Key words :
net exports crisis,
Can the natural gas economy become a reality?
5 Apr, 2008 11:49 am
Natural gas has been often been prophesied as the fuel of the future, one that will fill the gap when oil declines and give us the time we need to transition to a renewable energy economy. But can the assumptions behind this characterization stand up to scrutiny?
Assumption #1: The world's natural gas resource is very large. There is every reason believe that this assumption is true. But--and this is a very important "but"--there is a big difference between a resource and a recoverable reserve. Much of the enthusiasm for natural gas in the long term revolves around methane hydrates, essentially frozen lattices of water deep in the ocean and under the tundra that hold methane. It's thought that these structures contain more fuel than all the remaining recoverable fossil fuel resources on earth. A 10-year-old assessment by the U. S. Energy Information Administration gives a rather wide resource range of 30,000 to 49,100,000 trillion cubic feet (tcf) in the ocean with another 5,000 to 12,000 tcf on land. These amounts positively dwarf the current estimated worldwide gas reserves of 6,183 tcf and worldwide consumption of only 105 tcf in 2006. But keep in mind that the estimates for methane hydrates are resource estimates, not estimates of actual recoverable reserves.
In fact, there are so far no recoverable methane hydrate reserves. After more than 20 years of looking for ways to mine methane hydrates, no safe, commercially feasible method for extraction has yet been devised. For years this form of methane has been an unwelcome hazard to drillers because methane hydrates tend to explode when the pressure on them is relieved. Second, while even the smallest estimates of the resource are huge, no one knows for sure whether methane hydrates are sufficiently concentrated in enough places to be of commercial value. Third, they typically lie in very, very deep water that may not be economical to explore or bring into production. (For a good review of the latest information on methane hydrate pilot projects and studies, see oil geologist Jean Laherrère's recent post on The Oil Drum: Europe.)
Yes, the resource is large. But even for those large unconventional resources which we are currently able to exploit including tight sands, coal-bed methane and shale gas, the expected recoverable reserves are much smaller as a percentage of the total resource than conventional gas reserves. This calls into question whether the actual recoverable reserves of natural gas from all sources will be sufficient to support a natural gas economy.
Assumption #2: We will be able to extract unconventional gas reserves at a rate that will match growth in demand. Even if the recoverable reserves of natural gas turn out to be quite large, the crucial determinate as to whether the natural gas economy will become a reality is the rate at which gas can be extracted. Tight sands, coal-bed methane and shale gas, the large growth areas in natural gas supplies, all generally release gas at lower rates than conventional gas wells. Let me offer the following analogy to illustrate the problem: If you have a million dollars in the bank, but can only draw out $100 a week, you may be a millionaire, but you will never be able to live like one.
Assumption #3: A worldwide market will allow natural gas to be shipped from where it is abundant to where it is needed. The backbone of this worldwide market is supposed to be liquefied natural gas (LNG), natural gas that has been cooled to -260 degrees F for transport in special pressurized ocean-going tankers. LNG is already a reality, but it still plays only a small role in worldwide supplies. As long as the question of the size of actual recoverable reserves remains murky, financing for the huge undertaking of building liquefaction facilities in the exporting countries, erecting LNG ports and regassification plants in the importing countries and assembling the hugely expensive tanker fleets needed to connect them, will all move along slowly.
The largest gas reserves are in countries with government-owned or government-controlled oil companies, and the exact size of these reserves is often considered a state secret. These countries simply tell us to trust their published statistics. That's often not good enough for those who are being asked to bet billions on facilities that need decades of secure supply to pay off. On top of this, some of the largest reserves are in the Middle East, hardly the most stable place to make such investments. Finally, there is a reluctance in many communities to host such ports. Just do an Internet search for "communities fight LNG ports" to see what I mean. Opposition is widespread and organized. It's not obvious that a worldwide natural gas trading system is going to be built with any alacrity.
Assumption #4: A peak in oil production and regional peaks in natural gas production are far enough in the future to allow for a smooth transition to a worldwide natural gas market. As with so many things in modern life, natural gas production depends in large part on oil. The machines to explore for, drill for and recover natural gas run mostly on oil. In addition, all of the personnel and the infrastructure surrounding those machines is deeply dependent on oil. If a peak in oil occurs within the next decade as some pessimists suggest, the financial and energy costs of finding and extracting gas will certainly rise quite significantly. Even more important, an early oil peak means that the need for natural gas could balloon much sooner than expected. But it is unlikely that the build-out of the natural gas infrastructure could keep pace with that need.
Perhaps just as alarming are regional peaks in natural gas in North America and Europe that are apparently already upon us as described in the work of oil geologist Jean Laherrère. His work is summarized on The Oil Drum: Europe. (To see Laherrère's complete presentation, click here.) Those regional peaks are warning signs that it may already be too late to avoid major disruptions in the North American and European markets. The LNG facilities and ports needed to make up for impending declines in these regions are simply not going to be ready for many, many years, if ever.
Once the declines begin, the only path forward will be demand destruction which will make such places increasingly unattractive for LNG investment. If the industries that need LNG close down or move to where natural gas is cheaper--something that is already in progress for the nitrogen fertilizer and chemical industries--then the remaining demand may not be sufficient to justify large expenditures on LNG in North America and Europe.
Assumption #5: Natural gas producing countries will export whatever amounts of gas are needed by importing countries. As Jeffrey Brown has so persuasively shown with regard to oil, countries which export oil are also increasing their own consumption of it. That means the amount of oil available for export over time is likely to decline. He calls it the net exports crisis. There is no reason to believe that the same issue won't arise with regard to natural gas exports. Surely, the domestic populations of natural gas exporters will want all the comforts that using natural gas can offer them. (In fact, this is already the case in Indonesia.) There may not be declines in gas exports in the near future, but Brown's work suggests that exports may not grow as robustly as some expect.
While the natural gas economy may yet come to pass, there are many reasons to be skeptical that it will proceed as far as its champions suggest. Even if the worldwide peak in conventional natural gas doesn't occur until 2030 as Laherrère predicts, the inability to create a viable world market before then may make this late date of little consequence for such places as Europe and North America. They will either have to do without or have to replace the lost energy very quickly with something else, perhaps coal.
This means that it may not be wise to wait and see how things turn out. Instead, a crash program to bring about the renewable energy economy ought to start right now. We're going to need it anyway, and since building such an economy will in the short run require a lot of fossil fuel, the sooner we start, the better.
Key words :
net exports crisis,
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