THE AUTHOR
Peak Oil is You
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Page added on August 14, 2017
The Myth Of Natural Gas As A Bridging Fuel
I often disagree with the consulting group Bloomberg New Energy Finance, but they may be spot on in questioning whether natural gas can serve as a bridge to the future. Of course, they would say no, renewables will take over quickly, while I would say it will continue to be an important fuel, not a bridge, and that forecasters, including the oil industry, are greatly understating its potential.
It all reminds me of the many times in the early 1980s when oil company executives would say, “natural gas is the fuel of the future,” and some smart aleck would respond, “and always will be.” I finally jumped in and said, you’re producing twenty trillion cubic feet a year, it seems like natural gas is a fuel of the present.
Contrast this with the late Matthew Simmons’ view that world gas production had peaked, based on short-term declines in four major producers. Indeed, peak oilers like Jean Laherrerre regularly produced pessimistic views of future gas production and resources, while oil industry mavens like Robert Hefner III, and maverick academics like Peter Odell, countered that it was somewhere between abundant and superabundant.
Now, some climate activists and renewable energy advocates are arguing that gas should be left in the ground and/or that it will be because of declining costs of wind and solar. Most oil company forecasts see only minor changes in demand, specifically moderate growth (see figure).
THE AUTHORGAS DEMAND, ACTUAL AND FORECAST
Amazingly, nearly all of these either ignore prices or treat them as high and rising, due to bad economic theory and a simplistic or incorrect view of the market. Typical comments focus on the “quality” or cleanliness of natural gas, without considering prices.
This is enough deja vu to make Yogi Berra’s head spin. For my entire career, beginning with the Carter Administration’s review of the proposed Alaska Natural Gas Transportation System (yes, ANGTS), long-term natural gas prices have almost always been predicted to rise by almost everyone (except my colleagues at MIT and myself). And apparently based on nothing more than a belief that a) gas is better than oil, and b) depletion will drive us from cheaper to more expensive sources. The first is not relevant (it’s supply and demand, not just demand) and the latter suffers from an omitted variable problem.
The next figure shows the current state of natural gas price forecasts around the world. Most groups no longer present detailed forecasts, perhaps due to budget cuts but possibly also in response to past embarrassing failures. Natural gas prices in international trade have been linked to oil prices for decades, and long-term oil price forecasts have been atrocious (the reasons are explained in my book.) The problem is that too many believe that oil and gas prices should be linked or tend to converge, which means that gas prices are forecast to be high. (The Figure below shows some Asian gas price forecasts, with actual Japanese LNG prices.)
THE AUTHORACTUAL AND FORECASTED ASIAN NATURAL GAS PRICES
North America is the only truly competitive market in natural gas, as close to a free market as it is possible to come. And while some think they perceive convergence on energy prices, natural gas prices are set by supply and demand, and only marginally influenced by developments overseas since the high cost of transportation precludes easy long-distance shipping. This is why U.S. gas prices have often been well below those in Europe and Asia (see figure).
THE AUTHORHISTORICAL GAS PRICES BP DATA (NOMINAL)
Basic facts: Natural gas is superabundant as a resource, although the bulk of it is methane hydrates which are not currently economically feasible. The remaining resource is still superabundant, with supergiant discoveries still occurring and production rates generally exceeding those of conventional wells.
Two things have kept the global market for natural gas from achieving its true potential: the cost of transportation and the price. The latter is something that can and hopefully will change. Natural gas prices in many countries are controlled, with the industry treated as a monopoly if not outright state-owned. Often gas prices are kept low to provide cheap fuel for the electricity monopoly and thus supposedly improving the welfare of the poor. But this also retards the development of gas resources (and usually benefits the wealthy more).
In gas-importing countries in Asia and Europe, gas is often priced similar to oil on the basis of their respective heat content. This makes as much sense as pricing tea according to its caffeine content relative to coffee. It is a historical artifact of the industry which has survived because of oligopolistic behavior by producers, who are happy to reap oligopolistic profits. But it means that natural gas imports often don’t compete with oil, let along coal. Countries like Korea and Taiwan still burn some oil for power generation.
Natural gas is cheap, at least cheap to produce. Witness North America, one of the world’s most mature petroleum provinces yet one where the natural gas wellhead price is approximately one-half to one-third the equivalent petroleum price.
Gas from Iran to India and Russia to China could displace enormous amounts of coal being burned and reduce greenhouse gas emissions by a tremendous degree. These countries account for over 60% of the world’s coal consumption, and coal accounts for about half of the global CO2 emissions. This is the lowest hanging fruit on the planet, but the desire of exporters to achieve extremely high price has been an obstacle.
