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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.

Will Pittsburgh be the center of a CNG revolution?

The EQT compressed natural gas (CNG) fueling station in the Strip District of Pittsburgh may one day be remembered as the place where the CNG revolution began.

Located just north of downtown, The Strip is a gritty combination of commercial warehouses and aging factories being converted by gentrifying young professionals into housing. Somehow, that’s turned out to be the perfect combination for pioneering a market for CNG vehicles.

In 2011, EQT, a $14 billion gas company operating in the Marcellus Shale formation, opened up the first public-access CNG station in the Pittsburgh area. To date, more than half of the nation’s CNG stations have been private affairs designed to service fleet vehicles. UPS, FedEx, and Ryder Trucks have been in the lead.

But EQT saw a wider opportunity. Right away the company suggested that the many small companies in The Strip start converting to natural gas. Then it started targeting the growing number of local nonprofits. EQT also counted on the fact that some young professionals would be adventurous enough to experiment with a new fuel source. Finally, it set an example by converting 15% of its own fleet to CNG.

It worked. Two years later, EQT has been forced to add four new nozzles and is now planning a further expansion. The company is also working with various Pittsburgh organizations, public and private, to expand the reach of CNG throughout the region.

EQT is not the only competitor in the field. Chesapeake Energy Corporation, the nation’s second largest gas producer, plans to commit $1 billion by 2021 to encourage CNG adoption in western Pennsylvania. Southwestern Energy, the nation’s fourth largest gas producer, is also planning a similar initiative.

If all this is happening in Pittsburgh, it’s no accident. The city has a long tradition of developing fossil fuels, stretching back to the coalmines of the 19th century and Col. Drake’s oil well in nearby Titusville. But in this latest development, the mighty Marcellus is playing the leading role.

Last month, the output in the Marcellus surpassed 15 billion cubic feet per day, an increase of 400% over the last four years, according to figures released by the Energy Information Administration.

Moreover, production does not show any signs of slowing down. As the EIA reported last week:

The rig count in the Marcellus Region has remained steady at around 100 rigs over the past 10 months. Given the continued improvement in drilling productivity, which EIA measures as new-well production per rig, EIA expects natural gas production in the Marcellus Region to continue to grow. With 100 rigs in operation and with each rig supporting more than 6 million cubic feet per day in new-well production each month, new Marcellus Region wells coming online in August are expected to deliver over 600 million cubic feet per day (MMcf/d) of additional production. This production from new wells is more than enough to offset the anticipated drop in production that results from existing well decline rates, increasing the production rate by 247 MMcf/d.

In addition, the EIA recently projected that consumption of natural gas in the transport sector will rise by a factor of 20 over the next 25 years.

Natural Gas Consumption

Yet even the EIA’s optimistic predictions do not envision a very big role for natural gas in automobiles. Rail freight plays a bigger part than that envisioned for automobiles, which are grouped under the category of “light-duty vehicles.”

All this shows that natural gas is never going to make any real headway in substituting for foreign oil unless we start converting it to liquid fuel – methanol, ethanol, or butanol – that can be easily slotted into our current gasoline infrastructure.

But the potential is there. Last month Yuhuang Chemical, a subsidiary of the $5 billion Shandong Yuhuang Chemical Co., Ltd., of Shandong Province, China, announced plans to invest $1.85 billion in a methanol plant in St. James Parish, Louisiana that will produce 2 million tons of methanol annually by 2018. Right now, 80% of that methanol is targeted for export to a world market that currently consumes 65 million tons per year.

But if we keep working on methanol and ethanol conversion, more than a small portion of that might end up making it to that gas station in Pittsburgh. Or maybe someone will be inspired to build a methanol conversion plant right in the heart of the Marcellus itself.