AN UNCONVENTIONAL GLUT

March 24, 2010

The United States' purchases of liquid natural gas (LNG) have dwindled and it has enough gas under its soil to inspire dreams of self-sufficiency.  Other parts of the world may also be sitting on lots of gas.  Those in the vanguard of this global gas revolution say it will transform the battle against carbon, threaten coal's domination of electricity generation and, by dramatically reducing the power of exporters of oil and conventional gas, turn the geopolitics of energy on its head, says the Economist.

  • The source of America's transformation lies in the Barnett Shale, an underground geological structure near Fort Worth, Texas. The Barnett Shale alone accounts for 7 percent of American gas supplies.
  • New shale prospects are sprinkled across North America, from Texas to British Columbia. One authority says supplies will last 100 years; many think that is conservative.
  • In 2008, Russia was the world's biggest gas producer; last year, with output of more than 600 billion cubic meters, America likely out-produced Russia.
  • The International Energy Agency (IEA) estimates the global total of natural gas to be 921 trillion cubic meters, more than five times proven conventional reserves.

The path of demand in gas' new age is hard to predict.  French energy company Total thinks global demand will recover strongly enough to require another 100 million tons a year of LNG by 2020, on top of what is already planned to produce.  However, the Energy Information Administration, the statistical arm of America's Department of Energy, predicts decades of relatively weak prices, says the Economist.

  • If this is correct, it makes sense, for both environmental and economic reasons, for the United States to gasify its power generation, half of which comes from coal-fired plants.
  • This could be done cheaply and quickly, because America's total gas-fired capacity (as opposed to production) already exceeds that for coal.
  • Put a price of $30 a ton on carbon emissions, say supporters, and natural gas would quickly displace coal, because gas-fired power stations emit about half as much carbon as the cleanest coal plants.
  • The IEA agrees that penalizing carbon emissions would benefit natural gas at the expense of dirtier fuels.

A gasified American economy would have profound effects on both international politics and the battle against climate change, as displacement of oil by natural gas would strengthen a trend away from crude oil in rich countries, says the Economist.

Source: Observers, "An Unconventional Glut," The Economist, March 13th - 19th, 2010

For text:

http://www.economist.com/business-finance/displaystory.cfm?story_id=15661889

 

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