Natural Gas

The graph is from Peter Tertzakian who notes:

To put this in perspective, 1,000 Tcf of natural gas contains the equivalent energy to 166 billion barrels of oil – a staggering amount considering that the discovery of 10 billion barrels of conventional oil these days is a rare occurrence, worthy of many headlines…

Estimates of recoverable shale gas have doubled in just the past year and shale gas is only part of the supply with the total being 2,552 trillion cubic feet (Tcf) of potential natural gas resources in the U.S. alone. Per unit of electricity, burning natural gas results in significantly fewer carbon dioxide emissions than coal. It is possible, however, that fracking may leak more methane to the atmosphere so the net climate benefit is unclear, at least given current methods of development.

Hat tip: Paul Kedrosky.


But, lest you think that other people's gas supplies will someday be your own (other than Canada or Mexico), the article goes on to say:

"Interestingly, other than Australia, none of the countries to the left of Canada in Figure 1 are positioned to be, or are able to be, big exporters."

But they won't be importers...

That's true, assuming (1) gas replaces oil in a substantial portion of their energy needs (2) pipes can reach the gas (3) finished goods (fertilizer for example) can be exported or consumed.

Just making the point that some of the gas talk might be just gas and gas is not interchangeable with gas at different locations, nor may it be fully substitutable considering all costs and fixed infrastructure for other fuels.

The quoted piece was a little too rosy unless you quoted the qualifying sentence I posted from the article.

Hmm... I think you also need to add this quote:

"the world has massively abundant supplies of economical natural gas to power an energy-hungry world for a long, long time, centuries in fact."

Resources never exhaust.

They just get more expensive.

Of course drinking water contamination isn't considered, just 'rights'.

Two natural gas service stations were recently opened in Western Colorado so natural gas fulled trucks can now make it from Los Angeles to Denver.

Long haul truckers probably will be the one of first big users of natural gas fuel.

Just for further illustration purposes. The United States consumes a total of about 20 TCF per year.

There's a huge development that has hardly gotten any press so far. In Quatar Shell just commissioned the world's largest "natural gas to diesel" conversion plant. This project, called Pearl GTL (Gas to Liquids) is going to be the test case in whether such Fischer Tropsch conversion plants will work out or not.

If it does work out it makes coal and natural gas quite fungible with crude oil in the years ahead.

" This project, called Pearl GTL (Gas to Liquids) is going to be the test case in whether such Fischer Tropsch conversion plants will work out or not."

They already have a successful plant in Malaysia.

But this one's about 10 times as big.

If you're proving a principle, scale doesn't matter. So "the test case in whether such Fischer Tropsch conversion plants will work out or not" sounds like PR bullshit.

Scale often matters a great deal in engineering.

Not saying it's not PR BS, but a factor of ten scaling in a process is not a small thing.

Obviously, you are not a chemical engineer. Scale is everything! And if you think a 10x scale up of a petroleum plant is easy............

Of course, Fischer Tropsch works! The Nazis did it 80 years ago. Sasol in South Africa ran it for 50 years and still does. The devil is in the details: what price can you break even, the product portfolio, maintainance cycles etc.

I don't see the PR angle. Shell's built their plant. They put 10 billion dollars behind it. This is no DoE white elephant. I don't see any big subsidies behind it. Either it works or it doesn't. The larger it is the cheaper the synthetic crude will be.

What's the difference between "proven" and "technically recoverable"?

Proven means it's reasonably certain that it is both feasible and economic to recover it given current technology and economic conditions. In other words, at current natural gas prices, it would be worth the cost to recover it.

Technically recoverable means that it's possible to recover it with existing technology, but without considering costs. In other words, natural gas prices would have to rise or unit costs would have to fall before technically recoverable reserves become "proven." (Note: This has the practical implication that those supplies by themselves can't be used to push down natural gas prices.)

I can haz gas?

Proven reserves, roughly, are available at today's prices with today's technology. Recoverable reserves requires either a dramatic increase in price or a smaller increase in price combined with a suitably scaled improvement in technology.

I think "proven" is actually a different price from "today's" prices. It is usually lower. The SEC has published guidance on this (unweighted average of last 12 months' daily prices). See question 2 at the link below.

I have seen companies use consistent prices from year to year in presenting their reserves. I have also reserve engineers use other prices too in private presentations

Here is the real nut of these rosy paragraphs: fracking. Fracking is at best extremely controversial, and at worst contributes greatly to environmental pollution. While I am opposed to it in its current technological state, I am also sure, being a realist in such matters - that this stuff will eventually be mined. I hope that fracking improves by light years before that happens.

Mark; There is a company in Canada called GasFrac Energy Servies, Inc, that has developed a system that uses liquified gases instead of water to do the fracing. This means there is no frac water to dispose of and in the long run is also cheaper to do. Will be a game changer as it is more widely utilized.

