Why Natural Gas isn’t Likely to be the World’s Energy Savior

We keep hearing about the many benefits of natural gas–how burning it releases less CO2 than oil or coal, and how it burns with few impurities, so does not have the pollution problems of coal. We also hear about the possibilities of releasing huge amounts of new natural gas supplies, through the fracking of shale gas. Reported reserves for natural gas also seem to be quite high, especially in the Middle East and the Former Soviet Union.

But I think that people who are counting on natural gas to solve the world’s energy problems are “counting their chickens before they are hatched”. Natural gas is a fuel that requires a lot of infrastructure in order for anything to “happen”. As a result, it needs a lot of up-front investment, and several years time delay. It also needs changes on the consumption side (requiring further investment) that will allow this natural gas to be used. If the cost is higher than competing fuels, this becomes a problem as well.

In many ways, natural gas consumption is captive to other things that are happening in the economy: an economy that is industrializing rapidly will easily be able to consume more natural gas, but an economy in decline will find it hard to scrape together funds for new ways of doing what was done previously, now with natural gas. Increased use of renewables seems to call for additional use of natural gas for balancing, but even this is not certain, because in many parts of the world, natural gas is a high-priced imported fuel.  Political instability, often linked to high oil and food prices, creates a poor atmosphere for new Liquefied Natural Gas (LNG) facilities, no matter how attractive the pricing may seem to be.

In the US, we have already “hit the wall” on how much natural gas can be absorbed into the system or used to offset imports. US natural gas production has been flat since November 2011, based on EIA data (Figure 1, below).

Figure 1. US Dry Natural Gas Production, based on data of the US Energy Information Administration.

Even with this level of production, and a large shift in electricity production from coal to natural gas,  natural gas is still on the edge of “maxing out” its storage system before winter hits (Figure 2, below).

Figure 2. US natural gas in storage, compared to five-year average. Figure prepared by US Energy Information Administration, Weekly Natural Gas Storage Report as of October 5, 2012.

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Natural Gas Setbacks – Water Contamination and Escaped Gases

Natural gas would like to be bridge fuel as we deal with oil shortages, but it keeps running into obstacles.

A big obstacle is the fact that the price is now too low, relative to what it costs to extract the natural gas. Arthur Berman has shown based on his detailed analysis of drilling data that shale gas seems to need a much higher price than today’s $4 per thousand cubic feet to be profitable. I have shown something similar, looking at aggregate drilling costs. However, if the prices go up enough to be profitable for producers, natural gas will not look like nearly as good a “deal” for the homeowner.

But today I would like to talk about two new setbacks:

  1. An EPA ruling against Range Resources regarding the contamination of two wells in Texas’ Barnett Shale.
  2. An EPA analysis that says escaping greenhouse gases are more of a problem than previously assumed, particularly for well completions and hydraulic fracturing after completion.

The latter analysis is only an interim report, but adds further fuel to the debate about how “green” natural gas is. Indicated green house gas emissions based seem to be as high as coal emissions, although this is not explicitly stated in the report. There are no doubt steps that can be taken to reduce these emissions, but if the report is correct, without change, the indication is that natural gas is not very “green”. Continue reading