INSIGHT: US may become dependent on foreign natgas

01 July 2010 17:56  [Source: ICIS news]

By Joe Kamalick

WASHINGTON (ICIS news)--Natural gas will play a central and increasingly larger role in the US over the next 50 years, but despite the new availability of vast shale gas resources the nation also will become more dependent on foreign gas suppliers, according to a new study by the Massachusetts Institute of Technology (MIT).

The study by MIT’s energy initiative group, which draws on expertise from chemical engineers, utility specialists, economists and scientists here and abroad, may pose particular concerns for the US petrochemicals sector and downstream chemical makers that are heavily dependent on natgas as a feedstock and energy fuel.

The institute’s energy panel bases its analysis on the premise that within this decade the US will be operating and competing in a carbon-constrained global environment and that electric power generation, manufacturing and consumers will be paying some sort of price for carbon dioxide (CO2) emissions.

That may be a major assumption, given that the debate over anthropogenic global warming (AGW) has flared anew in the industrialized world, and in the US it has made enactment of a major national carbon reductions mandate less likely.

Still, many in the US Congress adamantly opposed to any sort of comprehensive cap-and-trade emissions mandate would support less draconian and incentive-driven measures to reduce the nation’s carbon emissions.

So MIT’s expectation of a carbon constrained future is not unreasonable and it underpins the institute’s analysis of what would happen in that environment.

In the study, “The Future of Natural Gas”, MIT says that this nation’s energy outlook must be heavily influenced by “the realization over the last few years that the producible unconventional gas resource in the US is very large” which in turn “has intensified the discussion about natural gas as a ‘bridge’ to a low-carbon future”.

“Natural gas has moved to the centre of the current debate on energy, security and climate,” says the analysis.

For the MIT energy panel members, the overarching conclusions of their study include:

• Abundant global natural gas resources imply greatly expanded natural gas use, with especially large growth in electricity generation;
• Natural gas will assume an increasing share of the U.S. energy mix over the next several decades, with the large unconventional resource playing a key role;
• The share of natural gas in the energy mix is likely to be even larger in the near to intermediate term in response to CO2 emissions constraints; and
• The character of the global gas market could change dramatically as natural gas and liquefied natural gas (LNG) developments advance through 2050.

In the years ahead, MIT sees electric utilities accelerating the switch from coal to natural gas as a generating fuel.

“Substitution of gas for coal could materially impact CO2 emissions in the near term, since the US coal fleet [of electric utilities] includes a significant fraction of low-efficiency plants that are not credible candidates for carbon capture retrofit,” the study says. 

This too assumes that carbon capture and sequestration (CCS) technologies will prove cost-effective on a commercial scale, a goal not yet reached and by no means certain.  If carbon capture and storage proves to be not viable on a large scale, still more coal-fired power plants would shift to natgas.

The MIT group also sees increased use of natural gas as a transportation fuel or, additionally, as a feedstock for methanol-fuelled trucks and cars.

“Development of the US vehicular transportation market using compressed natural gas (CNG) powered vehicles offers opportunities for expansion for natural gas use and reduction of CO2 emissions,” the study says.

The analysis notes, however, that “it is unlikely in the near term that this will develop into a major new market for gas”, in part because “liquefied natural gas does not currently appear to be economically attractive as a fuel for long-haul trucks because of cost and operational issues related to storage at minus 162 degrees Centigrade”.

But in decades ahead, “significant [natural gas] penetration of the private vehicle market before mid-century emerges in our carbon-constrained scenario”.

That’s because natural gas as a transportation fuel could well expand through methanol. 

“The conversion of natural gas to methanol, for which there is already large-scale industrial use and a well-established cost basis, is an option for providing a cost competitive, room temperature liquid transportation fuel and reducing oil dependence,” the study notes.

However, as demand for natural gas increases in major sectors - power generation, industrial consumption, transportation and home heating - there are uncertainties about domestic supply, says MIT.

“Assessments of the recoverable volumes of shale gas in the US have increased dramatically over the last five years,” but the environmental impacts of shale development are challenging, the study notes.

“The largest challenges lie in the area of water management, particularly the effective disposal of fracture fluids,” said MIT.  “Concerns with this issue are particularly acute in those regions that have not previously experienced large-scale oil and gas development.”

For example, there are mounting efforts in the New York State legislature to bar the use of hydraulic fracturing (fracking), which would effectively end development of the massive shale gas resources in the state, which straddles both the Marcellus and Utica shale plays.

Bills pending in the US Congress also could seriously impede shale gas drilling, according to the gas industry, by putting the Environmental Protection Agency (EPA) in charge of permitting each and every fracking project.

In addition, the MIT study notes that much of the abundant US shale gas resources lies in areas of the country where energy production is not common.

“The expansion of shale gas development in areas that have not previously seen significant gas production will require expansion of the related pipeline, storage and processing infrastructure,” the study said.  This raises issues both of cost and potential public opposition of the NIMBY or “not in my back yard” sort.

As US demand for and consumption of natural gas continues to grow, MIT also sees increasing development of an integrated global market for gas via pipelines and in LNG.

If the expected expansion in US domestic demand exceeds domestic natgas production, which is becoming ever more constrained by political and environmental limits on hydraulic fracturing and offshore drilling, the US could become increasingly dependent on foreign supply.

“If a more integrated [global] market evolves, with nations pursuing gas production and trade on an economic basis, there will be rising trade among the current regional markets,” the MIT study says, “and the US could become a substantial net importer of LNG in future decades.”

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By: Joe Kamalick
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