Where There's a Drill, There's a Way

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Washington state’s corporate lineage runs deep. From Boeing
to Microsoft to Weyerhaeuser to Alcoa, corporate giants have flocked to the
Pacific Northwest. They’ve come for the timber. They’ve come for the techies.
But the bedrock upon which much of our state’s corporate megastructure stands
is a common commodity: Historically, Washington has enjoyed some of the
nation’s cheapest energy.

Cheap energy translates to big business. Alcoa, the nation’s
largest producer of aluminum, operates two smelters in Washington state.
Boeing, the thousand-pound gorilla of Northwest commerce, remained in the
region because of that cheap aluminum—and because of lower operating costs. And
in the past decade, Google, Yahoo, Microsoft and others have spent hundreds of
millions constructing data centers in central Washington and along the Columbia
River Gorge, where power is cheaper than nearly anywhere else in North America.

Unfortunately, the cheap energy era of the mid-20th century
has all but vanished. Hydropower, once the basis of the Northwest’s booming
energy economy, is no longer a growing source of energy production. With the
ongoing fight to save endangered salmon populations, it’s doubtful that any new
dams will be built. A new generation of cleaner, safer nuclear power plants is
on the drawing boards, but those could take 20 years to build. And the state’s
holy grail of renewable energy—wind power—is inconsistent and not yet poised to
shoulder the load of regional power production.

Meanwhile, our
demand for energy continues to grow. And as the load increases, prices will
undoubtedly climb.

Fuel Emissions One major advantage natural gas has over coal as a source of electricity generation is the reduction in emissions of principal greenhouse gases.

The Pacific Northwest Power Mix            Natural gas comprises just a small slice of the region’s power generation mix, and while it emits more carbon dioxide than renewable sources, it is significantly cleaner than coal.

The Rising Demand for Gas Annual demand for natural gas in the Pacific Northwest, from residential heating to commercial sales to industrial and power generation usages, is expected to rise significantly over the next decade.

Puget Sound Energy’s Projected Gas-Fired Generating Capacity

But deep in the woods of northeastern British Columbia lies
a resource of game-changing potential: shale gas, a form of natural gas that is
buried within massive shale formations nearly two miles below ground. Like
conventional natural gas, shale gas is a “cleaner” energy source; it emits
roughly half the greenhouse gases of coal. In the United States, which still
relies upon coal-burning power plants for more than 40 percent of its energy generation—energy that is sure to become more expensive thanks to cap-and-trade
legislation—natural gas may well be the first, easiest step toward reduced
carbon emissions.

B.C.’s shale gas is so abundant that it is poised to reduce
the cost of power, heating and commerce in the Northwest even in the near
future. Some estimates predict that B.C.’s shale formations hold up to 1,500
trillion cubic feet of natural gas. Furthermore, many of B.C.’s shale
formations lie along existing pipelines. Shale gas isn’t just around the
corner. It has already arrived.

Cheap natural gas should help ease the pain that comes from
reducing our dependence on more carbon-intensive fuels like coal and oil,
whether that comes as a result of a carbon tax—which British Columbia already
has put in place—or as a result of a cap-and-trade system. And
environmentalists see an opportunity for Washington state, as it builds on its
success in wind energy and hydropower, to more aggressively market itself as a
leader in sustainable energy, drawing energy-intensive industries to this state
with promises of clean and plentiful power.

Bellevue-based utility Puget Sound Energy (PSE) expects it
will increase its gas-fired generation capacity by nearly 75 percent over the
next 20 years. PSE is also a major retailer of natural gas, with 750,000 homes
in the Puget Sound region as customers, a number that will only grow as more
people move into the region.

Shale gas is “a game changer, both for carbon future and
domestic energy supply,” says PSE CEO Steve Reynolds.

Only one question remains: Is Washington state ready?

Two Striking Shales

Northeastern British Columbia is a vast swath of boreal
forest and muskeg. The wilderness here some 1,000 miles north of Seattle is
interrupted only by patchwork parcels of clear-cut land and the Alaska Highway—a
miniscule ribbon of pavement running through an endless forest.

Underneath this landscape, though, is a pair of geological
formations that hold the future of the Northwest economy in their grip: the
Horn River and Montney shales. Together, these two shale “plays,” as they’re
known in the industry, are estimated to hold as much as 1,500 trillion cubic
feet of shale gas—enough to power the Pacific Northwest for the next 100 years.

Like a host of other major shale plays around the
continent—including Texas’ Barnett Shale and Pennsylvania’s massive Marcellus
Shale—the Horn River and Montney formations were inaccessible until the past
three years, when newly developed horizontal drilling and hydraulic fracturing
techniques first allowed gas companies to harvest shale gas efficiently.

