by Rutt Bridges
Let me start by admitting that the future of natural gas is especially difficult to predict. Commodity forecasting is always a pseudo-science at best. At times it seems that its primary function is to make astrology look respectable.
But America has enormous natural gas resources, roughly a 100 year supply. That supply could be the low cost/low pollution energy source that provides a bridge to a better economic and environmental future. Or it may just sit in the ground for some time.
After 25 years in the oil and gas business I spent ten years working in public policy and politics. In many ways that made geophysics seem pretty straightforward. But I did learn at least one valuable lesson: In spite of all the flowery words, there is no more powerful force for change than the market.
But the market doesn’t care about political correctness. The market only cares about supply and demand. And right now natural gas is on the wrong side of that equation.
The warmest winter since 2000 plus abundant shale gas has forced US natural gas wellhead prices below $2 per thousand cubic feet (Mcf), their lowest level in 13 years. By comparison Europeans currently pay almost $12 for imported natural gas. We have almost two and a half trillion cubic feet in storage, a glut of almost a trillion cubic feet above our seasonal average. That’s the largest glut in almost 30 years.
For the last two decades, the ratio of oil to natural gas prices has averaged around 10. Today it is over 50.
The market is unlikely to allow that distortion to endure. Adversity often creates opportunity. As Winston Churchill said, “When you’re going through hell, keep going.”
North America is cursed and blessed with huge shale gas resources, depending on your perspective. Shale gas may be predictable but it’s not free. At prices much below $4 these resources won’t be developed. No one in their right mind will spend two billion dollars to develop a field with a billion dollars’ worth of natural gas. And that’s the problem that a lot of gas producers currently face. Natural gas reserves are and always have been a function of price. At the European price of $12/Mcf, we’d all be shocked and amazed at how much gas America has.
Before we look at current US natural gas consumption we should consider LNG exports. While crude oil is traded globally via tankers and pipelines, natural gas trading remains primarily isolated within the US and Canada and lacks the infrastructure to be a true global commodity. However, federal regulators just approved America’s first large-scale natural gas export facility, Cheniere Energy’s Sabine Pass LNG terminal. It should come online in 2015 or 2016, and should be able to export close to 900 Bcf per year. Several other US and Canadian companies are proposing similar facilities. This is the greatest potential game changer for natural gas. The market is a powerful force, and eventually finds a way to correct distortions of any commodity price. But it takes a while for new LNG facilities to be approved and built. For now let’s consider current US natural gas markets.
History teaches us that our natural gas resource won’t get consistently developed. We will continue to see boom and bust cycles. Gas producers will pour money into drilling wells when prices spike, and those very actions will create the next bust. And those same price spikes will discourage long-term commitments to gas by large-volume utility and industrial consumers.
Maybe, just maybe, we can learn something from history that will benefit both producers and consumers. But first we need to better understand the natural gas market: what’s just ahead, and what may be down the road. To do that, we need a data-driven analysis of the market potential for this abundant resource.
So let’s start by looking at the opportunities for growth of natural gas in electricity generation. Why electricity? Here is a picture of today’s gas market:
Electricity is the biggest slice, but also the slice with the greatest upside. When Willie Sutton was asked why he robbed banks, he reportedly said: “Because that’s where the money is.” And that’s the same reason we need to understand the electricity market. For gas, electricity is where the money is.
But first, let’s take a quick look at the other market segments. Residential and commercial use is mostly for heating and air conditioning. The market has helped drive retrofits and construction of more energy- efficient buildings. It seems likely that even with economic growth residential and commercial gas use will likely be flat, as it has been for the last 40 years. Use by gas producers has also been flat for decades, though higher prices could drive greater efficiencies and lower consumption. Natural gas vehicles have great potential, but even if consumption doubled that total market would be less than 1% of the gas used for electricity. However, Westport Power estimates that if every heavy-duty US and Canada vehicle was converted to LNG, annual gas consumption would increase by 5 Bcf, increasing gas demand by 23%.
Industrial gas use (which is nearly as much as electricity) is mostly for heat, power and chemical feedstock. Increased use of industrial heat and power will mostly be tied to the ups and downs of US manufacturing and improved energy efficiency. However, low gas prices have resulted in several companies announcing expansions of feedstock consumption.
Ethylene is a byproduct of so-called “wet gas” production. Ethylene production helps subsidize the cost of natural gas wells. Dow Chemical is investing $1.7B in a Texas ethylene plastics plant that will create 35,000 new jobs in the region, as part of $4B in shale gas-driven investments. Chevron is moving ahead on a similar sized ethylene-to-plastics plant near Houston. Shell is also planning a $2B ethylene plant near Pittsburgh and is considering investing $10B in a new Louisiana plant to convert natural gas into diesel fuel. Other companies are looking at similar investments. The American Chemistry Council’s CEO noted, “Thanks to abundant, affordable natural gas, the nation’s chemical companies have entered an era of renewed global competitiveness which can help generate new domestic investment, jobs and manufacturing exports.”
But none of these market segments come close to the impact of electricity. Coal is the fuel of choice for 44% of electricity generation, while natural gas accounts for a quarter. However, under court order the EPA just set tough limits on CO2 emissions. Without carbon capture and storage, or CCS, coal is no longer an option for new plants. ‘Clean Coal’ can’t happen without CCS, and no coal CCS facility has ever been built in America. The first one may be ready in 2015, but it’s only a small generator. All the pretty TV ads about Clean Coal have little to do with reality. But the greatest challenge for carbon capture and storage is not technical. It is economic. The numbers just do not make sense.
A 2008 McKinsey report estimated that if about 100 carbon capture and storage projects were built by 2030, the cost of removing 90% of the CO2 produced from new coal plants might fall to $37-55 per ton of CO2. Early plants would cost at least twice that much. And coal produces about two tons of CO2 per ton of coal burned.
