On the other hand — Steven Mueller, Southwestern Energy

steve-muellerLet’s apply a bit of Talmudic dialect to the visible dialogue now going on in the nation concerning decisions to drill for more natural gas and related considerations concerning the effect that using natural gas as a transportation fuel will have on the environment.

Now on the one hand, the price of natural gas, like gasoline, has significantly decreased over the past months and some producers seem to be abandoning or limiting production at least for a time. To many, drilling in shale seems too costly for so little revenue per thousands of cubic feet. Besides, they say there is now too much natural gas on the market for too little demand and available infrastructure to get it where it’s supposed to be. “After so much hype and billions of dollars of investment, the nation is deluged with gas and not enough pipelines…One energy company after another, year after year, has written down its investments in Arkansas and in Texas and Louisiana,” said Clifford Kraus in The New York Times.

So far, the Times’ description of the gas market is relatively similar to the analyses of most experts. But don’t despair; lately, the definition of “expert” has taken a beating in light of the lack of confidence in the stability and the almost weekly amendments to projections of natural gas supply and demand. However, because the national unemployment rate will go up significantly if we abandon experts, let’s not abandon them, for the time being. Let’s, however, not grant them grace, adoration and pedestal-like obedience. They need to do better concerning use of data and methodologies. Our knowledge concerning the natural gas profile is at best uneven and at worst…well, you insert the word.

Try looking on the other hand of iconoclast Steven Mueller, CEO of Southwestern Energy. Mueller does not believe that current data concerning the relatively depressed condition of the natural gas market should predetermine his own and his company’s decisions. His actions, some time ago, in buying shale fields cheap and in discovering new fields have turned Southwestern Energy into one of the top natural gas producers.

Mueller shares the view that the natural gas market is now down and that some companies are pulling out, at least temporarily, or reducing production. But where other producers and analysts see problems, he sees opportunities. According to The Times, Southwestern just put $5 billion down to develop 413,000 acres of reserves in the Marcellus and Utica shale fields of West Virginia and Pennsylvania. Similarly, he acquired another gas play in Pennsylvania for $300 million.

According to Mueller, gas will soon be moving up in price because of demand. He notes, “The situation is not as bad as the industry thinks it is….I am looking at it from a different angle and I think the odds are in my favor.”

Mueller seems like he is out of place using the other hand in the oil and gasoline industry. While his company’s activities are not without environmental problems and critics, he is unusual in that he has taken the lead among companies in searching for international and national solutions to methane leakage as well as extensive water usage with respect to fracking. Significantly, he has also seen benefits, where other natural gas industry titans have stayed mum, concerning the long-term use of natural gas for fueling hydrogen-fuel cars and for other transportation fuels. Additionally, Mueller views the continued conversion of coal-fired electric plants to natural gas as a done deal and a deal that will help sustain the industry and the environment.

Checking Google for recent stories about Mueller and other CEOs in the natural gas industry suggests that Mueller, contrary to most of the others, will soon be ripe either for sainthood or tenure at Mad Magazine. What? Me worry?

Sure, he has some critics who indicate his bet on natural gas is risky and a few, implicitly, suggest he will fail (some pundits and competitors no doubt would not be too sad if he does). Most Google entries, however, view him as somewhat of an outlier in the industry, whose commitment to growth has saved his company. They grant him the benefit of their respective doubts about his imperialism concerning acquisition of natural gas plays. Some view his environmental and GHG sensitivities as necessary in helping the industry move forward as a good or reasonably good citizen. Whatever he is or will be, Mueller will not be one to devote lots of time to the thought processes associated with on the one hand, on the other hand. He seems to like being a permanent on the other hand.

Can the Marcellus give birth to CNG vehicles?

What if America had so much natural gas it didn’t know what to do with it?

Right now that’s the situation in the Marcellus Shale, the vast formation that underlies nearly all of Pennsylvania. There just isn’t enough demand for what’s available. And the same situation could be facing the entire United States in just a few years, according to speakers at the 2013 Natural Gas Utilization Conference held at the Omni William Penn Hotel in downtown Pittsburgh last week.

“Today there are 800 shut in wells in the Marcellus, waiting for an increase in price and improvements in infrastructure,” said Justin Carlson, manager of energy analytics at Bentek Energy of Colorado told the gathering. “By 2017, demand could dip below supply for the entire United States. We’re not doing enough to support growth. The market needs more users.”

Where could you find those new consumers? Virtually everyone agrees that there’s one market that is begging for greater natural gas use – the transportation sector.

Some companies are already looking for ways to do it. Last year Consol Energy Inc. and Praxair, Inc., a Connecticut-based manufacturer of industrial gases, was preparing to build a $2 billion plant to convert gas from the Marcellus into gasoline and diesel blends for use in cars and trucks. In the end, however, the economics didn’t quite work. “The project would have generated a positive rate of return but not the 12% that investors are looking for,” said Dante Bonaquist, chief scientist and corporation fellow at Praxair, who spoke at the conference. “We had to give it up.”

So absent a liquids option, most gas producers are opting for another technology – compressed natural gas. Leading the pack has been Chesapeake Energy, which set a goal to convert its entire fleet of vehicles to CNG by 2015. At the current pace it will hit the 80% mark in 2014. Last year Chesapeake’s Peake Fuel Solutions affiliate also partnered with GE to launch “CNG In A Box,” a package that compresses natural gas from a pipeline into CNG fueling stations so that small and large retailers can become vendors of natural gas. The package was introduced at the National Association of Convenience Stores 2012 annual convention.

“The 8-by-10-foot container is easy to ship and its modular design allows for plug-and-play,” said Bob Jarvis, spokesman for Chesapeake. “It makes pay-at-the-pump a familiar and secure experience.” GE already has a manufacturing plant up and running in Houston. On Sept. 17 it announced a memorandum of understanding with China’s Endurance Industries to deliver 260 CNGs In A Box to fuel China’s rapidly growing conversion to natural gas vehicles.

Last week, however, Chesapeake was forced to disband its seven-member Natural Gas Vehicle Task Force as part of an austerity-driven reorganization. But other companies may pick up the slack. “Chesapeake has been an important player in growing the natural gas vehicle market, but other companies and organizations have taken on that role now,” said Rich Kolodziej, president of advocacy group Natural Gas Vehicles for America.

Range Resources, another major player in the Marcellus, is also making an all-out effort to promote CNG vehicles. It recently closed a deal with GM to buy an entire fleet of trucks for its Pennsylvania operations. The company expects to save 40-50% of vehicle operating costs by switching from gasoline. With 180 trucks in the region, each carrying a 17-gallon tank, Range will save $3,000 each time its fleet refuels.

But is compressed natural gas the best way to go? The technology involves high-pressure tanks, both in storage and in your car or truck and involves a whole new infrastructure. Converting natural gas into methanol – a fairly simple process – would allow us to use the current infrastructure with only a few minor adjustments. Existing vehicles can be modified to use methanol for only a few hundred dollars and flex-fuel vehicles could use either methanol or traditional gasoline.

Methanol works better from the supply side as well. “The economics of methanol would have been more attractive,” said Bonaquist, of the Praxair-Consol Energy proposal that didn’t make it off the drawing boards. “The conversion and purification sections of the plant would have been less complex. It would have been particularly advantageous for smaller scale production.”

So what’s the problem? Well, unfortunately, putting methanol in your car hasn’t yet been approved by the Environmental Protection Agency. That makes it illegal. If the regulations could be changed, methanol would become a much easier route for moving the nation’s looming gas surpluses into the transportation sector. There could hardly be a more promising way of freeing ourselves from dependence on foreign oil.