In the U.S., natural gas from shale has meant a boost to the economy while reducing GHG emissions, all at no cost to the taxpayer (indeed, strong benefits). Market share for gas has risen sharply (Figure below) even though the U.S. was already a mature market, rising at 0.8% per year from 2006 to 2016, while global gas market share was increasing at 0.1% per year. Most forecasts anticipate a slightly faster rise, about 0.2% per year, despite the many benefits of natural gas, primarily because they assume that international natural gas prices will remain uncompetitive.
THE AUTHORNATURAL GAS SHARE OF PRIMARY ENERGY U.S.
The U.S. petroleum industry is poised to change that, not just because of the volume of exports but the willingness of exporters like Cheniere to provide attractive price clauses. The contracts typically specify that the gas will be at U.S. Henry Hub prices plus a fixed amount to cover liquefaction and transportation. In other words, if oil prices return to $100/barrel, U.S. LNG exports could be half the price of competing countries (and/or make huge profits).
The preferred solution (for the planet) would be for a flood of U.S. LNG exports breaking the informal exporter cartel which has kept prices high and demand low for many years. That would obviously hurt the Russian, Algerian, Norwegian, and Australian economies in particular, but it would do far more to reduce GHG emissions than any international agreement.
Forbes
79 Comments on "The Myth Of Natural Gas As A Bridging Fuel"
Cloggie on Tue, 15th Aug 2017 3:38 pm
clog, are they going to use that alt energy to suck the CO2 out of the atmosphere and store it indefinitely?
We have different methods for that:
https://deepresource.wordpress.com/2017/06/25/prof-olaf-schuiling-has-a-solution-for-the-co2-problem/
Thank you Cloggie, I take that as a compliment.
You have a modest ambition level.
kanon on Tue, 15th Aug 2017 3:39 pm
Super Elements: We have become utterly dependent on them . . . Without “smart” phones the hypnotic reverie would be broken and people would have to look around. But rare earth elements are not all that rare, just difficult and polluting to extract.
rockman on Tue, 15th Aug 2017 4:18 pm
Consumers buy NG because it’s an economical choice. If NG prices get too high they’ll reduce consumption as much as possible. If they stay high long enough they’ll demand politicians restrict the utilities from burning NG. If the politicians don’t comply the consumers/voters will replace them.
If electricity rates get too high because the utilities can’t get enough NG at the right price the consumers/voters will demand politicians allow more coal burning. If they don’t those politicians will be replaced.
The timing of of such possible dynamics will very from one economy to the next. Such as Chinese coal consumption continued booming between 2008 and 2001 while US coal consumption slumped during the same period. And while Chinese consumption began to drop in 2014 consumption in India continued to increase.
At the end of the day regardless of what any entity does the consumers control these dynamics with their checkbooks. And no one (POTUS, CEO, senator, environmental group, etc.) can overcome that power IMHO.
dave thompson on Tue, 15th Aug 2017 4:20 pm
Cloggie;This is at the end of the so called CO2 solution you posted, Not much of a solution.
“Evaluation: what is lacking is an evaluation of the energy cost to mine, grind and disperse olivine. As far as we are concerned it seems to make more sense to get away from using fossil fuel poison first, as proposed for instance by the European Union renewable energy policy. It doesn’t make sense to ‘mop with the tap wide open’, so to speak. As a measure of last resort this kind of megalomaniac-sounding scheme could be considered to reduce atmospheric CO2 levels after the transition has been accomplished.”
dave thompson on Tue, 15th Aug 2017 4:24 pm
“As a measure of last resort this kind of megalomaniac-sounding scheme could be considered to reduce atmospheric CO2 levels after the transition has been accomplished.” So Cloggie get back to us all AFTER the transition you insist is happening already.
Apneaman on Tue, 15th Aug 2017 7:13 pm
Clog, I have seen many CO2 schemes and man schemes offered as solution to most overshoot environmental issues. Most of them are still on the drawing board. Of the ones that actual have pilot projects going, how can one tell if any of them are working or even economically viable? You can’t. There is so much chatter and promises and people looking to cash in with both good and bad intentions that I only look at one set of numbers. The aggregate numbers – the only ones that matter.