For reference, utilities paid about $44 a ton for coal in 2011. Burning ‘clean coal’ would approximately triple that cost. The ‘clean coal’ TV ads are pretty and patriotic, but for some reason they left out the part about the fuel cost tripling. What do you suppose would happen if the oil industry proposed ‘clean gasoline’ that cost three times as much at the pump? I guess they wouldn’t mention price in the ads, either.
To make matters worse, due to carbon capture energy demands you have to burn 25% more coal just to produce the same number of kilowatts. Worse still, only a few of America’s newest coal fired plants could be retrofitted with CCS. And very few modern US coal plants have been built in the past 20 years.
Coal’s greatest asset as a fuel is the number of older, paid-off coal plants. Those plants also produce the most pollution. But utilities would have to build new ‘clean coal’ plants using CCS to meet the mandated CO2 limits. And they would have to be 25% bigger just to produce the same amount of electricity.
So how is carbon capture and storage doing in the US? In 2003 President Bush announced FutureGen, America’s project to build a coal-fueled power plant using CCS. It took industry sponsors 5 years just to select a plant site and estimate costs. But the Department of Energy immediately cancelled funding due to cost overruns. In August 2010 DOE announced FutureGen 2.0, with the goal of retrofitting and resurrecting an old 208 MW oil-fired plant. We all know that 2.0 releases are better than the initial product, right? Well, maybe not in this case. Shortly after the announcement the last two remaining utilities dropped out of the project citing cost overruns. Of the current sponsors all are either coal mining or mining equipment companies plus one recently recruited utility from Kentucky, America’s third largest coal producer. More detailed design work and new cost estimates are underway, with hopes of a startup in 2015.
When you take an honest look at the economics of carbon capture and storage it is remarkable that anybody can discuss clean coal with a straight face. When has so much ever been said about so little, and so much paid for TV ads to say it?
So, let’s ignore the CO2 issue and compare natural gas to conventional coal. How much do modern power plants cost to build? According to the latest government figures, here is a comparison:
In fact, not only are natural gas plants much cheaper to build, but they’re ready in about half the time of coal. There are far fewer ‘not in my back yard’ objections, so smaller modular gas-fired plants can be located nearer consumers and power grids.
But these prices are ‘overnight’ capital costs. They assume the plant gets built overnight… no financing costs, no construction delays, no environmental challenges, no inflation… no kidding! Anyone who has ever developed a major industrial project wishes they lived in that world.
But the real question is, “What does the electricity cost?”
The short version is that electricity from new natural gas plants costs about half as much as coal, and that’s at gas prices approaching five dollars… two-and-a-half times the current price! Wind needs gas prices of seven to eight dollars to be cost competitive. Solar needs a serious technology breakthrough. Nuclear is expensive to build but the fuel is cheap. However, as you may have heard nuclear has some other issues.
You may wonder whether there is already enough generating capacity without building new plants to replace coal with natural gas.
Except for inefficient ‘peaking plants’, ‘24/7 baseload’ gas plants use modern combined-cycle natural gas generators. While it might appear that there is plenty of gas capacity to replace average electricity demand, the reality is that there are a lot of peaks and valleys in that demand. Unfortunately, it’s pretty easy to drown crossing a river that’s an average of two feet deep. Plus, there is a lot of difference in the economics of peaking plants and modern combined cycle generators.
And economics is what drives utilities to decide what kind of fuel to burn and what kind of plants to build. More and more, natural gas has been winning that competition. For new plants, not only does gas produce cheaper electricity, the capital costs are lower, construction is faster and you can build new capacity closer to where it’s needed. Plus, pollutants are a small fraction of coal plants and CO2 emissions are about a third. On the negative side, if gas prices spike you’re stuck burning gas. And that market risk is the greatest impediment to growing natural gas demand.
If a utility is deciding what to burn in an existing plant, recent low gas prices have kept the more efficient gas plants running nearly flat out. Stricter pollution regulation has also benefited gas. And gas has been a favorite alongside intermittent wind and solar since plants can start up and shut down in about thirty minutes, and can also run at variable power levels. It’s impossible to do a quick startup or shutdown of a coal or nuclear plant.
Given the recent drop in gas prices, it’s interesting to look at how the mix of electricity fuels has changed:
Since 2000 there has been a dramatic decrease in the use of coal and a dramatic increase in the use of gas. The market is a powerful force. Renewables have grown, but less than you might expect.
It is also important to understand what utilities are planning to add in the way of new capacity:
Natural gas is the overwhelming favorite. However, you might notice that in 2011 and 2012 there is a significant amount of coal capacity being built. But these plant decisions were made around 2008, when gas had spiked to an all-time high near $11/Mcf. There is also a fair amount of wind and solar planned. However, that’s only half the story. The above chart is based on theoretical ‘nameplate’ generator capacity, not the actual amount of electricity they are expected to contribute. When you adjust for ‘capacity factors’, which is the percent of time the generator is expected to be operating, the story changes:
Unfortunately the wind doesn’t always blow and the sun doesn’t always shine. Nameplate generator capacity for wind and solar looks great. But while my Jeep may be rated at 120mph, I often need to slow down for traffic and red lights. Based on expected use, gas market share is even more dominant.
But for coal, the story has recently gotten even worse. Due to air quality issues, in 2012 twenty-three states will face stricter standards for sulfur dioxide and nitrous oxide emissions. These new standards are expected to save $280 billion in annual health care costs and prevent tens of thousands of premature deaths. And starting in 2015, the EPA will begin enforcement of court-ordered limits on mercury emissions. While the EPA has provided for emissions trading programs, there will be a lot of closures of older coal plants. So, how will these new EPA rules impact natural gas plants?
Not at all. Fortunately, natural gas has far lower emissions than coal plants. Have a look at the small nitrous oxide, sulfur dioxide and mercury emissions versus coal. That makes natural gas a natural choice for most replacement 24/7 baseload generating capacity.
