Not All Its Fracked Up To Be

October 26, 2018 5:07 PM

Mystery and high stakes often go together, as is the case with fracking — the process of using high pressure to extract oil and gas from shale rocks buried deep under the earth’s surface. Fracking companies are hot destinations for investors chasing yields and growth industries, especially private equity companies, in part because of the large appetite the capital intensive industry has for debt. However, several warning signs suggest the fracking industry not only may fall short of investor expectations, but also could actually help to precipitate the next financial crisis.

If this sounds like the people are playing fast and loose with complicated financial instruments again...its because they are. Like all bubbles, this one is ready to pop.

With only 12 years left to do something about global warming, maybe we should let the air out quickly and be done with an industry that is pushing us ever closer to catastrophe.

Now might be a good time to take your money out of the oil and gas industry, after all what is the point of saving for retirement if the world you retire into is a nightmare hellscape.

posted by stilgar (19 comments total)

tl;dr
posted by lalochezia at 5:28 PM on October 26, 2018 [8 favorites]

Now a financial crisis on top of earthquakes and aquifer pollution?

Bless you, petroleum industry!
posted by BlueHorse at 5:30 PM on October 26, 2018 [5 favorites]

The Economist last week had a big article on the Texas Permian shale. It's nowhere near as doom-and-gloom but does point out some of the risks. No details on the financial instruments being used to pay for all this investment, though.
posted by Nelson at 5:33 PM on October 26, 2018 [1 favorite]

Photovoltaics are the way forward—if we can get battery storage to where it needs to be. It's getting closer and closer, and quickly. If we can get battery storage to the point where it's cost-effective against natural gas, that plus PV (which is already plenty good and cheap enough and getting better and cheaper much, much, much faster than most people are aware) will be a true, no-joke, game-changer.

I'm serious! PV is already, today, the cheapest form of energy. The per-megawatt cost of PV has dropped 74% in the last ten years. with battery storage quickly approaching cost-competitive prices, the potential is clear: soon, we may no longer rely on natural gas power plants to supply the grid with power on demand. We will be able to simply draw electricity that has been captured from sunlight and stored in batteries until needed.

We're almost there. Some engineer at Panasonic may take us over the line any day now. This year, next year, five years from now, but soon. And once we cross that line, it'll be like flipping a switch. The solar industry is ready and waiting. We already know how to do it, we're just waiting for it to get cheap enough for it to make financial sense to our customers. And we're close, so very close.
posted by Anticipation Of A New Lover's Arrival, The at 5:43 PM on October 26, 2018 [24 favorites]

And we're close, so very close.

...so should I wait to install a system then? (legit question, got a 2yr old roof so only have ~3yrs to decide if I wanna install panels)
posted by aramaic at 5:53 PM on October 26, 2018

Go ahead and install, it doesn't make a difference to the financial proposition for the average residential PV customer. A good deal is a good deal, and the newer the roof the better.

The battery storage thing mostly matters at the level of industrial-scale PV generation facilities. Most PV (in terms of kW) is generated at the commercial and industrial scale, but that doesn't mean that it's not still a good deal for individual homeowners.

Residential-level battery storage is approaching the cost-effectiveness of residential-level natural gas backup, especially if Tesla can get its freakin' act together and ramp up Powerwall production to meet demand. (I've got customers who have been waiting for months for their Powerwalls. Apparently Panasonic has had to build additional battery factories to meet the unprecedented demand.) But there's room in the grid for more residential PV even without storage, so go for it. Residential battery storage is mostly about backup for when the grid goes down, not supplying the grid with power on demand.

If residential-level battery storage starts to become a major part of the picture in terms of supplying the grid with power on demand, the batteries involved will be the ones inside your electric vehicle. The EV fleet is already by far the largest potential source of battery-based electricity of any kind.
posted by Anticipation Of A New Lover's Arrival, The at 6:09 PM on October 26, 2018 [2 favorites]

By the way, ~5 years is an unrealistically short timeframe for when it makes sense to install PV. It's more about the condition than the age, anyway; asphalt roofs weather at very different rates depending on shingle quality and environmental conditions. You just need to factor the cost of at least one re-roof (with removal and reinstallation of your modules, which is a two-day, labor-only process for most residential solar crews on most houses; off in one day, then re-roof, then back on in one day) into the lifetime cost of your array, since no asphalt-composition roof is going to outlast a PV array.

