Do We Have Enough Natural Gas?

While we are currently experiencing a glut of natural gas that has brought the price down from around $13 to around $3 per million BTUs, there are questions as to how long our natural gas supplies will last.

The debate that has caught people’s attention is over whether we should export natural gas, as LNG to Asia and Europe.

The president of DOW Chemical has said we shouldn’t, while many others have said we should. Both views have facts on their side.

On one side, there are projections that we have 100-year supply of natural gas based on current consumption. The other side says that the estimates of natural gas reserves are overstated and that exporting natural gas will drive its cost up and prevent industry from creating new chemical industry jobs in the United States.

Here are some facts that need to be taken into consideration as each of us contemplates the best course of action for the United States.

The highly respected Potential Gas Committee¹ (PGC) estimates that there are 2,384 trillion cubic feet (Tcf) of technically recoverable reserves of natural gas. Much of this is from shale where fracking has released natural gas previously locked in shale.

Based on current usage of 22.34 Tcf, there is a 98 year supply of natural gas².

A few other experts estimate larger reserves than does the PGC³.

There are other experts, however, who say that the amount of shale-gas is overstated, perhaps by twice that which will actually be produced.

In addition to the supply issue, there are questions about how much additional demand will be created by new uses.

For example, new demand could come from:

• Replacing coal-fired power plants with natural gas power plants
• Exporting LNG
• Using natural gas for transportation, e.g., cars, trucks and locomotives.
• Using natural gas in fuel cells located in homes to produce electricity and hot water
• Using natural gas in new chemical plants
• Building Gas to Liquids (GTL) plants⁴

Each of these usages impact supply differently.

Converting coal-fired power plants to natural gas

• If 25% of existing coal-fired power plants are converted to natural gas, which will require 2.6 Tcf of natural gas, the supply lasts for 88 years.
• If 50% of existing coal-fired power plants are converted to natural gas, which will require 5.3 Tcf of natural gas, the supply lasts for 79 years.

It’s very likely that 25% of existing coal-fired power plants will be converted to natural gas. It’s less likely, though possible, especially if there is a carbon tax, that 50% will be converted to natural gas.

Exporting LNG.

FERC is reviewing licenses for 19 export terminals, which, if approved, would have an export capacity of approximately 10.4 Tcf per year.

• Estimated exports from all 19 proposed terminals⁵, plus current usage would result in the supply of natural gas lasting 67 years.

FERC List of Possible LNG Export Terminals

Long haul trucking

Long haul trucks use approximately 54 billion gallons of diesel fuel⁶ annually. Replacing this with natural gas would use 7.3 Tcf of natural gas.

It’s possible that natural gas will replace a significant amount of diesel fuel, but not all of it. Even so, if natural gas replaced all diesel fuel and this was added to current consumption, it would result in a 74-year supply.

Usage summary:

Combining each of these usages, summarized here, together with current usage, and then using the PGC’s estimate of 2,384 Tcf of supply to determine the number of years of supply, results in a 48-year supply of natural gas.

• Converting 50% of coal-fired power plants to natural gas, 5.3 Tcf
• Export of LNG, 10.4 Tcf
• Using natural gas for long haul trucks, 7.3 Tcf
• Current usage, 22.2 Tcf

Since it’s not likely that 50% of coal-fired power plants will be converted, or that all proposed export terminals will be built, or that all diesel fuel will be replaced by natural gas, the number of years supply is probably greater than 48 years, possibly 60 or more years when these three new uses are added to current usage.

For example, huge supplies of LNG are being developed in Australia and the Mideast. These could reduce the opportunity to export LNG from the United States. Export terminals with two trains cost around $8 billion, so that investments won’t be made without solid contracts from importing countries. Only one of the 19 proposed LNG export terminals has been approved thus far. In addition, shale gas in China and India could reduce demand for LNG.

Significant automobile usage of natural gas or significant use of fuel cells in homes would also reduce years of supply, but both are unlikely.

• Automobile usage has several barriers, including cost, availability of fueling stations and the space used in the vehicle to store natural gas.
• Fuel cells for home use to generate electricity cost around $50,000, which is more than twice as much as comparable solar roof top installations.

This discussion doesn’t include the very large quantities of natural gas found, or expected to be found, in Canada’s shale.

If North America is viewed as an integrated market, the number of years supply would be greater than the 60 mentioned here.

The critical issue is whether the supply of natural gas, as estimated by the PGC, is reasonably accurate.

There is legitimate concern whether the wells producing shale gas will produce as much as is currently estimated. Decline rates, for example, are far more rapid than from traditional wells.

Two additional critical issues could affect supply and demand.

• Whether fracking is significantly curtailed?

Significantly curtailing fracking would eliminate any of the possible new uses outlined here.

• Whether a carbon tax is enacted?

A carbon tax could increase demand by forcing the closure of more coal-fired power plants, while, at the same time, reducing supply by making drilling, processing and transporting natural gas more expensive.

There‘s no simple answer as to whether natural gas should be exported or whether greater usage for other purposes will significantly increase the price of natural gas, from around $3, to, say, $5 per million BTU, which might deter investment in chemical plants.

It should be noted that the above calculations represent estimates, and are not absolutes.

For example, in calculating the amount of natural gas needed to replace coal, the relative thermal efficiencies of coal-fired power plants and natural gas combined cycle power plants, 33% and 55% respectively, were used.

Not included in this discussion is whether new supplies can be found, such as methane hydrates that would vastly increase the supply of natural gas.

These estimates do however; provide a framework for understanding the issue and for making decisions.

Notes:

1. Potential Gas Committee report available at http://potentialgas.org/press-release
2. Based on EIA data.
3. ICF International estimates reserves of 3,500 Tcf:  Keith Teague president of Cheniere, estimates reserves of 2,543 Tcf
4. One Gas To Liquids (GTL) plant has been proposed for Louisiana. It’s highly unlikely the plant will be built because of its cost and because its probable market, long haul trucks, appear to be adopting natural gas.
5. All terminals, including exports to both Free Trade Agreement (FTA) and Non-FTA nations. Obtaining licenses for exports to FTA nations is perfunctory. Licenses for exports to Non-FTA nations require FERC approval based on whether the terminals are in the public’s interest, which interjects questions about green house gasses and global warming.
6. Less than 15 ppm sulfur

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