US natural gas used to be such a quiet, benign source of energy, with approximately 50 billion ft3/d supplying electricity needs, heating homes and forming a feedstock for petrochemical plants. Not anymore; in the last few years it has raced to the fore, decoupling from oil prices, sideswiping the already wobbly coal utility sector, and simultaneously attracting the ire of environmentalists.
The rise of gas
Natural gas owes its current notoriety to the emergence of two new technologies, horizontal drilling and hydraulic fracturing (or fracking). There are two major repercussions to all this activity. The first is the reaction from jurisdictions that have little experience (or trust) dealing with petroleum exploration. The second upshot is overabundance.
The outlook for 2012 is just as bleak. The predictions are that gas will average US$ 4.15 for 2012, falling to under US$ 4 for shoulder months. Even these prices are said to be primarily due to luck. The gas market has held together for the last couple of years through coal displacement and bad weather. The US has had two consecutive cold winters and two consecutive hot summers, which absorbed approximately 1 trillion ft3 of extra supply. Without these circumstances, the gas price would likely be much lower.
Normally, the easiest solution to overabundance is to reduce production; analysts reckon that lowering the active rig count to the 600 range would allow the market to equilibrate, but lease obligations mean that many operators must drill or lose acreage, and the rig count for gas plays hovers stubbornly around 1100.
A second option is to grow the economy. Economists note that a 1% increase in US GDP leads to an increase in gas demand of approximately 0.75%.
Gas is so abundant in North America that it has become unlinked from the price of oil, and is now sufficiently cheaper on an energy basis that it is economically viable to convert it to other forms of fuel. Sasol, based in South Africa, recently announced it will build the USA’s first gas to liquid (GTL) plant in Louisiana. As a fuel replacement, GTL is cleaner burning than diesel, with less sulfur, lower particulates, and fewer nitrogen oxide emissions.
Natural gas can also be converted to LNG for export by stripping the gas of impurities then chilling it to -160 °C. Although no LNG trains currently exist in the lower 48 states, it costs approximately US$ 3 billion to build a plant capable of creating 4 million tpy of LNG.
Government and industry are working to address concerns over hydraulic fracturing. The White House announced the formation of the Secretary of Energy Advisory Board Subcommittee on Shale Gas Production (SEAB), to ensure that shale gas is produced in an environmentally safe manner.
In conclusion, while natural gas faces the challenges of overabundance and a public becoming increasingly wary of its presence, it remains a viable and increasingly important alternative in a world hungry for energy.
You can read the full article by Gordon Cope in the February issue of Hydrocarbon Engineering.