Term Paper on "Future of Natural Gas"

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This essay will first look at shale gas from a historical perspective and investigate how the development of energy and energy markets significantly influenced this technology. The next section will examine shale gas specifically and how this relatively new technology has made significant headway since its implementation. The essay will also discuss the many problems and issues that accompany shale gas such as the public backlash to fracking and environmental destruction. The essay will then examine how energy markets are affected by this growth of shale gas both domestically and internationally. The essay will conclude by summarizing the points and bringing the argument to an understandable point of reference.

The History of Natural Gas Within the Energy Market

Regulation of the natural gas industry in the United States has always been a bumpy ride, as many vying interests clash about profits and markets. This has resulted in dramatic changes in the industry over the past three decades or more years. Today, competitive forces are being relied upon more heavily to determine market structure and operation. However, this has not always been the case. Almost all aspects of the natural gas industry were regulated at one point, a situation which led to tremendous difficulties in the industry, including the natural gas shortages experienced in the 1970s.

According to the American Public Gas Association (APGA), "Naturally occurring natural gas was discovered and identified in America as early as 1626, when French explorers discovered natives igniting gases that were seeping into and around Lake Erie. In 1821, William Hart dug the first successful natural gas well in the U.S. In Fredonia, New York. Eventually, the Fredonia Gas Light Company was formed, becoming the first American natural gas distribution company." Ever since that time, those wishing to gain profits over others have sought this natural commodity to sell and distribute.

During the 1800's natural gas was used almost exclusively as a source of light but in 1885 Robert Bunsen invented a burner that could process and burn this gas in new ways. The Bunsen Burner opened many new avenues and uses for natural gas and in the coming years it would soon become a more important resource not only domestically, but around the world as well. The Bunsen Burner now allowed natural gas to be used in cooking and heating applications making the product indispensible and very profitable when captured and processed in an effective and efficient manner.

In 1938 the market fundamentally changed when the American Congress passed the Natural Gas Act. "The Act gave the Federal Power Commission (FPC) jurisdiction to regulate the transportation and sale of natural gas in interstate commerce. The FPC was charged with regulating the rates that were charged for interstate natural gas delivery and with certifying new interstate pipeline construction if it was consistent with the public convenience and necessity, " (APGA, 2004). In the 1980s there were great pushes for deregulation in many areas that were previously regulated and natural gas was targeted by those who saw an opportunity to make substantial profits in this industry.

In 1989, Congress completed the process of deregulating the price of natural gas at the wellhead, which was begun in 1978 with the passage of the Natural Gas Policy Act, by passing the Natural Gas Wellhead Decontrol Act (NGWDA). The NGWDA repealed all remaining regulated prices on wellhead sales. In the current federal regulatory environment, only interstate pipelines are directly regulated as to the transportation of gas in interstate commerce. Investor-owned local distribution companies (LDCs) are typically regulated by state public service commission's regarding the services they provide. Natural gas producers and marketers are not directly regulated by the federal government as to rates and related matters. Interstate pipeline companies are regulated regarding the rates they charge, the access they offer to their pipeline facilities, and the siting and construction of new pipelines. Similarly, local distribution companies (excluding most municipally owned public gas systems) are regulated by state public service commissions, which oversee their rates and construction issues, and ensure that proper procedures exist for maintaining adequate supply to their customers.

Today, the natural gas industry is regulated by the Federal Energy Regulatory Commission (FERC). While FERC does not deal exclusively with natural gas issues, it is the primary rule making body with respect to the regulation of the natural gas industry. Competition characterizes the natural gas industry as it is known today. The restructuring of the industry, and the move away from strict regulation, has allowed for increased efficiency and technological improvements. Natural gas is now being obtained more efficiently, cheaply, and easily than ever before. However, the search for more natural gas to serve our ever growing demand requires new techniques and knowledge to obtain it from hard-to-reach places.

The natural gas industry has existed in this country for more than 150 years, and it continues to grow. Restructuring and the move toward cleaner-burning fuels have created an enormous market for natural gas across the country. Technologies are continually being developed that allow Americans to use natural gas in new and exciting ways. And new production techniques now allow us to produce natural gas from shale formations. With all of the advantages of natural gas, it is no wonder that it has become the fuel of choice in this country, and throughout the world.

Overall the energy market has been shaped by institutions. Throughout the majority of history, America has been regulated by both antitrust law and public utility law. Antitrust laws are seen more in the oil side of energy markets, where natural gas is mostly managed by public utilities. Regulation has historically been about preventing abuses and promoting fair and profitable competition. As the energy markets continue to grow in strength, size and sophistication, tradition has fallen by the wayside and new methods, markets and approaches have become necessary as dictated by the times we live in.

By understanding and realizing how the situation has developed is useful in applying the right arguments and ideals when discussing the shale gas industry and how it fits within the larger scheme of things. As the evolution of the energy markets continue to evolve and unfold, the lessons of the past can be helpful in avoiding mistakes and developing wise approaches to problems that are very important to the entire energy consuming public.

Shale Gas and Its Revolution

Brooks (2011) wrote "The shale gas revolution challenges the coal industry, renders new nuclear plants uneconomic and changes the economics for the renewable energy companies, which are now much further from viability. The inherent risks can be managed if there is a reasonable regulatory regime, and if the general public has a balanced and realistic sense of the costs and benefits." Shale, when properly processed can produce energy in ways that has fundamentally shifted the way that we view the industry and how the market is developed.

Stevens (2012) described how these developments and changes have impacted the business by laying out several key arguments. He claimed that the shale gas revolution that is occurring in the United States has essentially created an oversupply of liquefied natural gas and has seen the price in the commodity drop substantially. Shale itself is recovered and processed in debatable ways and the term fracking has put a negative connotation on the practice due to the… READ MORE