If you want a roof that will last longer than your array, go metal. Metal roofs are way better anyway.
posted by Anticipation Of A New Lover's Arrival, The at 6:14 PM on October 26, 2018 [2 favorites]

Plus there's no reason why you can't add battery backup to your PV system later, if you want. Just talk to your installer and make sure that they build you a system with that addition in mind. Not a problem for a good installer, my company does it all the time. For instance, SolarEdge inverters (the most common kind in my area) can be set up to work with a Powerwall, but if you want a Pika battery you may need a Pika inverter. Also, there needs to be enough physical space for the battery, ideally somewhere near the inverter.
posted by Anticipation Of A New Lover's Arrival, The at 6:41 PM on October 26, 2018 [1 favorite]

Wouldn't be the first time oil and gas caused a financial crisis, and probably not the last, either. That whole S&L thing? Losses in O&G were the match that set off the explosion. A bunch of big banks and thrifts that fancied themselves competitors with the likes of Citibank and Chase Manhattan saw the local and regional thrifts (and a few banks, but they weren't awash in excess capital like the thrifts were) making money hand over fist and decided they needed to get in on the action.

Unfortunately, the action they ended up getting in on was riddled with fraudulent geological reports and a few 10,000+ foot almost dry holes. Turns out not every claim of a sea of crude just beyond reach is true.
posted by wierdo at 7:05 PM on October 26, 2018 [6 favorites]

The oil industry is spending an amazing amount of money in Colorado in opposition of Proposition 112, which would require any fracking to be 2500 feet away from schools, buildings... basically where people live and work. The ads are vicious: voting no saves jobs, saves schools, and protects workers here.

People supporting it are portrayed as “eco-terrorists” (what) who are getting support from outside liberals (from California). Which. Yeah.

Especially given the article, I’ll take solar, thanks.
posted by hijinx at 7:07 PM on October 26, 2018 [8 favorites]

This year, next year, five years from now, but soon. And once we cross that line, it'll be like flipping a switch.

Sadly, no it won't. Existing fossil fuel plants provide over 60% of our electricity and have a long life time. (Solar and wind are like 7% IIRC.)

Even if we had competitive storage that could work for at grid scales in 2025 as the (IMHO extremely optimistic) report speculates we might, it's decades after that before economic reasoning alone would lead us to stop using fossil fuels.
posted by mark k at 7:39 PM on October 26, 2018

I've seen 2035 as the tipping point for renewables, but that's still a bit late to stave off the worst of climate change. Better 2035 than 2050, though. But damnit if the fossil fuel industry will do their best to fuck shit up for money money money.
posted by Mister Cheese at 8:37 PM on October 26, 2018 [2 favorites]

What I meant by "like flipping a switch" is just that we'll switch from building new natural gas plants to building new PV arrays. We're already great at building huge PV arrays, but without storage they're much less useful and can't respond to the needs of the grid's users; we still need fossil fuels to back them up when it's dark or cloudy.

Once battery storage gets cheap enough, PV will be able to do everything that natural gas plants can do and there won't be much of an economic case for building new NG plants. Existing ones will be around for a while, but increased demand (for instance, demand created by the electrification of the automobile fleet) will be met by PV because it will simply be cheaper.

To come back to the topic of the post, what this will do is it will put the brakes on fracking and natural gas exploration. Demand for natural gas will peak and then gradually tail off. Speculators won't be interested in backing these natural gas exploration efforts nearly so aggressively once it becomes a shrinking market.
posted by Anticipation Of A New Lover's Arrival, The at 5:12 AM on October 27, 2018

PV + battery storage is still nowhere near CCGT for price, the price of PV panels and of batteries are coming down but we are not near a tipping point.

Since natural gas OCGTs are such a useful complement to intermittent renewables, increasing penetration of wind and PV is good for the gas market. The real determining factor here is the cost of energy storage and while the price of storage is dropping it is still an order of magnitude too high to do anything other than frequency stabilisation in a few markets.

The latest Lazard LCOS analysis is that lithium ion in a peaker replacement role costs $268 / MWh. Adding $34 / MWh for the LCOE of PV (from the eia ) which represents the lowest cost US region you get a total cost of $302 / MWh. The current cost of CC gas generation is between $43.5 and $76.8 / MWh. That is a massive gap to close.
posted by atrazine at 5:46 AM on October 27, 2018 [1 favorite]

Assume you need to get to a total system price PV + storage of $100MWh. That's about a third more than what CCGT power costs in a high cost US region and 3x what it costs in a low cost region, but the US has very cheap gas - there are other places which have sun but no local gas.

