Fracking Changes Everything

By John Crouch | April 05, 2012

A headwind is approaching the biomass energy sector, and it’s called cheap natural gas. Fracking has dramatically changed the supply outlook for natural gas in North America for the foreseeable future and biomass proponents who fail to factor it into their planning will regret it.

The impact on the economics of proposed projects is obvious, but I think the impact on the political process could be even more profound. The decrease in heating energy costs will predominantly impact our urban communities, and it may also widen the gulf between urban and rural energy costs in both the U.S. and Canada.   

Although the rise in the price of oil is getting all the press, the wholesale price of natural gas has sharply declined in real terms over the past three years, as a direct result of fracking. Shale gas fracking is being explored all around the world. Just a few years ago, we were debating the licensing of natural gas import terminals in the United States. In an amazingly short time, many of those applications have been resubmitted as export terminals   

Shipping and transport have never been a strong point for natural gas. It is essentially a stranded fuel and is generally utilized on the continent in which it is produced, which has always benefited North American consumers. Oil and propane, on the other hand, are transportable, but that is a long-term weakness from a price volatility standpoint, as they are world commodities. Maine and Alaska are the U.S. states most dependent on heating oil, and most alarmed by the future prospects for the price of that fuel.

A future of declining real gas prices may have two important impacts on the biomass industry, specifically pellets. First, rural institutions and businesses must be weaned off heating oil, but will need significant financial assistance to support the installation of the hundreds of new boilers. The second potential impact is that NG is a cheap method to generate electricity, and this may change the dynamics of biomass electrical generation, or at least make it even more dependent on renewable energy credits and state renewable portfolio standards. That may change the competition for feedstock.

The fundamental challenge facing pellets will not be cheap gas, however, but its availability to a majority of homes, and the resultant impact on votes. According to the American Gas Association, more than 55 percent of American households heat with natural gas, which means that these households (voters) may not see much change in their energy bills this decade. Consequently, the majority of the electorate will not view home energy costs as an issue. Meanwhile, the rural minority will be “dying on the vine,” potentially strangled by increasing thermal energy costs that eviscerate budgets of households, school districts and rural hospitals.

And abundant natural gas changes the political landscape for all alternatives. Most incentive programs could be imperiled by an electorate that is dominated by households using cheap gas. Our current successes in building political momentum for biomass thermal, and our hopes for much more, may not last, as the cost of heating fades as an issue for the majority of energy users. All of us who are committed to pellets and thermal biomass need to redouble our cooperative efforts in the political arena right now.

The energy crisis may be over, at least for home heating in the urban majority. That means the political window for incentive programs, sales tax exemptions, new loans, and grant programs is closing. Even the once unimaginable possibility of the roll back of state portfolio standards may rear its ugly head in the face of economic hard times and cheap natural gas. So for those of you who are sitting back, focused on your own projects, I encourage you to get involved at the state and national levels in existing initiatives supporting the biomass thermal industry. Once the electorate no longer sees a crisis, it moves on to other issues, and it could be a long, cold decade for folks who provide pellet fuel.

Author: John Crouch
Director of Public Affairs
Pellet Fuels Institute
(916) 536-2390