So what will the impact likely be? A coal industry-financed study estimates a total of 42 gigawatts of coal capacity will be shut down, with a corresponding annual increase in natural gas demand of 1.6 trillion cubic feet. Others estimate as much as 90 gigawatts will be shuttered, with twice the gas demand. Given that current gas consumption for electricity is 7.6 trillion cubic feet, gas consumption for electricity generation should grow somewhere between twenty and forty percent.
Then three weeks ago coal’s prospects went from bad to worse. The Obama administration announced strict new court-ordered limits on CO2 emissions for new electricity plants other than those already permitted for construction. The practical effect of these standards is that no coal plant will be built without expensive and risky carbon capture and storage. Given that elected or appointed Public Utility Commissions approve most new plants and must by law control consumer electricity costs, it seems likely that the market will choose natural gas.
Meanwhile, the coal industry is fighting back… with patriotic ads:
Their big claim, in spite of overwhelming evidence to the contrary, is that coal can produce electricity three times cheaper than natural gas. Maybe that’s true if you take gas at its all-time high 2008 price, run it through an inefficient ‘peaking plant’ and compare that to an older, totally depreciated coal plant with no pollution controls. In political advertising this is a popular strategic device known as “The Big Lie.”
But in spite of coal lobbyists’ dire predictions of massive mine closings and loss of jobs, it is premature to report the demise of America’s coal industry. Those same claims were made in Colorado when 3 coal plants were closed due to air quality issues. But in reality, Colorado coal production jumped 10% in 2011 as the industry found strong export markets. Employment in the mines rose 12% and there are plans for opening four new mines. While not always good for the environment, the market is certainly a powerful force. And there is a lot of demand for coal in China, India and elsewhere.
Let’s briefly review the advantages of natural gas over coal for electricity generation:
- Cost: Even at $5/Mcf, gas costs half as much per KW-hour as coal
- Pollution and CO2: Gas already meets new EPA standards
- CO2: The latest gas generators produce 1/3 the CO2 of the best coal plants
- Capital cost: Gas power plants are 2.8 times cheaper than coal plants per KW
- Lead time: Gas plants can be permitted and built in half the time
Suppose someone offered you an electricity fuel that would cause tens of thousands of premature deaths every year and add hundreds of billions of dollars in extra health care costs? Or you could choose a fuel that had none of those problems and produced electricity at half the cost? It doesn’t take a genius to spot a goat in a flock of sheep.
Natural gas alone won’t get us to near-zero carbon emissions. But it is an effective bridge strategy to significantly reduce CO2 while other low-and-no CO2 technologies mature. The biggest risk to increased use of gas for electricity generation is price. But unconventional gas has reduced that risk.
Of course, the cheapest ‘energy source’ by far is conservation. It usually pays for itself many times over. Companies and individuals have reaped the economic and environmental benefits of more energy efficient operations, and hopefully will continue to do so. That’s the market at work.
Here are the current sources of America’s electricity. Coal is in the top spot, with natural gas #2 and growing. So for now, let’s briefly look at the two other big electricity sources: nuclear and hydroelectric.
So… what about nuclear? Well, in 1979 the core of Pennsylvania’s Three Mile Island nuclear power plant melted down. The concrete containment structure did just what it was designed to do. No radiation escaped, and no one died. But Americans have never had much tolerance for nuclear disasters. In spite of an extraordinary safety record for US nuclear energy, no nuclear power plant has been ordered up since.
That is, until 2010 when the Department of Energy provided an $8.3B loan guarantee for two modern nuclear power plants. A year later came the Fukushima melt down. But construction on the two new US reactors is moving ahead, though most other utilities are waiting to see if these projects can come in on time and on budget. And that wait is probably four years.
Americans just aren’t comfortable with nuclear power. In politics, perception is everything. And therein lies a valuable lesson for the fracing controversy, as we’ll discuss later.
So how about hydro? Hydropower is a wonderful resource, providing 8% of America’s electricity. Fortunate states like Washington and Idaho with the right terrain and powerful rivers get over 70% of their total electricity from hydropower. But dams have already been built on most of the best sites. The sites that remain are often already occupied… by people.
If you think permitting gas wells is tough just imagine what it’s like to permit a new hydroelectric dam. Here’s how that conversation might go:
“Mr. Smith, I’ve got some great news for you, and some not-so-good news.” So Mr. Smith says, “OK… what’s the great news?” You reply, “The great news is that the people of this valley are about to get electricity that produces no CO2 and costs even less than they are currently paying!” Mr. Smith: “That sounds wonderful. What’s the not-so-good news?” And then you say, “Uh… Mr. Smith, your house will need to be under forty feet of water.”
So if you’ve ever done any permitting, you know that this is when Mr. Smith goes for the shotgun.
Utilities look for ‘small hydro’ opportunities in existing water storage dams and river and canal water flow. Ocean waves and tides are also possible for the future, but realistically the near-term growth potential of hydroelectricity seems fairly limited.
So let’s take a look at renewables, the last component of America’s electricity market:
About 95% of America’s electricity comes from coal, natural gas, nuclear and hydropower. Of what’s left, about 4% is renewables. A third of that is wood, waste products and geothermal. Almost 3% is wind energy.
For the past several years there has been a lot of passion for wind and solar. Expansion of electricity generation from these sources has grown at a remarkable pace. Concern for global warming and its risks to our grandchildren stirred passions in even the most conservative consumers. As investment capital poured into wind projects, majestic turbines whooshed their way onto our open plains. Wind energy skyrocketed from 12 GW in 2006 to 47 GW in 2011. Projects representing roughly 300 GW were in the queue for potential development, enough to raise wind’s share of electricity to 20%.
But then a strange thing happened. According to the American Wind Energy Association, in 2010 wind installations dropped by almost half compared to 2009. Wind projects in the US were installed at half the rate of Europe and a third the rate of China.
