I recently watched the documentary “Gasland.”
It’s about fracking. I recommend it, regardless of your view on the technology. It’s a clear view of the opportunities and risks of the current fracking boom in the U.S.
But the most compelling observation for me in the entire documentary was a financial analyst who discusses what the fracking boom represents to Big Oil, OPEC, the whole shebang.
But before I explain, I want to assure you, I had no agenda when I watched this.
I have built, written and edited many energy and utility financial products over my time. I know the businesses and appreciate their efforts to grow an industry and be competitive.
My backstory on this issue started about five years ago, when I had to work with a couple folks in Scranton, Pennsylvania on a project.
If you haven’t been to central Pennsylvania, up the Route 81 corridor, you may have at least seen the movie The Deer Hunter. It’s the same kind of place. That’s pretty much it; old coal mining ghost towns, lots of rolling hills.
Last century, the coal companies stripped most of the mountains and hills until there wasn’t anything to take. My grandfather was an immigrant miner in one of these towns and my mom grew up there. This kind of story goes up and down the Appalachia Mountains, into West Virginia, Virginia, Kentucky, Tennessee, etc.
So I get to Scranton, a once-significant city in the heart of PA coal country that is now a bit worn for its age. I go to check in at the Holiday Inn and figure I will be a welcome visitor. They charge me $150 for my room.
That’s more than a room in New York City or Washington, D.C.! I mention this to the desk clerk and he says, “Yeah, well, it’s the only room we have left.” I was mystified. And intrigued. Did I hit a festival or antique car show or something? A convention?
Later that night, I went out for dinner and sat down at a local diner. Pennsylvanians are very friendly people, and I ended up talking to a fella next to me at the counter. I mentioned my hotel experience.
He said, “It’s not just that hotel. All the hotels in Scranton and north and south for about 30 miles are booked. And they’ve been booked for a couple years now. All the fracking companies have been here scoping out potential well sites. You’re lucky you even found a room.”
I was stunned.
My new-found friend observed that the way you spot the farmers that sold to the fracking companies is by the in-ground pools. They sell the rights to their farms that aren’t making much for a big payoff, relatively speaking. “For some reason, the first thing they do is buy a pool.”
“Gasland” brought a lot of these memories, as well as the conversations about this booming business, back to the surface.
You see, the same area that has been mined for the past century is also where the biggest shale oil and gas reserves in the U.S. are. It’s called the Marcellus Shale and it runs along much of the same former coal mining towns that are back in boom times again. Kind of.
So, back to the big picture that hit me hardest. This financial analyst in the documentary talked about how this whole transition to natural gas is really in the interest of Big Oil. They’re creating a fuel that’s cheap enough to replace coal and once everyone switches, they’re stuck.
The U.S.’s largest coal company, Peabody Energy, has already filed for bankruptcy. It’s a canary in the coal mine, so to speak.
And this isn’t simple paranoid speculation. Energy companies have gotten approval to create natural gas export ports and are building them as we speak. Natural gas in Japan is 10-15x more expensive than it is in the U.S. In Europe it’s 5-10x more expensive.
The energy firms are selling it in the U.S. at a profit at extremely low prices, relatively speaking. The potential profits from exports are huge.
So what’s the problem if these firms take advantage of the pricing disparity and make a few bucks for their sweat and money? Nothing.
But you should also know that once we begin to export the gas, prices in the U.S. will rise, easily 2-5x what they are now. It will no longer be a closed loop, and that means everything running natural gas will become that much more expensive to operate. That is the long game mega-corporations play that individuals don’t get.
Knowing this now, however, means you can start to get energy independent on your own. Also, look for utilities that are on the cutting edge of incorporating solar and wind into their energy mix.
There are also some utilities that have launched the newest wave in renewables tech. It’s called Energy as a Service (EaaS). This will link consumers and industry into real time energy monitoring so they can learn to maximize their energy efficiency.
EaaS is a positive feedback loop that means lower prices for its users and it allows utilities to spread their existing power output over more customers. That means the utilities don’t have to spend money to build power plants or energy farms.
If you aren’t in a smart utility’s service area, see if you can buy it from an alternative producer. Or, invest in some of the firms that have a lot of renewables and EaaS. You can use your profits to pay down your energy bill.
–GS Early
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