We Just Breached the 410 PPM Threshold for CO2
Carbon dioxide has not reached this height in millions of years
https://www.scientificamerican.com/article/we-just-breached-the-410-ppm-threshold-for-co2/
Daily CO2
August 14, 2017: 405.61 ppm
August 14, 2016: no data
July CO2
July 2017: 407.25 ppm
July 2016: 404.50 ppm
June Temperature
3rd Warmest June since 1880: 2017
Coolest June since 1880: 1911
https://www.co2.earth/
Apneaman on Tue, 15th Aug 2017 7:19 pm
For at least 30 years thousands of serious warning were given that unavoidable consequence would happen if the humans did not radically alter their living arrangements. So what did the humans do? Globalization – the exact opposite of what they should have done if they wanted their species to have a future past this century. The consequences are locked in. Can’t be taken back. In the pipe. As you sow, so shall you reap.
Area Burned in Severe Northwest Territory Wildfires Doubles in Just One Day
“In just one day, an area of land covering 1,860 square miles of the Northwest Territory has burned. That’s a zone 50 percent larger than the entire state of Rhode Island going up in smoke over just one 24 hour period.”
https://robertscribbler.com/2017/08/15/area-burned-in-severe-northwest-territory-wildfires-doubles-in-just-one-day/
Apneaman on Tue, 15th Aug 2017 7:20 pm
Arctic heat wave sweeps across western Nunavut and High Arctic
Record-breaking temperatures from Cambridge Bay to Pond Inlet
http://www.nunatsiaqonline.ca/stories/article/65674arctic_heat_wave_sweeps_over_western_nunavut/
Apneaman on Tue, 15th Aug 2017 7:21 pm
Greenland hit by wildfires after record temperatures on island whose glaciers are melting away
http://www.scmp.com/news/world/europe/article/2106786/greenland-hit-wildfires-after-record-temperatures-island-whose
Apneaman on Tue, 15th Aug 2017 7:24 pm
Arkansas Flash Flooding: Bridges Covered, Water Entering Homes and Businesses
“Damascus picked up 7 inches of rain in just three hours early Tuesday.”
https://weather.com/news/weather/news/flash-flooding-hits-arkansas
River deaths, millions in damage during ’17 Wyoming flooding
“Record amounts of snow fell in the central and western Wyoming mountains over the winter and spring. When temperatures warmed, the equivalent of at least 30 inches of water cascaded down mountainsides in some places. Rivers and streams flooded and roads and bridges were washed out.”
http://billingsgazette.com/news/state-and-regional/wyoming/river-deaths-millions-in-damage-during-wyoming-flooding/article_a957a01c-252e-561b-8bf8-22af88a0bf27.html
Snow & hail are just frozen water and are part of the new abnormal hydrologic cycle. Records all round.
Makati1 on Tue, 15th Aug 2017 7:49 pm
“As you sow, so shall you reap.” … until the crop failures become the norm.
http://bismarcktribune.com/news/state-and-regional/drought-s-toll-likely-billions-of-dollars-for-north-dakota/article_d09ba7cb-f946-5942-bb96-161a4f341efd.html
Wasn’t it not long ago that it was California with crop problems from drought?
Boat on Tue, 15th Aug 2017 8:17 pm
ape,
You know a site that shows estimated climate change costs historically compared to world GDP and then an overlay of the rise of Co2. Like the eia do they have monthly updates with revisions.
GregT on Tue, 15th Aug 2017 11:27 pm
Boat,
Sounds like a great idea. Why don’t you collect all of the data, chart it all out, and get back to us all with the results.
As for the reasons why no one has probably done it yet, my guess would be those who care about global mass extinction, aren’t nearly as concerned about the effects on GDP.
GregT on Tue, 15th Aug 2017 11:30 pm
Or inversely, those who are focussed on GDP, aren’t overly concerned about the future of our species, and all other life as we know it on this planet.
GregT on Wed, 16th Aug 2017 12:13 am
Never-the-less Boat, this could be a great way for you to stimulate all of those dormant brain cells. If that is at all possible anymore. Definitely worth giving it a shot. What have you got to lose?
Boat on Wed, 16th Aug 2017 12:56 am
greggiet,
The world runs on money. GDP is a popular tool to measure money among many other measurement metrics. Only an idiot like you would say……..
“those who are focussed on GDP, aren’t overly concerned about the future of our species, and all other life as we know it on this planet”.
Anonymouse on Wed, 16th Aug 2017 2:23 am
Im curious, what particular subset of retardation have you been diagnosed with boatytard?
Asperger’s? Downs Syndrome? Cretinism? Or do you have something simpler, like lead poisoning from sniffing too much leaded gas-o-leen? A lot of trailer parks in the uS are built over old waste sites. Perhaps you’ve been exposed to high levels of heavy metals since birth and dont even know it (imagine that eh?).