The US wind and solar industry blamed this crash on the lack of adoption of a nationwide renewable energy mandate and uncertainty in future subsidies. They noted that national mandates are already in place in China and Europe, resulting in more than $35 billion of expected investment in 2010. The industry called on a reluctant Congress, one faced with recession and record budget deficits, for action. But as November’s 2010 Election Day came and went, it became clear that the renewables industry faced a far more reluctant Congress.
NextEra, America’s largest wind provider has zero new wind projects planned after 2012 when subsidies expire. The CEO of Vestas, the world’s largest wind turbine manufacturer, recently said “US wind power may fall off a cliff” in 2013. In fact, the last three times US subsidies were not renewed, new wind investment fell an average of 81%. The American Wind Energy Association has predicted a 75% drop in 2013. The US Energy Information Agency apparently agrees, and predicts very little growth in wind energy from 2013 through 2019. Unfortunately, this clean source of electricity may be stuck at 3% for some time.
There also isn’t any real growth expected anytime soon for electricity generation from wood or municipal waste. While solar energy efficiency has dramatically increased in the past few years, the previously available 30% cash grants just got converted to 30% tax credits, which have a lot less value for new startup projects with few tax bills. The Solar Energy Industry Association has predicted that “solar investment will fall by half”. Solar is already much more expensive than its other competitors. But given that solar only contributes five-hundredths of a percent of America’s electricity, even if it quadrupled in the next 10 years it still wouldn’t be a material market factor.
So, how about geothermal? Conventional geothermal requires naturally occurring but relatively rare pockets of steam or hot water that are close to the earth’s surface. But a new ‘enhanced geothermal’ approach works by drilling parallel wells deep into hot rocks which are then fractured using high pressure cold water. Producing wells bring hot water to the surface, which then vaporizes a more volatile secondary fluid such as butane, instead of water, to drive special binary turbines. The produced water is then re- injected, heated and reused in a closed loop.
Enhanced geothermal electricity currently costs around 19₵ per KW-hour. That’s almost as high as solar and three times as high as gas. A 2006 MIT report predicted costs might fall to as low as 4₵/KW-hour. If they’re right, enhanced geothermal systems could tap an inexhaustible energy supply of carbon-free, 24/7 ‘base load’ electricity. Three international projects are already operational, and three are in development in the US.
So here is what the US electricity market looks like right now, and here’s where it appears to be headed:
- Coal will shrink considerably due to cost and pollution issues
- Gas has strong market and environmental advantages, and should grow substantially
- Nuclear might grow if the two new reactors come in on time and on budget
- Hydropower lacks good sites for new dams
- Wind and solar are losing subsidies, and without subsidies will struggle to grow
- Everything else is too small to matter, unless enhanced geothermal can greatly reduce costs
There appears to be a lot of opportunity for natural gas to expand its market share in electricity generation. Shale gas has been a game-changer for the supply side. What we need is growth on the demand side. So what might hold gas demand back?
Fracing has a bad reputation with many Americans. Gas producers have a good story to tell, but so do fracing opponents. Here’s an example:
This is typically how the gas developers tell their side. It is a logical argument, but it tends to be a bit technical for most folks:
“Fracing takes place deep in the earth, with thousands of feet of solid rock between the fracing and people’s water supply. If you study this diagram it is fairly clear that the fractures only affect a small part of the deepest rocks, and steel casing and cement in the well protects the aquifers.”
It is true that the fracing of the rocks themselves has never caused a problem. But in several cases the cement job around the casing that protects aquifers has failed. High pressure frac fluid and gasses invaded sources of drinking water. In fact, such examples are rare, and companies have mostly been quick to respond. But so has the media. A few accidents translate into a lot of newsprint and a lot of 30 second TV spots.
Progressive gas developers have worked with states to tighten well completion standards, which were usually established long before shale gas fracing was common. And many companies have signed up to disclose fracing fluids on public websites. Some executives have even drunk fracing fluids at press conferences. But as long as a few companies are unwilling to disclose, public fear will win out. Every time the industry argues that 99% of frac fluids are sand and water, the public immediately thinks about that other one percent. And with all the recent media coverage, they just don’t trust oil and gas companies.
Opponents to fracing have taken a different approach:
Millions of Americans saw flames shooting out of this Coloradan’s sink in the Gasland ‘documentary’. That ‘anecdotal evidence’ leaves a powerful impression, especially compared to more technical industry arguments. And I learned from politics the power of the anecdote. If you’re trying to move a legislative committee or millions of voters, one victim beats statistics and graphs every time. Oddly enough, Joseph Stalin said it best. “One death is a tragedy. A million deaths is a statistic.”
Due to public concerns and in response to Gasland, the Colorado Oil and Gas Conservation Commission tested the methane from this burning faucet. Their scientific analysis proved that this flaming gas was biogenic (near surface) in origin as opposed to the thermogenic gas that comes from deep shale gas deposits. But have you ever tried to explain the difference between biogenic and thermogenic gas to a homeowner? The Commission had tried to speak with Gasland’s producer during the filming, but no self- respecting documentary producer wants to lose a great shot like this flaming faucet.
In fact, many of our problems don’t come from wells. They come from frac water use and disposal, excessive noise and heavy road traffic. Due to the separation of surface and mineral rights, many landowners don’t benefit from gas development. To them, the discovery of gas beneath their land is a disaster. As a gambler would say, they have no ‘skin in the game’. But as long as some local landowners don’t benefit, there will be vocal opponents. The gas producers may win in the courts of law, but lose in the court of public opinion.
Again, here is a common industry argument:
“With a single small pad, we can develop the resources below hundreds of acres using a new technology called ‘horizontal drilling’. When the wells are completed, we only leave a tiny footprint on the restored lands.”
But opponents make a different argument:
This argument, once again, is visual. “Fracing turns our forests into wastelands”. We appeal to reason, they appeal to emotion. And emotion is a more powerful force. Again, in politics, perception is everything.
