Editorial comment

Vol. 232 No. 12

No, I am not calling for an Arab Winter for the overthrow of more dictators in the Middle East. Nor am I issuing a call to action for occupying the Department of the Interior offices in Washington D.C. to protest against slow deepwater permitting policies in the Gulf of Mexico. Both of these are worthwhile causes, but I am echoing Chesapeake Energy CEO Aubrey McClendon’s call for a natural gas demand revolution to match the supply revolution that has taken place through shale gas exploration and production.

Supply revolution. Seen from a historical perspective, the surge in shale resources is truly amazing. The US Energy Information Administration (EIA) reports that over 750 Tcf of technically recoverable shale gas and 24 billion bbl of shale oil resources have been discovered thus far in shale plays. What are we going to do with all this gas?

Demand revolution.  At present, the US consumes 65 Bcfd of natural gas per year. This consumption is expected to grow at 2% per year, according to McClendon.  There are a few specific options to accelerate this demand growth.

LNG exports. The most obvious option is to export the excess gas via LNG to markets in Europe and Asia. Preliminary efforts are underway to begin shale LNG exports by 2015. Cheniere’s Sabine liquefaction terminal in Louisiana has already reached its contract capacity target of 7.0 mtpa to support the construction of two liquefaction trains.  The first two contracts are with British Gas and Spain’s Gas Natural Fenosa. Korean Gas has invested in the Kitimat LNG terminal near Canada’s Horn River shale basin. A total of seven LNG projects are underway in North America for LNG exports to Europe and Asia, where prices are up to four times the rates available in the US.

Power generation. In the US, 44.5% of electrical power was produced from coal-fired plants in 2009. The other contributors included natural gas (23.4%), nuclear (20.9%), hydroelectric (6.9%) and renewables (3.6%). In France, nuclear contributes a much larger share (78.1%).  Natural gas has the advantage of lower emissions, but worldwide, the International Energy Agency (IEA) estimates that there are 948 billion tons of coal reserves, enough to last 126 years at the current rate of consumption. As such, coal producers can assure power generators with coal contracts on a long-term basis at a relatively low price. Gas producers may be able to compete better with coal if they bite the bullet to assure gas supplies at a long-term fixed price rather than wait in anticipation of gas prices returning to the 2008 double-digit levels.

An interesting development is the introduction of compact natural gas-driven turbines by companies such as GE for power generation in remote locations and as a backup source for the intermittent solar or wind power plants.

Transportation. Another option for creating a natural gas demand revolution is in the transportation sector.  In the US, there are assorted efforts, including the proposed Nat Gas Act, to encourage the use of CNG in truck fleets. For example, the city parking lot at the international airport in Houston has converted its shuttle fleet to CNG. While it is easy to convert an internal combustion engine to burn CNG, the biggest obstacle is building the CNG pump station infrastructure, which does exist in certain countries such as Israel and India. The biggest competitor to building a CNG infrastructure for the mass consumer market is the electric car.  While an electric motor with drive-by-wire controls might be the ideal mode of transportation, the electric vehicle is handicapped by the lack of a rechargeable battery equivalent to a full tank of gas (250 mi).

Every form of energy is handicapped by an Achilles’ heel of one sort or another. We are short of a technology breakthrough that pushes one source ahead of the rest. So, for the time being, there is sufficient competitive rationale for a natural gas demand revolution over the next decade if the supply remains plentiful.