Thursday, October 12, 2006

Natural Gas: Running on Empty?

The following quotes are from the U.S. Department of Energy's EIA website:

“Nationwide, 58 percent of all households depend on natural gas as their primary heating fuel.”

“Thirty percent of all U.S. households rely on electricity as their primary heating fuel”

Remember that 19.5% (EIA data for 2006) of electricity generation comes from Natural Gas (“NG”) therefore 64% of households rely on NG, directly or indirectly, for heat. As recently as 2004, NG accounted for 24% of electricity generation. If a glut condition for NG exists right now in the U.S., why the decline in NG as a percentage of electricity generation? Glad you brought it up, but I’ll cover that in future post… (In case you were wondering, the remaining electricity generation comes from: 48.6% Coal, 19.5% Nuclear, 7.8 Hydro, 1.6% Petroleum, and 3% Other.)

At this moment, the U.S. has more NG than it has room to store. At today’s rate of consumption, North America has less than 10 years of NG reserves (US Army Corps of Engineers). Yes, we have a glut today – and a disaster coming in the near future.

Unlike Oil, NG markets are local. Although the U.S. imports 1% to 2% of its NG in the form of Liquid Natural Gas (“LNG”), these imports cannot be easily increased due to infrastructure issues that are at least a decade away from mitigation – if we addressed them tomorrow (the U.S. has only 5 LNG terminals, and one of these is on the island of Puerto Rico. There is no pipeline between Puerto Rico and the Mainland.). The remaining 98 % of NG consumed domestically comes from Canada, Mexico, and the U.S., and is transported to markets via an intricate pipeline system.

The problem is that when NG Wells begins to decline, they do so at a much steeper rate than conventional Oil Wells do. After the initial surge, Oil must be pumped out of the ground, or brought to the surface using water injections to flood the oil to the surface or a gas such as carbon dioxide to “repressurize” the Well and force it to a collection point. This is not true of NG; NG comes out of the ground under pressure – until it doesn’t. Then it simply stops coming out of the ground. You can’t pump it, and you can’t inject water (no, hydro fraction, or “frac job” in industry parlance, does not count) – the well or field is dry, end of story, and the end comes with little or no warning.

Since 2002 drilling for NG in North America has increased 20 % per year, but production has been declining by better than 4%. We are now severely constrained in our equipment infrastructure, and will be unable to maintain that frenzied growth in drilling activity.

Between 1995 and 2005, the U.S. added 220,000 Gigawatts of gas powered electrical capacity. It is clear now what a blunder that strategy was, as NG supplies will be insufficient to generate the aggregate plant capacity. Or maybe not, as it is likely that Coal would have been used in its stead, with its attendent environmental impact. I think it is important to consider that the process of liquefying and gasifying imported LNG is a HUGE environmental liability. A significant amount of Methane (CH4) escapes into the atmosphere during these processes, and Methane is much more powerful greenhouse gas than is carbon dioxide (CO2) (notice the "C" in those gas compounds). This will certainly be a consideration in the future. But that’s an environmental issue - this discussion is about future electricity availability.

As Matt Simmons, with a great gift for the understatement, said: “We have to grow our electricity supply, or we will not grow our economy”. Will it be Peak Oil, followed by Peak Gas (and Peak Heat) followed by Peak Electricity? The data does not look good.

Mentatt “at”
If you have a data point to share with me, please email at the address above.

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