THE BLOG
10/07/2014 05:17 pm ET Updated Dec 07, 2014

Fracking's Unexpected Benefit: U.S. Manufacturing Oversight, Accountability

Co-authored by Mark A. Barteau

The boom in U.S. natural gas production from shale formations, enabled by horizontal drilling and hydraulic fracturing techniques lumped under the label of "fracking," has come like a valentine for U.S. manufacturers. Natural gas from shale has injected new life into the U.S. chemical industry and has begun to bolster energy-intensive manufacturing sectors such as aluminum, steel, paper, glass and food.

The jobs potential of this sea change has been much discussed, but there's another important benefit: When manufacturing processes are hosted at home rather than abroad, they're subject to stricter U.S. environmental standards. Shale gas-driven reshoring means that American companies and consumers become responsible for the environmental impact of much more of the life cycle of the products they make and use.

A little background: With a slew of new construction projects and reshoring of facilities from abroad, manufacturers are scrambling to take advantage of some of the cheapest fuel and feedstock in the world. At the same time, fracking has met with significant opposition from environmentalists and proponents of widespread adoption of renewable energy, who have for decades insisted that with fossil fuels running out, the time for renewable development was/is now. Worried that cheap natural gas could derail renewable development efforts, they warn of shale gas development's complex water issues, methane emissions, and seismicity concerns that have emerged in recent years.

But fracking −- including hydraulic fracturing techniques that have been used for over 60 years −- has thus far proven resistant to broad bans, and the high-volume oil and gas it produces are proving economically transformative, straining infrastructure and outpacing the regulatory environment in some cases. This rapid change in energy supply and resource development in the U.S. calls for a strategic plan and a suite of economically, socially and environmentally advantageous policies to responsibly leverage this new abundance of low-cost natural gas.

Although much public discussion has focused on the potential of competing uses for natural gas -− for example, electric power production and exports of compressed natural gas and gas liquids -− to cause higher gas prices and thereby reduce the advantage currently enjoyed by energy-intensive U.S. manufacturing industries, the scale and lead times associated with these are not likely to cause abrupt changes to markets.

Disruption of supply, rather than competition for supplies, represents a potentially greater limitation to manufacturing investment and operations -- a sentiment echoed by a wide range of participants at the University of Michigan-led symposium earlier this year, titled, "Shale Gas: A Game-Changer for U.S. Manufacturing." The group of experts identified various steps to responsibly guide the revitalization of domestic manufacturing.

Those steps include increasing public access to information about hydraulic fracturing projects, improved monitoring −- and reduction of −- methane emissions, and utilizing shale gas revenue to advance renewable energy technologies, among other efforts.

Participants in the University of Michigan-led discussion included high-level representatives from U.S. Steel, Alcoa, American Chemistry Council, U.S. Chamber of Commerce, Business Roundtable, and American Gas Association; environmental groups like the Environmental Defense Fund; and government agencies including the Department of Energy and the White House Office of Science and Technology Policy. Each of the groups attending this symposium identified key challenges and solutions to strengthen U.S. manufacturing through sustainable use of shale gas. A final report on the findings and policy recommendations was issued last month and is viewable here.

The symposium and report identified the following core challenges:

License to Operate: Municipalities in 15 states have enacted moratoria and bans, both real and symbolic, on hydraulic fracturing. The industry as a whole suffers from inconsistent messaging, lack of transparency, and a frustrated public unable to access unbiased information detailing the role of shale gas exploration and drilling in their community, in their economy and in their environment.

Infrastructure: The shale gas industry has grown explosively over the past half-decade, and pipeline construction has raced along with it. This growth has also drawn attention to problems with the existing infrastructure for transmission and distribution of natural gas. A report authored by the House Natural Resources Committee Democratic staff suggests that between 2000 and 2011, American consumers paid $20 billion to cover the cost of natural gas escapes from pipelines operated by 3,000 separate companies, in 46 states. Those escapes are significant contributors to the overall impact of greenhouse gas emissions, and need focused attention. Manufacturers are paying a price too −- not only in the real dollars in lost energy resources, but also in the opportunity cost of industry reluctance to make the heavy capital investment needed to reach a more robust and extensive pipeline network.

