTABLE TRUTH #3—”Renewables are losing propositions.”

In DeIuliis’s mind renewable energy is not even renewable since “all energy has to come from somewhere.” That in the case of renewables, it comes from the sun and wind, which are not in any way depleted by their use on earth, seems not to matter to DeIuliis because, he says, if you add up the impacts of the mining of raw materials, manufacturing processes, and the transportation and assembly required to stand up and operate wind turbines and solar panels, renewables have a bigger carbon footprint than natural gas.

We’ll ignore the paradox that a moment ago DeIuliis was arguing that carbon is a good thing. Instead, we’ll focus on the interesting claim that wind and solar power generate more greenhouse gases than natural gas generation. He also makes an accompanying claim that electricity generated by natural gas is less expensive than electricity generated by renewables. These are both testable and quantifiable propositions.

The issue of life-cycle carbon emission intensity has been thoroughly studied and shows unequivocally that renewable resources generate a fraction of the greenhouse gas emissions that come from gas-fired power generation.

In fact, natural gas has now surpassed coal as an emitter of carbon dioxide and it’s gaining on petroleum.


Although DeIuliis’ claim that the cost of generating electricity from natural gas is less expensive than renewable energy is not as wildly wrong as his claim regarding carbon emissions, it’s still incorrect. Utility-scale wind and solar power both have lower levelized costs than natural gas for generating electricity. And, because DeIuliis makes repeated references to government subsidies enjoyed by renewable resources (He never mentions those enjoyed by his industry.) it’s worth pointing out that the the following comparison factors out subsidies.


IRREFUTABLE TRUTH #4—”Zero-carbon anything is a myth.”

DeIuliis complains that corporate CEOs and other who claim their companies are “going zero-carbon” are talking nonsense and that modern society can’t function without carbon and it can’t be eliminated from “a closed system”. This is another example of Deluliis using an inappropriately expansive definition of carbon rather than narrowing it down to the issue of greenhouse gas emissions.

In any case, he exhorts his viewers to challenge anyone they hear claiming they’re on the way to becoming zero-carbon and demand that they show their math.  OK, so let’s get an explanation from the folks at Microsoft – a company that will go net zero-carbon by 2030.



A more detailed explanation can be found on Microsoft’s website. The bottom line is that, through a combination of improved energy efficiency, the decarbonization of our electric system, and the removal from the air of carbon that we can’t avoid emitting , we can achieve net-zero carbon performance. In fact, some businesses already have. This is the Bullitt Center, a six-story downtown office building in Seattle that is powered by the sun and that generates 50% more energy than it consumes, making it not just a net-zero enterprise, but a negative carbon enterprise.


IRREFUTABLE TRUTH #5—”Carbon equates to quality of life.”

Again DeIuliis is borrowing on carbon’s ubiquity rather than focusing on its manifestation as a greenhouse gas.  It’s true that carbon is a key ingredient in many useful products, including the PPE which DeIuliis cites as being critical in our response to the COVID-19 pandemic.  But, except perhaps in DeIuliis’ mind, no one is on a mission to eradicate carbon from existence. They merely seek to reduce or offset man-made emissions.


IRREFUTABLE TRUTH #6—”Pro-carbon is pro-United States and freedom.”

Irrefutable Truth #6 is a glistening reminder of George M. Cohan’s famous line, “Many a bum show has been saved by the flag.” But, there is one substantial point to be made about DeIuliis’ flag-waving. While DeIuliis likes to strike an anti-China pose, he and his industry are desperate for China to buy more liquified natural gas, ethane, and ethylene from our region. That’s because, in the next few years China will become the largest importer of liquified natural gas (LNG) and petrochemicals in the world and, after a 2018 negotiation, China was expected to invest $84 billion to develop natural gas and petrochemical resources in Appalachia, a commitment the region’s policymakers are still hoping will be fulfilled. We can be sure that, if China shows up with a check, Deluliis and his fellow gas industry leaders will be more than happy to cater to Chinese needs and will cash the check without any qualms about taking money from the Chinese Communist Party.


IRREFUTABLE TRUTH #7—”Carbon is the ultimate expression of geopolitical soft power.”

According to DeIuliis, American carbon production can secure India and Japan against China, secure Europe against Russia, bring peace to the Mid-East, lift billions out of poverty, break OPEC’s back, and improve the environment.

Sometimes the best way to refute a claim is to say nothing and invite the reader to simply read it again and contemplate the self-evident absurdity. But, there is one part of the claim that deserves comment – the breaking of OPEC’s back.

The recent collapse in oil and gas prices and the resulting economic devastation among US oil and gas companies shows among other things that a large portion of the US fracking industry, including many companies that operate in Appalachia, is dependent on OPEC to maintain high, cartel-level prices for oil. That’s why, when a combination of the coronavirus epidemic and a brief production cut by Saudi Arabia and Russia caused the price of oil to go below $30/barrel, there was a serious shaking out among American producers.