We can do better. The answer isn’t better ads; the answer is solving the problems. For example, methane is 25 times more potent as a greenhouse gas than CO2. Environmentalists, myself included, are often more concerned about the amount of raw methane released in gas development than the much-publicized fracing issue, even though their presentations may lead with the fracing controversy. They are smart, passionate people and they know how to do math.
Yet the methane we lose to well completion and leaky pipelines represents a strong economic opportunity for the gas industry. In a report aptly titled Leaking Profits, the Natural Resources Defense Council argues that the industry can cut methane waste by 80% while saving $2B annually. This would cut total US methane emissions by one-third, which is equivalent to the global warming impact of 50 coal plants. Furthermore, all of these upgrades have paybacks of three years or less, and most are under one year. It’s hard to find those kinds of returns these days in the gas patch, much less in the stock market.
Here’s an example from close to home. In 2002 Williams, now WPX Energy, designed and built frac flowback separators to capture Piceance Basin gas that was previously being flared. At the same time WPX recovers frac water for recycling. They received a national Best Management Practices award from BLM and have been honored by the Colorado Oil and Gas Conservation Commission 10 times since 2007. And best of all, the flowback separators are net positive to profitability and capture an extra 15 million cubic feet of gas per well.
WPX/Williams started capturing this ‘waste’ gas ten years ago. Today, about half the gas developers do so. The market is a powerful force. And after 100 days of hearings and more than 150,000 comments from the public, industry, environmental groups and states, EPA just established rules requiring ‘green well completions’, including capture of ‘waste’ gas, by 2015. And they are currently working on national rules for treating wastewater discharged from gas drilling operations, which would address the problem of earthquakes from injection wells. Natural gas, which already produces only about a third the CO2 of coal, is about to get a lot greener.
So how do we work with utilities to grow the gas market? Unfortunately, utilities often operate on a cost plus profit basis. It’s the spikes you see on this curve that keeps utility managers awake at night:
If utilities don’t maintain a lot of diversity in fuel options and gas prices spike, CEO’s find themselves in front of a hostile Public Utility Commission or legislative committee. Unless we can find a way to protect utilities from much of this economic and emotional risk, the shift from coal to gas will be slow in coming.
When you look at the last twelve years of gas prices, the problem is obvious. In 2000 prices went up by almost a factor of three. In 2005 they almost doubled in 8 months. And in 2008, they doubled to almost eleven dollars in 10 months. The sharp spikes you see on this graph are especially painful to utility CEO’s. And their memories are long. You just can’t get people to jump back into the water until they know the shark is dead.
In fact, many utilities already use commodity hedging to manage this pain. But we are in a different environment now than when these spikes occurred. America has vast reserves of predictable shale gas, much of which is only being lightly drilled to hold expensive leases. We need to rethink how we make the most of this valuable asset.
If we’re going to climb out of this economic gas pit, we might consider really long term contracts. Gas plants have useful lives of 25 years or more. That’s the sort of time frame that matters to utility managers. Gas executives want to maximize returns, but they care about downside risk as well. Surely we can find workable solutions to this dilemma.
The curve shown in green is a fit to gas prices using a simple third-order polynomial. You may notice that it doesn’t have any spikes, something utility management appreciates. Gas produces will appreciate the fact that the average price of all points on the green curve is the same as the average of the spiky red curve.
Suppose producers offered very long-term contracts based on this concept, with a price floor set modestly above development and production costs. Managers could afford to give up some on the low side, since that isn’t what puts them on the Public Utility Commission’s hot seat. And it hedges risk for gas developers.
Another option would be to enter into joint ventures with utilities for the development of existing ‘on the shelf’ properties. Utilities might pay much of the development cost in return for guaranteed supplies at a modest price, with a significant share of the production going to the gas developer. Given that utilities may have access to capital at attractive rates this could be a win-win deal.
There are plenty of smart executives among gas producers and utilities. If they work together, I’m confident they can come up with other concepts that are just as good or better. It won’t be easy, though. Where there’s a will, there’s a lawyer.
In 2009, well before the latest EPA regulations, Colorado was struggling to meet environmental air quality standards. Recognizing the advantages of natural gas over coal, Governor Bill Ritter created a coalition of gas producers, environmental groups, Republican and Democratic legislators, and Xcel Energy, Colorado’s dominant electric utility. Dogs and cats, working together…
After analyzing the costs of retrofitting existing coal plants with stricter pollution controls, the coalition proposed replacing several aging coal plants with natural gas generators. In spite of a $2 million campaign by the coal lobby, the bill passed by overwhelming majorities in Colorado’s Senate and House in a remarkably short 17 days. The net impact on consumer bills is estimated to be less than 2%, but that cost is $225 million less than retrofitting existing coal plants. Since then Xcel has expanded the plan from 3 to 5 plants. Similar opportunities exist in other states, if we can just learn to work together.
I also learned from politics that there is a big difference between opponents and enemies. If you treat your opponents like enemies, that is exactly what they become. We all come from different backgrounds and life experiences. From that we develop different values, and often see the world in different ways. If you want to find a solution to problems, you have to understand and appreciate the values of the people on the other side of your perspective instead of going to war.
War seldom determines who’s right, just who’s left. But if you are willing to sit down and truly listen to both sides of a conflict, you can sometimes find a compromise that works well for everyone. It is often possible to find what I call a 60-60 deal, where both sides working together get more out of that compromise than they would if they treat their differences as a win-lose battle. This is true for gas producers and utilities as well as gas producers and environmentalists. The compromises may not be perfect for both sides, but can we afford to let the perfect be the assassin of the good?
Let me leave you with one final thought.
I know many people in the natural gas business, fishermen, hunters and environmentalists as well, who care deeply about the benefits, both economic and environmental, that natural gas can bring to America and to the world. The environment and economic prosperity can coexist. But if you want to catch a trout, you have to be willing to sacrifice a fly. Unless we can find reasonable compromises to our differences, we will waste far too much of our lives and far too much of our treasure waging war.
