Analysis: Texas O&G Production Grows; Coal Still Vital to Energy Needs

Texas should be regarded as the nation's "energy breadbasket," accounting for more than half of U.S. domestic oil and natural gas production, according to a recent study by the Texas Public Policy Foundation, Texas Energy and the Energy of Texas.

Texas oil and gas production has soared with the development of new drilling technologies and the opening of "unconventional" oil and gas shale plays such as Barnett, the Eagle Ford, the Haynesville-Bossier and the Permian Basin.

In 2009, Texas accounted for more than one-fifth of total domestic oil production, with 403 million barrels out of total domestic production of 1.95 billion barrels. That same year, Texas had the largest proved oil reserves increase, 529 million barrels, or 11 percent, nearly all in the Permian Basin, bucking the national trend of declining domestic oil reserves and production.

The Eagle Ford field increased its oil production more than fourfold in the first 10 months of 2010, from 304,000 barrels in all of 2009 to 1,629,055 barrels from January through October 2010.

Texas' proven gas reserves grew 80 percent from 2000 to 2008, with new fields in 2009 and 2010 probably bringing the increase in total reserves over 100 percent. Texas accounted for 18.3 percent of the nation's total producing gas wells in 2008, producing about 30 percent of the nation's total gas. Between 2000 and 2008, Texas added 26,979 new producing gas wells, 19.7 percent of the nation's total new producing wells during this period.

Barnett shale gas production grew by 4,229 percent from 2004 to 2009. Even as production as increased, total Barnett shale gas reserves continued to grow, by more than 4 Tcf in 2009; the Haynesville-Bossier field increased reserves by a staggering 9.4 Tcf while increasing production twelve-fold. The Barnett and Haynesville-Bossier fields represented almost half of the nation's total net increase in gas reserves in 2009.

According to the study, the state is the largest energy producing and consuming state in America, with energy use a central factor in the state's prosperity. The Texas economy has outperformed the rest of the nation, thanks to low taxes and moderate regulatory policy that promotes the state's dynamic entrepreneurial culture. More than half the nation's total net private sector jobs between August 2009 and August 2010 were created in Texas.

Coal State?

Texas generates more electricity from gas than coal due to the state's economy size and energy intensity, with 47.7 percent of electricity in 2008 generated from gas and 36.3 percent generated from coal. Surprisingly, Texas uses more coal than any other state, nearly twice as much as Indiana, Ohio or other states typically regarded as coal-dependent. Texas also is the eight largest coal-mining state in the country, producing about one-third of the coal it consumed in 2009, or 35 million tons, and importing the other two-thirds by rail, mostly from the leading coal-producing state of Wyoming.

Texas, like other states, relies on coal-fired power capacity for most of its 24/7 baseload energy needs, using gas as a "swing" producer for peak periods of power demand because it is a higher cost source than coal. Gas prices have been highly volatile over the past 20 years, with the wellhead price ranging from $2/Mcf to over $10/Mcf, while coal prices have been much less volatile than natural gas.

"The volatility of natural gas prices made gas less attractive than coal for electric utilizes, and for chemical manufacturers who use natural gas as a raw material feedstock," the study noted. "Indeed, Dow Chemical canceled plans to build a large chemical plant in Galveston on account of high natural gas prices several years ago, choosing the Persian Gulf state of Qatar instead because of reliable low-cost natural gas supplies.

"The rapid rise of unconventional gas supply in shale and coalbed methane fields promises to reduce, though it may not eliminate, the price volatility of natural gas for the next several decades."

Texas-mined coal is the cheapest source of Texas electricity after nuclear power, with the average cost of Texas coal in 2009 at $16.67/ton, compared to the national average price from all sources of $33.15/ton. The study found that suppressing coal-fired electricity will entail higher energy prices for Texas consumers.

"The third surprising fact about coal in Texas is it very low rate of conventional air pollution emissions," the study noted. "Precisely because Texas is the leading coal-using state, Texas has been at the leading edge of incorporating pollution abatement technology (chiefly different types of scrubbers" and using low-sulfur coal in its coal-fire power plants.

"Sulfur dioxide (SO2) emissions and nitrogen oxide (NOx) emissions rates are among the lowest in the nation, and have been falling steadily."

While gas-fired electricity generates a low level of NOx emissions than coal, there are only modest NOx reductions, if any, to be achieved by switching from coal to gas. The study also found that a complete swap of gas for coal would reduce carbon dioxide emissions by about 15 percent, not enough to affect any projections of greenhouse gas levels.


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