Far from being an antidote to OPEC, much of the American oil and gas industry is dependent on OPEC price-fixing and would collapse without it.


IRREFUTABLE TRUTH #8—”Carbon sustains the middle class.”

DeIuliis argues that the natural gas industry supports thousands of well-paying jobs in the region and that many of those jobs, which pay middle-class wages, do not require a college degree. In a way, this is a remarkable argument for DeIuliis to make because, second only to its dire effect on global warming, the greatest failure of the natural gas industry and the fracking boom is that they have never come close to delivering the job growth and prosperity that was loudly predicted by proponents a decade ago. 

In 2010, the American Petroleum Institute released a study by Timothy Considine showing that, if by the year 2020 natural gas production reached 18,212 million cubic feet of natural gas production per day, Pennsylvania would see the creation of 211,909 jobs and West Virginia would see 43,746 new jobs. Today, we are producing 50% more natural gas than was anticipated in the API study’s high development scenario. But, what about the jobs?


The natural gas boom has utterly failed to generate job growth and prosperity. Meanwhile, the newest purported economic game-changer, the petrochemical industry, is conspicuously failing to take root in the region.


By 2017, Pennsylvania had already surpassed Considine’s 2020 output standard. Nonetheless, according to an analysis by Pennsylvania Tom Wolf’s administration, only 28,926 people were directly employed by the oil and gas industry and a third of those jobs existed before the fracking boom began. The total employment figure grows to about 80,000 if you include service providers to the industry and the economic effect on other businesses in the region. But, many of those jobs existed before the boom. So, in total, Pennsylvania probably realized no more than a quarter of the jobs growth that was predicted.  And, looking at the region as a whole, there is evidence that the fracking boom may have actually had a negative impact on jobs.

A quick review of Bureau of Labor Statistics data show that the counties that have experienced the most natural gas development in Ohio, Pennsylvania, and West Virginia have been among the worst performers in job growth. The following chart lists the number of employed persons in each states’ highest producing counties in the years 2008 and 2019. That chart is followed by another, which lists total state employment figures for the same periods. Please note that the coronavirus crisis arose after the data was fielded and did not affect the results In aggregate Ohio, Pennsylvania, and West Virginia experienced 4% growth in employment. But, the principal natural gas counties saw their number of employed people decline by 4%, making them a drag on economically. 



IRREFUTABLE TRUTH #9—”Political quietism is a recipe for disaster.”

DeIuliis closes by admonishing his viewers to be politically active and counteract their “insidious enemies” who take liberties with facts and data.

Actually, DeIuliis may have a point about the need for frackers to be politically active because, as we have seen, the industry is having a hard time making it without government assistance . . . not that it’s had to.  In fact, a report is in the works exploring at least 17 federal, state, and local government incentives, subsidies, and tax breaks from which the industry benefits.  The Shell ethane cracker plant currently under construction in Beaver County, PA received over $1.6 billion in breaks all by itself. And, recently the Pennsylvania legislature passed a bill, which will provide over $670 million in additional breaks for the development of petrochemical facilities in Northeastern Pennsylvania. Whatever their shortcomings, the leaders of the natural gas and petrochemical industries have been highly successful in winning government handouts.

Often, disputes over whether the region’s economic development strategies should be built on the backs of these industries are seen as cases of “jobs vs. the environment”. But, the fact is that the natural gas boom has utterly failed to generate job growth and prosperity. Meanwhile, the newest purported economic game-changer, the petrochemical industry, is conspicuously failing to take root in the region.

In light of these facts, it is incumbent on regional policymakers to set aside empty and occasionally absurd industry rhetoric and explore new, better, and more sustainable economic development strategies.

BIO

Sean O’Leary is a senior researcher in the areas of economic development, energy, and petrochemicals at the Ohio River Valley Institute. He is a native of Wheeling, WV who has written about coal, natural gas, and their role in the economies of Appalachia in a book, a newspaper column, and blog titled, “The State of My State”. Previously, Sean served as communication director at the NW Energy Coalition in Seattle, Washington. He is also an award-winning playwright. Follow him on his website: “THE STATE of MY STATE: West Virginia culture, economics, and politics.”



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One Comment

  • Allan Tweddle

    Have you ever written about the potential job creating impact of a Power Purchase Agreement Law being passed in WV.

    The transition from the 19th Century Concept of central power plants to distributed power, such as solar cells on all south facing residential and religious roofs and any and all flat roofs would be an economic boom!

    Those states that have PPAs have seen such job creating economic growth.

    Care to have me wrote about it? As an engineer I was involved in the design and construction of both PV and CSP solar systems in the mid 1980s when I lived in Southern California.

    And I’m planning a aerospace manufacturing business that could occupy a 72,000 facility operating on 100% solar power…including process heat. Our objective is to have a zero carbon footprint. And the product we are planning to produce will reduce the carbon footprint of the world’s airlines.

    Allan

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