Power Hungry (34 page)

The decarbonization trend is closely connected to another megatrend as well: the increasing use and availability of gaseous fuels.

The hydrogen economy remains decades away. But the increasing use of natural gas confirms the projections made by analysts who have predicted that the world's consumers will increasingly replace solid and liquid fuels with gaseous ones. Of course, the world will continue using coal, and lots of it, and oil, and lots of it, for many decades to come. But
the trend toward gaseous fuels appears to be gathering speed. As Roberto F. Aguilera of the Vienna-based International Institute for Applied Systems Analysis put it in a March 2009 analysis, “we are on our way towards a methane economy that could pave the way to a hydrogen economy.”
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The trend toward gaseous fuels and the decarbonization trend are companions. About 95 percent of the hydrogen now being produced is derived from natural gas.
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Thus, the long-anticipated and much-hyped “hydrogen economy,” if it ever arrives, must begin with a methane economy. And over the past few years, thanks to improvements in drilling and recovery technologies, the estimated volumes of the world's recoverable natural gas resources have skyrocketed.

It's worth noting that, although the megatrend toward increased use and availability of gaseous fuels is now apparent, just a few years ago, some of the energy industry's top people were convinced that we were running out of gas.

In 2005, Lee Raymond, the famously combative CEO of Exxon Mobil, declared that “gas production has peaked in North America.”
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Raymond, who retired from the oil giant in 2006, said that his company was intent on building a new pipeline that would bring Arctic gas from Canada and Alaska south, and that more natural gas supplies would be needed “unless there's some huge find that nobody has any idea where it would be.”
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Raymond wasn't alone. In 2004, Julian Darley, a British writer, published
High Noon for Natural Gas: The New Energy Crisis
, a book documenting how a pending shortage of natural gas in the United States and Canada could “plunge” the two countries “into a carbon chasm, a hydrocarbon hole, from which they will be hard put to emerge unscathed.”
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In 2003, Matthew Simmons, a Houston-based investment banker who had been issuing dire warnings about peak oil for years, predicted that natural gas supplies were about to fall off a “cliff.” When asked about the future of natural gas supplies, Simmons said that “the solution is to pray.... Pray for no hurricanes and to stop [
sic
] the erosion of natural gas supplies. Under the best of circumstances, if all prayers are answered there will be no crisis for maybe two years. After that it's a certainty.”
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The same year that Simmons petitioned for prayer, author Richard Heinberg published
The Party's Over
, a book filled with ominous warnings about the looming end of the hydrocarbon age. Regarding natural gas, he said there were “disturbing signs that rates of natural gas extraction in North America will soon start on an inexorable downhill slope—perhaps within a few months or at most a few years. When that happens, we may see a fairly rapid crash in production.”
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Wrong, wrong, wrong, wrong.

In 2008, U.S. natural gas production hit 56.2 billion cubic feet per day, its highest level of production since 1974.
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And given the abundance of new shale gas resources, some optimistic analysts are projecting that U.S. gas production could increase by 50 percent or more over the next two decades.

Of course, no one knows how much gas will be produced over the coming years. But the U.S. gas business has repeatedly shown that when it's not hampered by excessive governmental regulations, it can provide as much gas as the market needs. But to provide that gas, the U.S. gas industry, and more particularly, politicians and regulators, must once and for all overcome the notion that gas is scarce.

In less than five years, the global natural gas business has gone from shortage to surfeit. The industry has gone from concerns about having adequate available resources to a situation where a near-term glut—meaning the next two to five years, or perhaps even longer—is likely. That glut is due to several factors, including the global economic downturn, a surge in new natural gas liquefaction capacity, and, perhaps most important, the refinement of technologies that can unlock vast quantities of gas from shale deposits. Indeed, the shale gas revolution is what long-time gas analyst H. deForest Ralph has called the “black swan” in the gas business.
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The well-drilling and well-completion techniques that were perfected in the Barnett Shale in Texas proved that, when properly fractured under high pressure, shale—a rock source that has very low permeability—could yield enormous quantities of gas. But shale is only part of the story. Similar technological advances have resulted in increased gas production from other geologic formations with low permeability, such as coal beds and tight sands. These low-permeability reservoirs produce what
the industry calls “unconventional” gas. And the potential volumes of unconventional gas resources are staggering.

In April 2009, Cambridge Energy Research Associates produced a study that estimated recoverable shale-gas resources outside of North America at between 5,000 and 16,000 trillion cubic feet.
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Seven months later, the IEA estimated recoverable global gas resources—which includes both conventional and unconventional gas—at some 30,000 trillion cubic feet. That's the energy equivalent of about 5.4 trillion barrels of oil.
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Estimates of U.S. gas resources have escalated alongside those global estimates. Over the past two years, several reports have put potential U.S. gas resources on par with the gas reserves of Iran, Russia, and Qatar. In July 2008, Navigant Consulting put potential U.S. natural gas resources at 2,247 trillion cubic feet .
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A few months later, another consulting firm, ICF International, estimated U.S. gas resources at 1,830 trillion cubic feet.
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Although those studies are important, a mid-2009 estimate by the Potential Gas Committee, a U.S. nonprofit organization, is the most credible. The Gas Committee, made up of experts from academia, the energy sector, and government, issues a report every two years. On June 18, 2009, it issued a report that estimated U.S. gas resources at 2,074 trillion cubic feet—the highest resource evaluation in the committee's forty-four-year history.
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That quantity of gas is the energy equivalent of more than 350 billion barrels of crude oil, or about three times as much as the proved oil reserves of Iraq.
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The 2009 estimate by the Gas Committee was a 35 percent increase over the estimate published in 2007, and like the reports from Navigant and ICF, it pointed to the boom in shale gas as a key reason for the big hike in the resource estimate.