Oh, and don’t buy any natural gas options anytime soon. This may take a while.
Biosketch: Rutt Bridges is currently Chairman of Transform Software and Services. He is also an alumnus of Georgia Tech, one of the first graduates of what was then the School of Geosciences.
From the Wikipedia: Bridges began his career with Chevron Corporation, then founded Advance Geophysical in 1980. He achieved success with the software products MicroMAX and ProMAX, both used for the processing of seismic data for the petroleum exploration industry. In recognition of his business accomplishments, he was awarded the Enterprise Award in 1991 by theSociety of Exploration Geophysicists He is also the chairman of Quest Capital, a private venture capital fund. In 1999, Bridges founded the Bighorn Center, to “give Colorado’s political middle a credible and legitimate voice in the state’s increasingly polarized landscape and more importantly, to get things done.” The Bighorn Center closed in 2006, but the very successful bi-partisan Bighorn Leadership Program is still providing leadership training and development at Colorado State University. In 2004 Bridges ran for the U.S. Senate in Colorado, but stepped aside and supported fellow Democrat and friend Ken Salazar, who went on to win the seat. Looking to the 2006 election, he declared his candidacy for Governor of Colorado. However, he dropped out of the race on August 8, 2005, telling supporters “My passion has always been public policy, not politics.”
When you realize that the U.S. is the Saudi Arabia of natural gas and coal the artificial shortages that have been created by those who oppose free enterprise capitalism are a lot like the illegal tacticts used by others over the years to run up commodity prices using monopolistic practices.
There were no “illegal tactics” used to run up prices for natural gas in the past. Its just that new technology (horizontal drilling and fracking) have enabled oil companies to get more gas out of the ground than in the past. The same technology is being used to get more oil out of the ground too. In the past, a vertical well might only recover 15% of the oil in place, but new technology allows recoveries as high as 50%. The extremely cheap natgas prices we see today (~$2.50/mcf) are a result of a temporary glut. This glut will work itself out as producers stop drilling for gas, domestic gas demand increases, and gas is exported to Asia. Expect a gas price of about $5.00/mcf in a year or 2.
Why should the idea of ‘clean coal’ be considered a farce?
Coal transportation costs are prohibitive and ‘clean coal’ plants cost almost as much as nuclear plants. In areas where extractions costs are abnormally low ‘clean coal’ may make some sense. I don’t see anyone building a ‘clean coal’ plant without plenty of subsidy.
The rest of the world is not listening to the witchdoctors of Western Academia about fear of global warming. It is strictly a Western phenomenon (Walter Stark calls it a mass mania). Climatology as practiced in the West has been likened by the Japanese to the ancient science of astrology.
You are, however, looking at the cost. And yet others see it quite differently and are investing their resources in it–e.g.,
“Every week to 10 days, another coal-fired power plant opens somewhere in China that is big enough to serve all the households in Dallas or San Diego… India is right behind China in stepping up its construction of coal-fired power plants — and has a population expected to outstrip China’s by 2030….”
http://www.nytimes.com/2006/06/11/business/worldbusiness/11chinacoal.html?pagewanted=all
As used here, it refers to CCS coal generation. But the 2 tons of CO2 per ton of coal will likely cost as much to handle EACH as the coal, tripling cost. All +25% for coal burned to energize the separation. AND — no extant technology actually exists to do the trick. So about quadruple the cost of a straight coal plant.
So it’s hyper-expensive vapourware.
It’s a no brainer when natural gas is cheaper than even coal. In Europe, gas is much more expensive (and potentially unreliable). Coal fired boilers can be easily retrofitted to gas (or multi-fuel) fired boilers.
PLEASE bring some of this technology to Europe!
Ecotretas
You don’t (yet) have the full network of pipelines necessary, and your electric establishment and the politicians and the Greens are digging in their heels to prevent it. So, open the door, do the work, and it’ll happen.
And it may. The economics are so potent, that even Europeans may be forced to do the smart thing.
No mention of the quick drop off of well production from shale gas. Far more wells are needed. The Oil Drum has done a number of articles on shale gas http://www.theoildrum.com/search/google?cx=000874532052579887663%3Amezzmhxsexy&cof=FORID%3A11&query=shale+gas&op=Search&form_build_id=form-840f353136e1ba80d8a1fc8f748d33e8&form_id=google_cse_searchbox_form
any marcellus examples in these?
http://www.theoildrum.com/node/8212
Mr. Wakefield,
I believe that the alternative lower estimates of ultimate recovery of gas from these Barnett, Haynesville and Fayetteville wells are an important part of the debate and need to be seriously considered. We’ll see how the Marcellus wells perform as mode data becomes available, and whether these wells will perform if they are subsequently re-frac’ed. Although gas producers have an economic interest in maximizing reserves estimates, I would be surprised if they haven’t done a careful and cautious job in evaluating these same issues prior to investing the billions of dollars required to develop these assets. Again, the market is a powerful force to drive careful economic analysis. I agree that we do need further data to nail this down. Most of the estimates I have heard indicate that prices of about $4/mcf are needed to develop shale gas. Certainly the long term viability of natural gas will be a function of price as well as decline curves, and it certainly isn’t a real resource at $2.31/ Mcf (today’s price).
Rutt
Wakefield is right. Anything hydraulically fractured has fast depletion dynamics.
I did a quick look at Balkan wells and they are quick depleters too.
http://www.theoildrum.com/node/9139/889114
Yours truly wrote a compact wolfram alpha silver for both exponential and hyperbolic declines that I will likely post to the oil drum.
People will make loads of money off shale but there is no staying power. What a surprise.
Excellent article, thanks.