GregT on Wed, 16th Aug 2017 7:04 am
The world ‘runs’ on energy Boat, and the world will be here for a very long time after the humans kill themselves off, all in the pursuit of their precious little pieces of paper with pictures of dead people on them.
paultard on Wed, 16th Aug 2017 8:37 am
i’m voting boat for supertard status. he’s hereby beyond reproach
gregt if you think the wold runs on hard energy then why don’t you advocate abolishing politics? then we can start the hard killing?
if abstract politics benefit you ten in the same token, abstract finance runs teh wold.
onlooker on Wed, 16th Aug 2017 9:06 am
Ptard, Greg, has consistently marginalized our conflictive political model by not taking sides with any country. But he like me do not advocate any killing. That itself is a political agenda. Who would you prefer were murdered perhaps tards?
paultard on Wed, 16th Aug 2017 9:13 am
ontard, killing is a quick way to abolish poverty for women. they’re caring by nature and that’s their handicap. but we’re making progress by allowing them in combat.
gregt benefited politcally but he refuses to recognize this privilege. instead he went for hard energy. this is a deception.
every loss politically or militarily by empires had been real and tangible killing of the oppressors. some nazitard would like to think it was due to “cucking”
let them try to do it better.
Makati1 on Wed, 16th Aug 2017 9:54 am
The only way to reduce the population significantly is by a nuclear war. WW2 killed off about 60 million people total according to WIKI. Divided by the four years means that only 15 million per year died. At that rate today. the population would still increase by about 65 million people per year. We would need About six times the war deaths to keep the population level.
Currently about eight million people die from hunger in the world per year. Again, it would have to increase by 1,000% to keep the population even. http://www.statisticbrain.com/world-hunger-statistics/
GregT on Wed, 16th Aug 2017 11:19 am
Human beings have a bug, they believe that the world, and the universe, revolves around them. Nothing could be further from reality. Human beings are born, and then they die. They do not have any choice in the matter. The only choice that they really have in the long run, is whether or not they leave a hospitable planet for future generations after they are dead, and even that choice can be overridden by natural forces.
The world does not run on money, it runs on energy. Without that energy there would be no life, no humans, and no pieces of paper with dead people printed on them.
The population problem will eventually be taken care of by natural forces. The question remains however, as to whether or not there will be any human survivors. At this point in time, it is not looking very good for the humans.
The humans need to find a workaround for that bug, and upgrade to humans 2.1. If they do not, they face humans 0.0.
GregT on Wed, 16th Aug 2017 11:49 am
I might add;
I personally do not believe that the humans are capable of upgrading themselves, and are simply an evolutionary dead end. Those who have the wherewithal to comprehend the human predicament, are vastly outnumbered by those who do not.
onlooker on Wed, 16th Aug 2017 12:46 pm
And I may add in true doomer fashion haha, that the facts and information currently point to the fact that we have made such a mess of things that it is difficult to foresee any semblance of the modern world existing into the next century. In fact given the state of the planet and the continuing assault on it from us rapacious apes and the realistic menace of runaway global warming, our species will probably not be around beyound this century. It is just as we have been, are and will be instrumental in extinguishing many other species. Call it karma at the highest level.
Antius on Wed, 16th Aug 2017 1:10 pm
Natural gas is very popular as an electricity fuel because CCGT plants are exceptionally power dense and are quick and cheap to build. As I posted here:
http://peakoil.com/consumption/peak-oil-and-peak-demand-have-entirely-different-outcomes/comment-page-1#comment-380960
It takes 3.3t steel per MW of average output to build a CCGT, about 40t to build a PWR nuclear power plant and a whopping 1516.4t for wind.
Natural gas will be human beings favourite electricity fuel for a long time to come.
GregT on Wed, 16th Aug 2017 2:47 pm
And when natural gas becomes problematic, the humans will revert back to coal. And the soccer moms will countinue to proudly shuttle their children around in their extra large gas guzzling SUVs, with no real consideration given to their futures, or those of their children’s children. There will be no humans 2.1. 1.1 is as good as it gets. Soon to be 0.0.
The end.
Sissyfuss on Wed, 16th Aug 2017 2:49 pm
GregT, your comments mirror Greers’ philosophy of Indifferentism, that the Universe doesn’t give a fying fluck about any species survival or extinction. We arrive on the scene only to leave eventually. Try to have a pleasant trip.
GregT on Wed, 16th Aug 2017 6:57 pm
I live each day to it’s fullest Sissyfuss, and have a great deal to be thankful for. I love life, and believe that it is something worth taking care of. If I had have known then, what I know now, I would have changed my ways a long time ago. Of course, in the big scheme of things, it wouldn’t have made any difference anyways.
Enjoy!