The lead author of the report, John Curtis, a professor in geology and geological engineering at the Colorado School of Mines, cited the reasons for the big increase in resource estimates: “New and advanced exploration, well drilling and completion technologies are allowing us increasingly better access to domestic gas resources—especially ‘unconventional' gas—which, not all that long ago, were considered impractical or uneconomical to pursue.”
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Now, to be clear, resources are not reserves. In oil-field parlance, a “resource” is something that's probably out there. “Reserves” only applies to in-the-ground hydrocarbons that have been surveyed by drilling and
other agreed-upon techniques. In 2009, BP estimated proved global gas
reserves
at about 6,534 trillion cubic feet, or less than a quarter of the IEA's 2009 estimate of global gas
resources
.
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The same distinctions apply to the United States. BP puts proved U.S. gas
reserves
at about 238 trillion cubic feet, or about one-tenth of the Potential Gas Committee's 2009 estimate of U.S. gas
resources
.
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Sources
: BP Statistical Review of World Energy 2009,
http://www.bp.com/liveassets/bp_internet/globalbp/globalbp_uk_english/reports_and_publications/statistical_energy_review_2008/STAGING/local_assets/2009_downloads/renewables_section_2009.pdf
; ICF International, Table 7, “Availability, Economics, and Production Potential of North American Unconventional Natural Gas Supplies,” November 2008,
http://www.ingaa.org/cms/31/7306/7628/7833.aspx
, 51; Navigant Consulting, “North American Natural Gas Supply Assessment,” July 4, 2008,
http://www.cleanskies.org/upload/MediaFiles/Files/Downloads2/finalncippt2.pdf
, 14; Potential Gas Committee, “Potential Gas Committee Reports Unprecedented Increase in Magnitude of US Natural Gas Resource Base,” June 18, 2009,
http://www.mines.edu/Potential-Gas-Committee-reports-unprecedented-increase-in-magnitude-of-US-natural-gas-resource-base
.

While the resources-versus-reserves caveat applies, the enormous gas estimates being put forward are part of a new gas paradigm that is based on abundant supplies of methane in a marketplace that is increasingly global. The growing globalization of gas can be seen by looking at the surge in trade of liquefied natural gas. Between 2000 and 2007, global trade in LNG increased by 67 percent.
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And more LNG trade is on the way. By 2013 or so, the IEA expects global LNG production capacity to increase by about 50 percent.
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And yet more gas liquefaction capacity is being planned.

In October 2009, the British-Dutch energy giant, Shell, announced plans to build a floating natural gas liquefaction facility that, when completed, will be deployed off the northwestern coast of Australia. The vessel, expected to cost about $5 billion, will be nearly 500 meters long and will be designed to monetize what the industry calls “stranded” gas, that is, gas that is in fields that are either too small or too far from commercial centers to justify the construction of pipelines or conventional gas liquefaction facilities. Australia alone has some 140 trillion cubic feet of stranded gas, and Shell may build as many as ten floating LNG production vessels, which could allow Australia and other countries to turn their stranded gas into cash. In addition to Shell, Japan's Inpex Holdings and Australia's Santos are also considering floating LNG projects.
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In November, Petrobras, the Brazilian energy giant, announced that it, too, is planning to build floating natural gas liquefaction facilities in order to bring ashore the massive amounts of gas that it has discovered in the Santos Basin, one of Brazil's huge offshore hydrocarbon reservoirs. The company said the floating platforms will operate about 190 miles offshore and will allow the offshore gas reserves “to be monetized, ensuring flexibility to supply the internal market and the possibility of exporting the product in the spot market.”
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The new LNG production capacity is coming onstream at the same time that, thanks to the boom in shale gas production, America's need for LNG imports has largely disappeared. That point was made succinctly by Ian Cronshaw, a gas analyst at the IEA, who said that the United States was “now a virtual liquefied natural gas exporter because all the LNG that was supposed to be going there is now going somewhere else.”
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The increasing globalization of the LNG market is occurring at the same time that the technologies for producing gas from shale are going
global. In Canada, drillers have begun tapping two massive shale formations, Horn River and Montney.
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Those resources are so big that there is even talk of building a gas liquefaction terminal in British Columbia that would use Canadian shale gas as a feedstock. The company proposing the idea, Calgary-based Kitimat LNG, claims that it already has potential buyers for the LNG in Asia.
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