Expect Mexico to keep their gas safely in the ground so the Yankees can't get it.

Expect Argentina to keep price controls on electricity so that nobody can profitably drill for their gas.

Expect the USA to pass laws against that dangerous fracking stuff.

Expects China to invest in the future while the world laughs and keeps telling them that one day the bubble will burst like it did when you were building that big wall.

Just what the world needs : The Great Well of China , next to the Great Wall.

The development of natural gas requires significant government involvement in development of enabling infrastructure and in facilitating the balance between competing property rights.

Some States shift the balance to the corporations building and operating the pipeline with the individual becoming victim of the profit incentive that short cuts the property and other rights of the individual. The people killed and houses and personal property destroyed by the several recent pipeline explosions are example, but also the pipeline junctions and processing stations that suddenly appear in people's backyards are another. But the oil on the Gulf Coast beeches and fishery damage and flooding of New Orleans are also the fruit of gas production.

Gas production can be done safely and with complete respect for individual rights, but both safety and common law place significant cost on the potential gas producers, both in direct costs, but also in opportunity costs - delays to properly test the process and ensure that it is safe, delays to ensure all stake holders in any drilling activity and supporting infrastructure are equitably addressed, and the entire republican political process of the people defining the rules.

For an economist, China today represents the ideal economy - from the commanding heights, the economists issue their edits on the balance between economic growth and individual rights,eliminating the opportunity costs of republican government. In some parts of the US, the rules are such that the economy can operate much like in China - if the Republicans can set the rules, then the large holdings of public land that have for more than a century been held in trust as commons for multiple users like ranchers, hunters, tourists, environmentalists, conservationists can be quickly taken out of the common and handed over to the miners.

And the comment about methane leaking from a natural gas well is basically just admitting the operators are inefficiently wasting production - methane is natural gas is methane.

Why is Canada pink?

Because it is so cuddly.

Because they legalized gay marriage.

because they have single payer healthcare?

Because the article is in a Canadian newspaper (pink sheet?) and the focus is also on Canada's potential.

Koch Bros. on the phone w/ Alex.

Coming Up Next in a Congress Near You:

Need some tax breaks to save America and unlock those gas fields.

To put this in perspective, 166 bn barrels of crude is about what the US uses in two decades.

...and what percentage of total world energy usage in a year?

World uses 700 million bbl-equivalent annually. So this is a little more than two years of world annual consumption. (At present rates, of course.)

The first of these countries to publicly, loudly laugh at Global Warming -- instead of using it as an excuse to raise taxes and further nationalize energy industries -- is going to make trillions and have a gigantic edge in the 21st century.

You'd have to bet on China.

But wouldn't it be fascinating if Argentina took the lead on this?

exactly Jim. there are now even more free-riding possibilities for those countries irresponsible enough to ignore the facts about global warming..

who will it be? who will it be?

you say China but how about the US led by people like you

Nope, China will be clever, and stick to its general reality that the government formally asks for one thing but incentivizes something else. In this case, there'll be plenty of trophy greenery to impress the foreigners - as well as lots of green hardware to sell - but since the government incents growth above all else - and that growth requires cheap power - local bosses will build the cheapest coal plants they can get away with.

There'll be lots of earnest officials in the Chinese government who actually believe in greenery, and they'll impress guys like Tom Friedman who down beers with them at global AGW shindigs, but the on-the-ground reality is that coal will be where it's at.

I think the opposite is true. Natural gas is only really going to surge if there is government action on global warming. That's because coal is still cheaper, even with those massive reserves (they're mostly "technically recoverable" and not "proven" because natural gas prices are too low).

If there's government action on climate change, then there will be a huge shift in demand away from coal and towards natural gas (which emits less than coal, even after accounting for fugitive methane emissions), pushing up natural gas prices, leading to huge new development in gas extraction.

If the US were to help China develop those NatG resources it would go a long way in preventing war between the two, or at least assuaging China's fear of a bottle neck at the Straits of Malacca and Hormuz. If both the US and China were to go great guns at the NatG it would provide considerable relief to world oil use. An obvious first target for users in China is all those trucks that ship things every where.

Here's a more pessimistic take on resources from a hedge fund guy no less:

He not only talks about constraints but also about how people think or don't think about these issues.

I read news like this about natural gas supplies and then see a lot of wishful thinking as a result. Sure, it may be possible to push the energy crisis down the road a few years, but it doesn't solve the underlying problems.

Also fracking may create earthquakes that destroy entire cities. But we won't know that unless it happens...

I'd love a post on the economics of that sort of risk.

If the whole US gets gas half a dollar cheaper, destroying a few small mountain cities might be well worth it. Everything's negotiable. We only need to test the price.

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