Somewhat quietly, a combination of exploration and new technology to unlock previously unavailable reserves is dramatically changing the supply-demand equation in natural gas and even altering geo-political dynamics – mostly for the better.
The World Gas Conference in Buenos Aires last week was an eye opener, as news about the pace of technology advances and how much new reserve has been added in the past year came as a surprised many.
At the conference, BP CEO Tony Hayward said proven natural gas reserves around the world have risen to 1.2 trillion barrels of oil equivalent in the past year, enough to supply the world for some 60 years – and those reserves are increasingly rapidly.
Rune Bjornson, executive vice president at Norway's StatoilHydro agreed, saying at the conference that natural gas reserves are much greater than most experts believed just three years ago, and are likely large enough to meet global gas needs for generations.
The reason: exploration and technology.
"There has been a revolution in the gas fields of North America. Reserve estimates are rising sharply as technology unlocks unconventional resources," Hayward said at the conference.
"The common wisdom was that unconventional gas was too difficult, too expensive and too demanding," Bjornson said, according to Petroleum Economist. "This has changed. If we ever doubted that gas was the fuel of the future – in many ways, there's the answer."
The breakthrough has been to combine 3-D seismic imaging with new technologies to free "tight gas" by smashing rocks, known as hydro-fracturing or "fracking" in the trade.
This has been especially true in the US, where such technical advances have enabled the country to dramatically reduce imports of Liquid Natural Gas (LNG) from the Middle East region to almost nothing (natural gas is liquefied for export to significantly increase the amount of gas that can be shipped in a vessel).
With breakthrough technologies being deployed in spots ranging from Pennsylvania (which has huge shale reserves), to Texas, to the Mountain states and more, the glut of reserves and potential production have caused the spot market price for LNG to drop to just 50% of US pipeline gas pricing. A substantial drop in demand resulting from the recession is also putting pressure on natural gas prices across the globe.
To a lesser extent, this scenario is playing out not only in the US, but other areas of the world. Some in Britain, for example, now believe the country can harvest huge natural gas reserves from its own shale deposits.
There are skeptics, however. Arthur Berman, a Texas-based geological consultant, says that the yields from the shale fields won’t be as strong as some believe, and/or that given low natural gas prices, they will be unprofitable to develop.
Geo-Political Ramifications
In recent years, the less bullish view on natural gas reserves and the existing delivery systems in Europe have caused much concern, especially when Russia flexed its energy might by cutting off pipeline deliveries to the Ukraine, claiming either its own shortages or pricing disputes. Many, however, saw the moves as largely political, trying to impose more control over the country that was once part of the Soviet Union and has steadfastly refused to be drawn back into the Russian orbit.
The changing supply picture would give less riches and clout to Russia, and leave it with much less leverage and leeway than it had just a few years ago in the heady gas and oil price days of 2005-2008.
With these supply advances alone, the US and other countries may also stop importing gas and sometime even oil from Middle East countries, reducing foreign energy independence and the flow of dollars outside the border. In some cases, natural gas can be substituted for oil-based energies, especially in manufacturing. Some see hope for natural gas cars and trucks, as companies like UPS continue to add natural gas-based trucks to their fleets.
Natural Gas and the Green Supply Chain
Will concerns about CO2 emissions derail the potential bounty from the huge progress in natural gas reserve development and production?
That is the multi-billion dollar question. While natural gas looks to be relatively cheap for many years, it is a fossil fuel. While CO2 emissions per unit of energy are much less than coal or gasoline, there are some, and the new technology processes, especially for extracting gas from shale, are “messy.”
The process involves using millions of gallons of water, along with sand, hydrochloric acid, and toxic chemicals to free the gas trapped in the shale. Many environmentalists oppose shale-based development for this reason alone.
Still, exploiting these new reserves and technologies could dramatically reduce foreign energy dependence and help reduce CO2 emissions versus coal at utilities and manufacturing plants.
We say - let the debate begin.
Are you surprised by this enormous increase in natural gas reserves? What role should natural gas play in US and world energy consumption? Let us know your thoughts at the Feedback button below.
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