Photo of a Fracking pond

Fracking Changes the Economics of Electrical Generation

New technologies have opened large tracts of shale gas deposits for exploitation that had previously been considered as not economical to recover.

The new larger domestic inventory and resulting lower price of natural gas are having a profound effect on the energy industry.

Additions to generating capacity in the U.S. strongly favored natural gas over coal. In 2013, 6,861 MWe of natural gas capacity were added. In 2015, coal-fired plants accounted for 39% of electricity generation, gas-fired plants contributed 30.3%, and nuclear plants contributed 19.0%.

Despite its success in gaining market share, natural gas as a replacement fuel for coal-fired generation, has several vulnerabilities. Current prices for natural gas are low, but natural gas prices have historically suffered from significant volatility. The cost of electricity generated by natural gas is heavily dependent on the cost of the fuel. Overreliance on gas generation assets could mean higher prices for electricity customers during severe weather events, such as the polar vortex of 2013-14, or other interruptions in supply or delivery.

Natural gas also has detractors in the environmental community. Among the concerns are potential groundwater contamination from toxic constituents in the fluids injected for fracking, large volumes of contaminated water recovered with and separated from the gas for disposal, and the lack of state to state uniformity in regulations. In addition, gas combustion is not carbon-free, producing about 60% of the CO2 produced by coal for the same electrical generation. This does not include the concerns that methane escaping from drilling nor burned off in flaring are also contributing to global warming.

Public concerns with fracking are exacerbated by the many exceptions granted to fracking operations from federal regulations including an exemption granted to fracking from regulation under the Safe Drinking Water Act in 2005. Changes in regulatory approaches to restrict carbon emissions or tighten regulations on fracking could dramatically alter the cost-benefit analysis for using natural gas to generate electricity.

Between 2002 and 2012, the annual electrical generation from coal-fired plants fell by 2%, while the amount of electricity generated by natural gas plants rose by 37%.
World Gas Price Inequality
World Gas Price Inequality