Assume that you get solar down to $25 / MWh which is about 25% less than now (n.b. PV prices include tax breaks), you need to get storage down to $75 / MWh.

BNEF has previously found a 19% learning rate¹ for lithium ion battery capex. If we assume that:
a) the same 19% applies to the whole levelised cost, not just the capex - this is a big assumption but let's go with it.
b) the learning rate can be extrapolated out forever - this is clearly untrue as not physically possible but let's try it out for the sake of argument.

To get to $75 / MWh from $268 / MWh you need a 72% cost reduction, at a learning rate of 19% that will take six doublings, we'll reach it when total global output of LI batteries is 64 times what it is now.

(1) the learning rate is the reduction in cost per manufacturing capacity doubling
posted by atrazine at 6:10 AM on October 27, 2018 [1 favorite]

Photovoltaics are the way forward—if we can get battery storage to where it needs to be.

Or perhaps what people should expect might need changing.

At one time humans lived with the flows of energy on the planet. "make hay while the sun shines" "yeoman farmers" as two examples of such an idea.

Americans are spoiled with 24X7 electricity (at 20KWh+) as what is expected. And there is a difference between no electricity and having some you then have to budget around. I'm more than happy to have a power budget and shift loads - but most Americans are not. Then you also have some powerflows that 24X7 needs to happen. Like sewage processing. 24X7 potable water is another expectation. The last 2 not existing means a place like Manhattan can't exist as it does now.

Peak production of the easy to get oil happened a while ago.

(if one is worried about the economic impact of the oil flow/oil price from an economic lens - the $100+ price and the recession is a fine touchstone. Drought has a historic impact on the economic fates and at some point the lack of economic Phosporus appears to be a limiting factor.)
posted by rough ashlar at 6:34 AM on October 27, 2018 [4 favorites]

To come back to the topic of the post, what this will do is it will put the brakes on fracking and natural gas exploration. Demand for natural gas will peak and then gradually tail off. Speculators won't be interested in backing these natural gas exploration

This is a bit naive, the costs of fracking can be reduced by paying lobbyists and legislatures to stop enforcement of environmental law, or undoing the law itself. Zinke has been on a tear through environmental rules and barriers for oil and gas. I hear he is forcing USFWS to destroy 50 years of documents concerning endangered species and oil leases?

Fracking was a tool for only the most drunken geologists, until Cheney exempted it from groundwater regulations. Those exemptions are what made it economic in the first place.

Even conventional oil uses the legislatures and governor s offices to pay for its financial sins. Oil still hasn t paid for the loss of 400 square miles of marshland from Louisiana. Replacing that land is at least a 200 billion dollar expense, not sure, because the last time the API publically estimated industry debt to the Louisiana coast was in the 1980 s. The state calculates it s land replacement needs at 40 billion, closer to 90 billion unless it all happens at once.

Look at a map of coastal Louisiana, and you ll see how the industry writes off it's debt by abusing governments.

I'm not saying you are wrong in your estimates, but asking you to broaden your frame of calculation, because the oil business is. Every lobbying effort is a risk management tool.
posted by eustatic at 8:18 AM on October 27, 2018 [6 favorites]

I'm sure they will find a way to blame it all on consumers for buying petrol they couldn't afford.
posted by Brocktoon at 8:39 AM on October 27, 2018

I'd be all for actively managing energy use if it were actually necessary to effectively combat the threat of climate change, but it is not, so asking people to do so is self defeating. That's not to say that management of large consumer loads like EV charging isn't a good idea just to keep costs down and free up those resources for other, more productive, uses, however.

Normal household loads are less attractive a target when you note that keeping a grid robust enough to power critical industrial loads by its very nature makes those things mostly irrelevant for the moment. Again, that's not to say that efficiency standards and other conservation efforts have no place, especially right now when the grid is the dirtiest it will be in terms of carbon emissions. Every ton of carbon emissions avoided makes life that much easier in the future, after all. There are lower hanging fruit at the moment, though. There's a lot more efficiency the be squeezed out in transportation at a much lower cost at the moment.
posted by wierdo at 11:49 PM on October 27, 2018