Mr. Bridges, this is brilliant. I suggest you submit this to other publications that pay better than Judith ;)
I hope you have studied further afield than natural gas and its potential contributions and can provide us with similar explanations on other energy-related topics.
Well done.
I have done some work on oil production and prices, a fascinating topic. I am especially intrigued by the gap in US domestic prices (West Texas Intermediate – WTI) versus Europe’s Brent Crude. From 2001 through 2006, except for a single month Brent was consistently cheaper than WTI. They tracked fairly closely from 2006 through 2011, but then a significant gap developed, with Brent averaging $16/bbl more from Jan 2011-March 2012 (EIA data). I believe this is linked to the decline in US consumption and the increased production (mostly shale oil) which again is a market-driven phenomenon. Pipeline/transportation issues may have also impacted WTI prices, plus increased Chinese demand and competition for resources. But I estimate the differential positive economic impact on the US economy to be about $7.6 billion in 2011 alone. I would welcome any observations by other blog posters on this.
Rutt
Rutt,
I wouldn’t consider Cushing prices as reflective of International oil prices because apparently of logistic constraints on flows in and out of Cushing.
What I would do is compare a Light Sweet on USGC eg LLS
http://www.bloomberg.com/quote/USCRLLSS:IND
(Light Louisiana Sweet) vs Brent at Sullom Voe, and WTI at Cushing.
An historical divergence in spread between LLS and WTI would give you an indication of the impact of the logistic constraints at Cushing.
You should find that LLS tracks the international market much better than Cushing WTI price.
By the way, just because PADDII refiners have had access to deeply discounted crude because of recent logistics constraints(on crude), this doesn’t mean product prices would be cheaper.
When looking at price setting mechanism, look at market clearing mechanism, and these are not the same for crude, vs product.
http://www.eia.gov/oog/info/twip/twip_gasoline.html
Basically I would say that the logistic driven crude discount, would principally be a wealth transfer from producers stuck behind the pipe, to refiners able to access the discounted crude.
all the best
brent
Brent,
Great input! It appears that you’re been pretty engaged on this subject, while my knowledge is thin… but I can be taught! If I decide to write more on this subject at some future time, I hope you’ll be willing to review and advise. Meanwhile I’ll look into your links. Thanks, Brent.
Rutt
Rutt, great article.
Critics will say that some of the market forces acting in favor of gas against coal for EPG are market distortions brought to you by an overeager EPA – that the new air quality standards are unnecessary and if removed will level the playing field back toward coal. They might even argue that the new air quality standards (even excluding the CO2 standard) are a backdoor step toward carbon regulation taking advantage of coal’s higher conventional pollutant emissions married to its carbon emissions.
Whatever portion of truth exists in that criticism, I don’t think coal industry proponents typically mean CCS when they say ‘clean coal’.
Bill,
Thanks for your insights. The CO2 issue hopefully will remain an allowable scientific debate, but I do feel that there have been multiple valid scientific studies with regard to the harmful effects of nitrious oxide, sulfur dioxide, mercury and particulates. All the valid scientific studies I have seen indicate tens of thousands of US premature deaths (‘premature’: we’ll all die eventually, after all!) as a result of these pollutants. Utilities can install controls to reduce these emissions, but given the costs I suspect that the market will likely drive the replacement of many of these older coal plants with natural gas.
With regard to ‘clean coal,’ CCS has often been emphasized in coal industry ads, and is prominently featured in the coal industry’s http://www.americaspower.com
website. But of course capturing emissions would also make coal a cleaner fuel. It is just an expensive solution compared to burning gas.
Rutt
Maybe sorta. Those projections all operate on the LND (linear no safe dose) assumption. Everyone should be a Bubble Boy!?! But even childhood asthma seems to track Vit. D deficiency far more closely than coal emissions (it continues to rise while emissions have crashed). A lot of received wisdom seems to have gone at least one Bridge Too Far. The EPA, in particular, has come to rely on egregious exaggeration. A guard dog with megalomania, that snarls at and bites everything that moves.
A recent commenter once in the SO4 vehicle regulation business was astonished in Hawaii when a single erupting volcano (almost a non-stop condition there) began putting out 170X the total US vehicle figure, per day. And check out the Mercury, the Trickster God post a month ago. Hg doesn’t do what it’s s’posed to, or come from where you think.
Caution, Rutt Robinson!
Brian H,
Thanks for the comments. Asthma of course is not the only link in deaths in these investigations. I believe that the EPA may have the highest numbers on premature deaths of anyone, and thus may justify your suspicion. But there are other studies with estimates in the tens of thousands. Here’s one link:
http://www.abtassociates.com/reports/Final_Power_Plant_Emissions_June_2004.pdf
With regard to Hawaii, it has the huge advantage of being an island in the middle of the pacific with steady breezes to blow away Kilauea’s enormous output. It helps that it spews out at 1247m. Though the more dense ash fall can sometimes be a problem, most of the residents aren’t exposed to major eruptions for long. In fact, volcanoes are a huge atmospheric pollution source worldwide. As a geophysicist, I’ve had the opportunity to view these eruptions, and they are spectacular. And speaking as a tourist, the rest of the scenery both above and below the water, as well as on the beaches, is pretty spectacular as well!
Rutt
Do you know if these studies assume a Linear No Threshold (LNT) biological effect from fine Particulate Matter (PM)? It is fine PM that is primarily responsible for the alleged premature deaths as I understand it.
I am wary of the EPAs science in this regard. This is the same science that attempted to make NYC cover a water source to prevent thousands of cases of listeria each year………..this in a city that only has about 100 confirmed cases of listeria annually.
All this NG and yet we have to listen to politicians casting scare stories of LNG terminals for exporting some of it causing gas prices to spike.
That’s even dumber than listening to people object to coal export terminals because t it will get burned by the Chinese and add to the world’s carbon footprint. It takes a special kind of dumbass to think the Chinese will not burn coal simply because the US decides not to ship them some of ours.
