How new Energy technologies are changing the World

We have been writing about and investing in companies developing new methods to extract natural gas from shale deposits for years. Four years ago we didn’t know if these new technologies would work; the investments were risky. Today, these new shale extraction processes are proven and they are rapidly increasing the availability of cheap, domestically produced energy. At the same time, new energy saving technologies have also been proven and are being deployed throughout the US.  The combination of these new technologies is rapidly changing the global energy situation.

Shale deposits are in horizontal seams so a new drilling method was developed.  Unlike conventional natural gas wells that are drilled straight down, shale wells are drilled down to the shale seam, then horizontally through the shale deposit for half a mile or more, and then back up to the surface. Extremely small silicon spheres of a uniform size are then pumped into the shale wells at very high pressure. The spheres (or proppants) create channels in the shale which allows the gases to flow out.  When the pressure is removed,  the spheres remain in the shale “propping open” the channels allowing the gases in the shale to escape and be pumped to the surface.  Companies like Range Resources (RRC), which invented many of the horizontal drilling techniques, and proppant manufacturers like Carbo Ceramics (CRR) have performed extremely well over the past couple of years.

These breakthroughs in extracting natural gas from previously inaccessible shale and other deposits now account for 40% of the US’s natural gas production. Leaders in this new market are having annual increases in production of 15%.  The use of these methods is spreading outside the US and major shale projects are now underway in Germany, France, and one is soon to start in Poland.

In the US, these new sources of natural gas have dropped prices from $13.80 per mcfe in 2008 to $4.95 per mcfe during the last few months. This 64% drop in natural gas cost is significant when compared to the drop in the cost of oil from $91.48 a barrel in 2008 to $91.11 a barrel today. The lower cost of natural gas is encouraging large energy users to convert to natural gas to get the price benefit.

The shale extraction technology has continued to evolve and led to new methods to extract shale liquids. These liquids are similar to propane and sell at a higher price than natural gas. Since propane sells at a significant premium over natural gas, most of the new shale projects in the US are focusing on recovering shale liquids.

Simultaneous with the increased energy from shale, new technologies have emerged to decrease overall energy usage.  Studies have shown that traditionally about 80% of US’s electric usage is for electric motors and lighting. New “smart motors” have been developed that manage the power they draw to match the load needed, reducing the electricity required by about 40% for a given amount of work. As these new motors replace motors in use today it could drop the US’s electrical needs by 16% or more. New LED (light emitting diodes) lights are about 50% more efficient than compact fluorescent lamps and about 90% more efficient than tungsten filament bulbs. As prices of the LED bulbs drop more homes and cities are replacing their lights to gain the savings in energy. When all conventional lights are replaced with LED lights, the energy needs could drop another 36%.

Alternative energy sources from solar and wind are also growing in popularly, further reducing the need for oil generated electricity. Last year in Hawaii County, 39% of the electricity produced on the grid was from local energy sources of geothermal, wind, solar and bio-fuel. This does not include the many houses that are off the grid relying solely on solar or wind systems. As the price and efficiency of solar systems drop, Hawaii county may one day be 100% self sufficient in energy.  The increase in solar and wind electrical production is slowly happening throughout the US and though the gains are small each year, they will add up over the decade

One of the big benefits of increased domestic production of natural gas and less energy usage is the US’s reduced dependence on oil imports. In 2004, the US imported 2.5 million barrels of oil each day from the Persian gulf, yet in 2009 imports from this region had dropped by 32% to 1.7 million barrels a day. US oil imports from other parts of the world are dropping as well. All OPEC imports, for instance, are down 13.6% during the same time period.

Though energy analysts attribute this drop in oil imports to the US’s economic contraction during the last 36 months, we think the new sources of energy and energy efficient technologies will continue to reduce the US’s dependence on imported oil.  If Americans woke one day and found we had no need for imported oil, it would certainly change the view of the importance of some international relationships. We believe that US energy independence will not only will come, but that day may be closer that anyone might guess.