Hence, a new boom is sweeping through the gas industry.
EnCana, the Canadian corporation that is North America’s largest natural gas
producer, has taken an active role in northeastern B.C. Mike Graham, EnCana’s
executive vice president and president of its Canadian division, is convinced
of the looming impact of shale gas throughout North America.

“There’s just a real revolution going on in the natural gas
industry,” Graham says, “a real step change.”

Pipeline giants such as TransCanada have already begun
expanding capacity throughout the continent. Steve Clark, TransCanada’s vice
president Commercial-West, says that the firm is already developing shale gas
pipelines in order to replace Canada’s falling supply of “conventional” natural
gas.

“We believe that emerging shale gas discoveries will help
backfill the decline in conventional gas,” Clark says, after pointing out that
TransCanada’s existing pipeline infrastructure is ready to pick up shale gas
from the Montney formation. A new $340 million pipeline connecting to the Horn
River Shale formation will come online in just over a year.

With the profusion of B.C. shale gas that is set to enter
the continental marketplace, the Pacific Northwest seems likely to enjoy
relatively low energy prices for years to come. The short-term benefit is
clear: Low prices will ensure the competitiveness of local firms today. But
they may also continue to attract new, greener industries to Washington
state—including solar cell production and perhaps a regional infrastructure to
support electric cars. 

Ross MacFarlane, a senior adviser to the Seattle-based
environmental think tank Climate Solutions, believes that Washington state
should position itself as the new hub of clean energy commerce.

“By recognizing the opportunities provided by cheap natural
gas” to transition to renewable fuels, MacFarlane says, “we can learn to tout
our advantage as a source of clean energy and build on that.”

Those opportunities include the chance to supplement our
clean hydropower and establish the Pacific Northwest as a leader in clean
energy.

“How do we compete for energy intensive uses? If handled
right, the state could attract companies that want to set up shop in a place
where they can be assured that their energy sources are clean,” MacFarlane
says. “Companies want to avoid getting castigated like Greenpeace was for using
coal energy.”

Furthermore, having access to a stable source of gas will
also make it easier and cheaper for companies like Puget Sound Energy to
transition away from dirtier fuels like coal. Shale gas may position Washington
state as the premier location for implementing electric cars; the stability of
the B.C. shale gas supply may allow the state to pursue the development of an
electric car industry aggressively. And it may do so without worrying that
overwhelming success might create too much of a load on the existing
infrastructure.

Problematic Potential

Shale gas doesn’t have everyone breathing easy, however.
Hydraulic fracturing—the process that involves pumping large quantities of
water, sand and some chemical agents into shale formations to effectively
“pump” the gas out—has come under fire in Texas and Pennsylvania. Critics there
allege that water tables are being contaminated, while gas companies claim that
the depth of the shale precludes any contamination.

(The Horn River Shale is buried almost two miles beneath the
surface; drilling companies assert that such depth precludes any contamination
of groundwater, EnCana’s Graham says.)

Furthermore, the glut of shale gas across the continent will
negatively affect Seattle City Light and its ratepayers, who benefit from the
sale of excess hydropower to energy-short regions like California.

“Natural gas sets our market,” says Steve Kern, a power
supply and environmental affairs officer at City Light, “and lower gas prices
aren’t necessarily a good thing for us.”

As pipeline capacity continues to expand across the
continent—and as shale gas moves more freely from source to market—the Pacific
Northwest may lose some of its regional price advantage. “It’s truly a
continental marketplace for gas,” says Kern. And we’re all competing for the
same gas.

Still, the abundance of natural gas has already created a
new age of energy. Natural gas will become the transition fuel between the
carbon-stained coal age of yesteryear and the green-hued renewable age of
tomorrow.

“We think natural gas can displace a lot of power—coal,

especially,” EnCana’s Graham says. “It can displace a lot of oil for transportation.
It’s tremendous for the economy, it’s tremendous for North America and it’s
tremendous for the United States.”

Shale Today

Indeed, PSE is relying more heavily on natural gas-fired
power production each year, a trend that Clay Riding, the utility’s director of
natural gas resources, is sure will continue.

“There’s no question that our use of natural gas will rise,”
Riding says. “We will have load growth, and most of that will be met by
renewables or natural gas generation. Those are the only two viable options at
this juncture.”

But Riding points out that new “renewables”—which, in this
region, translates to new wind projects—create just intermittent energy.
Natural gas will be called upon to back up wind power during calm times, and
could ultimately replace coal altogether.

Pipeline projects in and of themselves will provide ample
economic stimulation. TransCanada’s proposed Alaskan pipeline will cost roughly
$26 billion to build, with many of the supplies and services coming from
Seattle. The total spending on current and proposed pipeline projects will
amount to more than $60 billion.

Once our regional infrastructure is in place, the Pacific
Northwest may experience another generation of cheap energy, perhaps laying the
groundwork for another era of innovation in Washington state.