Kathleen Davis, Associate Editor
Part two of a two-part series.
We’ve spent the summer mired in a “natural gas crisis.” Whether the predictions were real or imagined, too far-fetched or not dramatic enough for your tastes, the impact has been obvious: power utilities filing for rate increases based on the price increase for natural gas, the Secretary of Energy unveiling an educational campaign for power conservation, and Congressional hearings to tackle the one burning question of this debate–how can we solve the crisis?
Photo of gas pipes at sundown courtesy of Calpine Corp.
At the heart of any solution–even this one–is desire, and no one denies the basic need America has for more gas. It’s obvious that what we’ve got is just not enough, and probably won’t be enough for the future–especially given the number of merchant power plants scheduled to come online in the next few years that will rely completely on natural gas. In the end, there are two camps warring over a possible solution to this gap between producers and consumers. The first touts liquefied natural gas (LNG) as our potential savior. The second looks to old-school style domestic drilling. But, which is the true messiah of the natural gas crisis?
LNG or bust
LNG–natural gas compressed for transportation at 20-150 pounds per square inch (psi)–is so named for the cryogenic process that “freezes” the gas around —275 degrees Fahrenheit. (The freezing process itself is referred to as “liquefaction.”)
And, LNG is a growing business these days. Typical exporters like Algeria and the Middle East are being joined by Bolivia, Peru, Angola, Russia, and even Equatorial Guinea. While currently used to supplement domestic gas supplies here in the U.S., LNG has, in fact, grown by leaps and bounds–at least percentage-wise–in just the last year.
According to the Gas Technology Institute’s Colleen Taylor Sen, gas production rose only one percent in 2002 worldwide, but LNG shipments increased 4.3 percent in that same timeframe.
And, with the current natural gas crisis in the U.S., LNG could see another leap in that percentage, if its proponents can convince investors and the general public that LNG is the answer.
“I think the big answer–the most attractive one–is the introduction of LNG in this country,” stated James Macias, executive vice president for commercial operations at Calpine in an interview with EL&P. “There are huge amounts of worldwide [LNG] supplies, and just a small addition will go a long way to help dampen these price spikes.”
And Macias is not alone in his faith in LNG. This summer Cambridge Energy Research Associates (CERA) chairman Daniel Yergin stated that the U.S. will be importing a lot more natural gas to bridge the gap–up to 20 percent of U.S. gas supplies by 2020, Yergin added. (LNG provides about one percent today.)
“Fortunately, the world is awash in stranded gas [gas resources without nearby markets],” he said. “Momentum is building for LNG. Yet, while a robust build may be anticipated in new LNG regasification capacity in North America, there are several hurdles that stand before the realization of this new resource.”
And the biggest hurdle for increasing LNG imports is the obvious: There are very few places properly equipped to “park” and convert that LNG here in the U.S.
“There’s almost no infrastructure,” Macias said. “But, over the past two years, there has been tremendous activities and investment by strong companies. So, they’re working on it.”
Macias pointed out that he’s seen about two dozen LNG projects in the works from the East Coast, the Gulf of Mexico, the West Coast, Mexico, California, and even up into Canada, with what he deemed “tremendous muscle” behind some of these projects.
“I’m very optimistic that we’ll start seeing LNG terminals come online within the next coming years,” he added. “While they are not inexpensive, they are not overly expensive. In fact, an LNG terminal costs about the same as a new power plant.”
Developing new frontiers
On the other side of this debate is the idea of stepping up domestic drilling, and Macias stated that he already sees that happening.
“Rig counts are up,” he stated. “They were slow to respond to the market because they had been burnt in previous cycles [of price/supply spikes], but they are growing.”
Yergin, however, stated that growth in natural gas demand has so far resulted in disappointments in supply, which he believes signifies the “mature geology” of the North American basin. Already heavily drilled and explored, Yergin thinks it may simply be a matter of reaching the bottom of the barrel.
“The most dramatic example of maturity is the offshore waters of the Gulf of Mexico, which accounted for 31 percent of U.S. gas in 1990 but today produces just 24 percent of the nation’s total gas,” he said.
Of course, there remain places that have not been explored, which seems to be the heart of this issue: Do we go into new areas, even previously “preserved” areas to satisfy our growing hunger for natural gas? Macias, for one, says, “Yes.”
“We need more frontier gas, more gas resources available, period,” he stated. “The traditional fields across the country are getting more mature, and we do need to open more access. And that access is more in the Rockies, Canada, Alaska, offshore.”
“Domestic drilling will win out [over LNG] in the long haul,” stated Terry Ray, vice president of energy information strategies and an analyst with the META Group. “Producers have strong lobby skills. The reserves are here. And, drilling reduces dependence on imports and should be more cost-effective in the long-term.”
“Also, it is unlikely that the amount of LNG available for import at reasonable prices will be sufficient in supplying a significant amount. In other words, domestic drilling will still be needed,” he added.
Ray also sees loosening environmental restrictions on drilling and pipeline construction as one possible answer to the crisis.
In fact, in the end, many analysts feel that a mix of expanded drilling and increased LNG infrastructure may be the final solution–a blending of the two camps. Macias stated that we could see a “significant increase in LNG” within five years, but, obviously, that leaves quite a chasm to leap over before LNG comes to our rescue–a chasm that may be filled by domestic drilling efforts here at home.