2011 was the year of natural gas.

Production continued to boom while prices continued to stagnate. As the industry began to comprehend this year just how transformative natural gas will be, the public has also become more aware than ever of hydraulic fracturing (“fracking”), the relatively new technology that has unlocked the vast American underground shale plays.

Environmental criticisms which have been harsh and vocal, have been matched with industry rebuttals for several years now, but this year the government stepped into the conversation when Energy Secretary Steven Chu appointed a nonpartisan group of seven experts headed by John Deutch, a former Central Intelligence Agency director, to write a report on fracking and how it can be regulated for safety.

According to Rick Smead, Director of Navigant’s energy practice, Chu’s decision to form the panel in May changed the conversation around fracking as it introduced well-known experts into the debate. Now some state regulators have been slowing fracking in their regions as they wait for more information and signs of federal guidance. Read an EPA hydraulic fracturing water quality study here.

The Delaware River Basin Commission, which is charged with ensuring water quality in the watershed between Pennsylvania, New York, New Jersey and Delaware, said in mid-November that it was postponing a scheduled meeting on Marcellus Shale fracking till Monday, November 21 to allow “additional time for review” by the five commission members.

Delaware Governor Jack Markell, one of four governors who set the panel’s policy, said he would vote against the draft regulations because they “lack critical details on how public health and safety would be protected.”

In August, Colorado Governor John Hickenlooper told oil and gas companies to expect heavier regulations on fracking fluid in the state by the end of the year. He said the public deserved to know what the companies were using to extract the underground stores of shale gas.

In New York State, the Department of Environmental Conservation released a Supplemental Generic Environmental Impact Statement (SGEIS) in September noting that while fracking poses unique environmental problems that are not necessarily covered by the state’s 1992 Generic Environmental Impact Statement (GEIS) the industry can also be extremely beneficial to the state, including job creation and boosted local economies.

In some cases, state governments are moving towards adjusting and raising taxes on the industry to boost state revenues from the industry.

Catching Up With The Gas Rush

But even with increased awareness of natural gas’ potential and problems on both sides of the fracking debate, the industry is still struggling to catch up with what is widely held to be an enormous American resource. In many cases, wells drilled for oil have also tapped gas.

“There is no question that the US is blessed with huge unconventional gas and oil resources,” Dr Nansen Saleri of reservoir management and technology firm Quantum Reservoir Impact told Breaking Energy. Whether actual production is at the top or bottom of forecasts, the US will be dealing with an enormous increase in natural gas availability, Saleri said.

In North Dakota’s Bakken Shale, Navigant’s Smead said gas was uncovered so quickly that sufficient infrastructure was not in place to even capture the gas. Developers are still flaring roughly 100 billion Btu worth of gas each day till they can put together the appropriate gathering infrastructure.

“So we keep finding out that we’ve underestimated just how abundant this thing is,” Smead said. “I think that in 2011 that was really the lesson, that even low prices and even loss of some attractiveness didn’t slow down deliverability.”

He said “it just keeps happening” that gas seems to be appearing out of nowhere all over the United States.

To The Market

Smead directed a study for America’s Natural Gas Alliance several years ago that was one of the first to weigh economic considerations against environmental concerns with fracking. Smead decided this year to conduct his own study for Navigant on the savings customers saw from the increased drilling of natural gas. His study found that residential gas consumers saved an average of 14% on their annual bills, or a total of $44 billion for the country.

When used for electrical generation, natural gas can provide further savings to customers, he said, because it is generally cheaper than coal and, with marginal costs in electricity markets set by natural gas, coal will often need to compete on a BTU basis. That means customers may begin to see lower electrical bills across the board, he said.

According to the New York State Petroleum Council, which has been advocating for natural gas production in New York State, Pennsylvania raked in $11 billion in economic activity from shale gas production, including the creation of 140,000 jobs and an income of $1.1 billion in state and local taxes.

Furthermore, the electric and natural gas bills of Pennsylvania residential homeowners were a total $245.1 million less in 2010 than previous years, according to a recent Penn State University study, “The Pennsylvania Marcellus Natural Gas Industry: Status, Economic Impact, and Future Potential.”

But some environmentalists have said the savings are just not worth it to them.

“Certainly there are some economic reasons why fracking would be a good idea but in the analysis of cost-benefit, you have to look at the cost of human health as part of that cost,” Doug Wood, the associate director of a Port Washington, New York environmental organization, Grassroots Environmental Education told Breaking Energy. Wood launched his own anti-fracking campaign this September to stop fracking in New York State.

Smoothing The Spots

Natural gas prices spiked in July 2008 but quickly plummeted by August 2008 when the abundance of natural gas became apparent and worries about the broader economy spread. Smead credits his own industry study that, at the time, estimated shale gas at 50% more than the US government statistics. This was several months before the economic crash that began with the Lehman Brothers bankruptcy in September.

“Three years later, pretty much everyone is adopting the numbers we had,” he said. In 2008, the EIA estimated the US total recoverable resource of gas to be 1,530 billion cubic feet (bcf). Smead’s study for the American Clean Skies Foundation (headed by Chesapeake Energy CEO Aubrey McClendon) estimated the country’s recoverable resource at 2,247 bcf. Now, the EIA’s number is 2,543 bcf, he said.

The EIA estimate may still come down a bit, as there have been some allegations of double counting, Smead said, but the fact that the government now seems to agree with the more generous numbers points to the rapidly evolving attitude towards shale gas in the US.

And along with the increase in projections came a tremendous increase in current US production.

“We’re now producing as much gas as the total we were using three years ago,” Smead said, and that is in addition to the gas still imported from Canada.

While the industry still benefits from the current approximately $3.50 price/well head, Smead said many are hoping the prices will smooth out to about $5. Either way, low prices are not slowing development, he said. As demand picks up, and the US begins to export liquified natural gas (LNG) to international markets, prices will pick up a bit.

Some have claimed this potential uptick in prices could make gas less affordable for Americans. Deputy Assistant Energy Secretary Christopher Smith told the Senate Energy and Natural Resources Committee on November 8 that two studies are ongoing to assess the economic effects of allowing more exports, and officials can’t answer key questions about the exports’ effects until the studies are finished next year. Read more: What Will LNG Exports Cost US Consumers?

Even if gas prices rise a bit, Smead said he is confident the industry will have a long-term positive impact on the US market.

“Gas plants are a lot cheaper than coal plants over time,” Smead said. “Over time, we expect consumers to pay less because of the overall evolution to gas fired generation.”

Photo Caption: Steams rises from the Kawasaki natural gas power station in Kawasaki city, Kanagawa prefecture, south of Tokyo on August 25, 2011. Using LNG gas, the power station started operating April 2008 with a generation capacity of 847,400kW.