Chesapeake Energy Executive – Increasing Natural Gas Sales by Partnering With Anti-Coal Activists

I clipped this MP3 audio file from a video titled “Colorado Clean Air-Clean Jobs Act Panel” that is available at The Rocky Mountain Energy Epicenter 2010 web site. The speech is one that should fascinate people who recognize that the energy discussion is far deeper and nuanced than many discussions about technological choices. It is hugely political, but mainly it is a discussion about markets, partnerships, sales and boatloads of cash.

The speaker you are hearing is Thomas S. Price, Senior Vice President – Corporate Development & Government Relations for Chesapeake Energy, one of the largest independent natural gas and oil companies in the United States. The occasion for the talk is the 22ND Annual Natural Gas Strategy Conference & Investment Forum, held in Denver, Colorado during the period from July 6-9, 2010. Here is a brief sample of what you will hear if you invest just 7 minutes of your time to listen to Tom’s description of the way that he helps his company to build markets for natural gas so that it sells at a profitable price.

This is an exceptional opportunity for us to talk about the benefits of partnerships. We have actually been involved in a number of these efforts to try to stop the expansion of coal plants around the country. We began actually about four years ago in Texas where we developed a campaign called “Coal is Filthy”. It was a real subtle and very much appreciated in Appalachia and I am sure in Wyoming.
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We’ve got about 125 rigs active across the country. It’s been said before, but the demand side of the equation is extremely important right now. I mean, this really is a zero sum game. I think that certainly there are a number of very progressive utilities out there that recognize the challenges they are facing, not only from climate change but from the Transport Rule and Clean Air Act and various others. The challenge for many of us has been to recognize the obligation that we have as producers to really engage and be more empathetic with the environmental community…

Some commenters have asked why I have recently been highlighting the efforts of the natural gas industry to partner with activists who are fighting coal. After all, they say, don’t coal and nuclear compete directly as baseload power sources and isn’t methane (aka natural gas) at least somewhat less damaging to the environment than coal?

Here is my answer – the very same activist groups that are fighting the expansion of coal have been fighting against nuclear energy for decades. Many people are convinced that is because those groups are full of Mathusians influenced by Paul Ehrlich and his “Limits to Growth” theories. Some are convinced that the antinuclear and anticoal campaigners are idealistic but misguided romantics who long for some kind of mythical preindustrial utopia and are willing to sacrifice all forms of reliable power generation in order to force us all to give up the benefits of an industrialized society.

I just don’t buy it. I have lived in too many different communities around the United States, talked to too many people who are professional Environmentalists and done too much reading about history, politics, economics and marketing. Tom Price said it clearly – marketing energy fuels is a zero sum game. Chesapeake (and most likely many others who are in the same business) is willing to pay large sums of money to help people fight against their competition. I am certain that some of the decision makers in the activist community are not altruists – they are greedy social climbers, just like the rest of us.

Developing vast new resources creates big opportunities, but only if there is a market for the product at a high enough price to allow the investment required to pay off. That equation is especially important as the technology required to reach and extract the resources becomes increasingly capital intensive. Drilling for oil and gas has come a long way since Colonel Drake’s first well in Pennsylvania. Humans are lazy creatures who skim the easy stuff first. In the 150 years since Drake hit oil at 69.5 feet below the surface, humans have consumed most of the of easy-to-reach oil and gas.

If you have ever tried to drill a small hole into a rock, you should be able to imagine just how difficult (which translates into expensive) it must be to design, build and operate equipment that not only drills much larger holes, but does it through several thousand feet of rock and then makes a 90 degree turn and goes for a few thousand more feet. That hole has to be lined and protected so that the product does not leak out. Then think about filling that hole with a carefully prepared mixture, and pressurizing it to a high enough pressure to crack the rocks at the end of the pipe out for several hundred feet.

Imagine the amount of material that has to be removed from the site, the water that has to be supplied, the pipes that have to be laid and the water that has to be treated. Extracting gas from a shale formation is not a quick, easy or simple task. It only becomes profitable if the selling price per produced unit is high enough to provide the revenue to pay back all of the investment and then some.

The speed with which the payback occurs is also important; it drives the rate of return and governs how quickly more investment can be obtained. There is a good reason that gas promoters jealously protect the light levels of regulation and their exemption from the Clean Water Act – any regulation or second checking by the government will slow down the process and reduce the productivity of all of that expensive equipment and the people who operate it.

No wonder Chesapeake has built a “SWAT team” with more than 100 people who form partnerships around the country with people who are fighting against coal as a competitive fuel source. No wonder they have worked so hard to promote the idea that “clean natural gas” is more than just a marketing phrase. If there was not a well-organized, well-funded coalition working to eliminate competitive fuel sources, rational utility leaders would not be building “cheap” production facilities that can only burn gas or oil.

Modern gas turbine based power plants force owners to pay whatever the market price is for gas. If there are no longer any other kinds of plants to run, electricity companies will pay the prices required to turn existing shale gas resources into shale gas wealth and power. Without the right kind of constraints on the market, those resources would lie dormant, just like they have for millions of years because there would not be a demand at a sufficiently high price to make it worth the effort.

Now, how do you think Chesapeake and its much larger and more politically experienced colleagues in the oil and gas industry have responded to the stirrings of the nuclear industry? What do you think they say behind closed doors about the plans to build a number of new nuclear power plants? Those plants not only DO NOT burn gas, but they CANNOT burn gas. They also operate with what must be depressing – to a gas marketer – reliability. In 2009, more than a dozen of the 104 nuclear plants in the US ran for 8760 hours at full power. The currently operating nuclear plants were designed in the early 1970s before we learned as much as we know today about materials and reliability programs.

Why do you think that the oil and gas industry loudly and proudly advertises its interest and efforts in developing every sort of unreliable, weak, and expensive alternative energy they can imagine but never even mentions the option of building proven, capable, emission free n
uclear plants? Do you think there is a remote possibility that the oil and gas company SWAT teams have been quietly assisting in efforts to shut down rather young nuclear plants and to prevent many new ones from being completed?

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