Price: May 2014 EIA forecasts do predict that the price of natural gas, particularly for industrial markets, will rise steadily over time, but not enough to cede the U.S. competitive advantage wrought by shale gas. In addition to exports, manufacturers will face demand for natural gas driven by electricity generation; some coal power plants, when retired, are most likely to be replaced with natural-gas-powered plants, at least in the current and foreseeable economic and regulatory climate.

Supply: Price considerations are inextricably linked to questions of supply. Estimates of the U.S. shale gas resources vary every bit as dramatically as oil estimates have done (most sit between 30 and 200 years' supply), but the most commonly used number is the EIA's 2011 estimate of 92 years. According to EIA's 2014 Annual Energy Outlook, U.S. natural gas production is nearly enough to meet domestic demands for electricity generation, industrial, residential, and transportation, and projected export opportunities. Those estimates presume that hydraulic fracturing bans will not threaten access to shale plays.

Workforce: Manufacturing in the age of the shale gas boom faces an important manpower challenge: many members of the skilled labor workforce will reach retirement age over the coming decade, and workforce shortages loom in both skilled manufacturing and across a wide range of energy industries, from production to power generation.

The Michigan report put forth five recommendations, with calls for government and industry to work together to pursue them. They are:

1. Establish a federally administered, open-resource website where the public can obtain data on drilling sites, best practices, safety incidents and reported emissions, as well as chemical and water use, local economic and infrastructure impacts, and state and federal regulatory responsibilities. An informed public is empowered to demand best practices, and open data incentivizes companies to comply with applicable regulations.

2. Incentivize infrastructure investment. Create incentives for investment in improved natural gas transmission, storage, and distribution infrastructure in order to realize the potential benefits of shale gas across the economy and across our nation.

3. Apply remote sensing technologies to methane emissions. In addition to investing in the development and deployment of new measurement technologies, the portfolio of remote sensing technologies developed and deployed by agencies such as DOE, NOAA, NASA, EPA and DOD should be reviewed for possible adaptation to address methane emissions monitoring and quantification.

4. Train a next-generation energy workforce. The Department of Energy and the Department of Labor -- in collaboration with groups including unions, utilities, and manufacturing and trade organizations -- should assess workforce requirements and develop skills training certificate and degree programs in partnership with community colleges.

5. Build the bridge to a cleaner energy future. With proper incentives, power plants and energy-intensive manufacturing industries, such as chemicals and paper that generate significant fractions of their own power requirements, can accelerate growth of renewables by combination with the use of natural gas. Invest a portion of the economic benefits realized from shale gas to fund research, development and deployment of clean energy technologies for the future energy and manufacturing economy.

Like all energy resources, both fossil and non-fossil, shale gas has an environmental footprint with respect to land, water and atmosphere. If the U.S. is to reap the maximum benefits from the development of this resource, whether in manufacturing or in the quality of life of its citizens, it needs coherent federal strategies and partnerships that will build public appreciation of the impacts in all dimensions, and at global, national and local scales. It needs commitment to investment in infrastructure, and to improvement of the operation of existing infrastructure and industrial processes, including manufacturing. And most of all, it needs the wisdom to invest some of the rewards of today's economy in a more sustainably powered world for future generations.

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Mark A. Barteau is the Director of the University of Michigan Energy Institute and the inaugural DTE Energy Professor of Advanced Energy Research. He previously served as the Senior Vice Provost for Research and Strategic Initiatives at the University of Delaware. He was elected to the National Academy of Engineering in 2006. Barteau has extensive experience as a researcher, inventor, academic leader, and consultant for both US and international organizations. His research focuses on chemical reactions at solid surfaces, and their applications in heterogeneous catalysis and energy processes. His research has been funded by the National Science Foundation, the Department of Energy, AFOSR and NASA.