Just as it takes a dumbass to object to exporting energy rather than importing it.
i live in Pittsburgh. coal trains go through here all day long and no one notices. tell that to the folks in bremerton or wherever. although I do think they should tarp them, there is dust. but not enough to catch fire, as I guess a coal train did when someone parked it on the bridge in the Johnstown flood to try to save the bridge. vibrations from the flood shook the bridge and train so much that the coal caught fire. anyway, i lost my coal train of thought.
My parents are from Western PA (Beaver Falls and a small town outside of Johnstown). My grandfather and uncles were all coal miners. (Interestingly enough, they all lived into their 80’s and 90’s.) I remember my Uncle Louie coming home from the mine completely black. He would sit on the back porch steps and chain smoke 3 or 4 cigarettes and then go down to the basement to wash up and change.
I hadn’t heard the story about the train on the bridge in Johnstown. I’ll ask my dad about it.
Great! Just the facts.
Wish that could be the case. But, if the truth be know then no one can give just the facts when your opponents believe their ideologically-motivated ends justify any manes no matter how dishonerable they may be.
For example:
“If you’re trying to move a legislative committee or millions of voters, one victim beats statistics and graphs every time. Oddly enough, Joseph Stalin said it best. “One death is a tragedy. A million deaths is a statistic.”
“Due to public concerns and in response to Gasland, the Colorado Oil and Gas Conservation Commission tested the methane from this burning faucet. Their scientific analysis proved that this flaming gas was biogenic (near surface) in origin as opposed to the thermogenic gas that comes from deep shale gas deposits. But have you ever tried to explain the difference between biogenic and thermogenic gas to a homeowner? The Commission had tried to speak with Gasland’s producer during the filming, but no self-respecting documentary producer wants to lose a great shot like this flaming faucet…”
Mr. Bridges,
You quote a 100-year supply of natural gas in the US. Does that mean 100 years of current natural gas usage? 100 years of total US energy consumption? Something else?
Thanks.
Owen,
Good question! If the market grows, the length of time that the reserves will last should also decrease. So based on current reserves the 100 year supply will decrease. However, there is strong historical evidence that estimated remaining reserves also increase over time as a result of technology improvements. We have seen this in oil and gas as well as other commodities. The impact of horizontal drilling and improved frac technologies are prime examples. If not, increased prices will drive greater reserves until the market forces alternative solutions. However, I suspect that fifty years of reserves will be plenty, given the pace of scientific technology. Surely we’ll have much more effective solar, enhanced geothermal, wind and tidal electricity sources of electricity in five decades. Looking back over the past 50 years, I have confidence that the market will deliver reasonable alternatives.
Rutt
Great article Rutt. Two questions/points:
1. I read that conventional fracking might cause reservoirs to fill faster from the source rock.
2. Putting aside the fear factor, what do you think of using nuclear explosive devices to fracture source rock to enhance the filling of reservoirs
3. What do you think of using nuclear explosive devices to enhance production from a single well in shale?
Jim2,
Thanks for the questions. I wish I had more informed answers.
1. The gas-bearing shale being frac’ed is generally the source rock as well as the producing formation. The ‘shale gas’ is trapped in shales that have generally low permeability (connected fractures) thus preventing the gas from moving through the rock. Fracing provides paths for the gas to migrate into the producing wells. However, there are some economic risks. Fracing sometimes breaks through into rock layers very deep in the earth containing salt water (such as the Ellenberger in the Barnett field). This water then flows into the well and greatly reduces the net value of the well. I have seen compelling evidence of this from microseismic data recorded from the fracturing of the rocks during fracing. By the way, these ‘earthquakes’ are extremely small and hard to detect since they have less than 10,000 times the energy of the smallest earthquakes that can be felt by humans.
2. In fact, this was attempted in Rulison, Colorado in 1969 using a 40 kiloton nuclear device. The radiation made the gas unmarketable. You know how fussy consumers can be when their kids start to glow (unnaturally). Check out Project Rulison in Wikipedia.
3. If anyone know of any plans for such a project, I’d like front row seats when the committee considers issuing the permit. I’ll pay top dollar! As Dave Barry said, “One of the primary functions of government is to provide entertainment for the American people.”
I’m not trying to be glib about your question, but I know enough about politics to say that this just won’t happen in America. Probably not Russia either. Maybe Iran, if you promise to give them one device for each one you set off. Well, maybe that was glib. I apologize. I just keep visualizing that committee hearing.
In fact, I believe that nuclear can be a significant part of America’s energy future and am especially interested in ‘small modular reactors’ (google it!).
Rutt
Thanks for the info.
I’ve been following small nukes for some time. Too bad the gov is dragging its feet. If I were in charge the small nuke program would be a moonshot-like effort.
Jim2 wants the government to pay for everything, including personal nuclear devices to help prospectors find oil. Brian H thinks everyone should have additional low-level doses of nuclear radiation in their diet.
WHT – There you go again, putting words in my mouth. I hope your models are more reliable than what you think I believe.
Excellent article! Keeping our energy cost low helps greatly improve our international cost competitiveness as energy is a very large component of our economy. Fracing also requires more effort than conventional wells, which means jobs, jobs, jobs — and well paying jobs at that. The Manhattan Institute did a study of the economic benefits of fraced natural gas and they were very large. It’s a no brainer.
Where can I find the importance of energy in
the GDP? A pie chart?
There is an added new benefit from the NG shale play and potential
for further benefit if America executes the obvious.
The new benefit links a “green corporation” – Capstone Turbine and the flares found at the drill sites. Specifically, rather than continue to burn off
the excess pointed to in the article, the drillers are using the heat to energize
the Capstone turbines to produce electricity! A neat idea.
The potential, not yet exploited is to capture the CO2 from the NG sites, mildly compress it, and add a CO2 pipe to the Keystone pipeline.
A premium priced market exists for compressed CO2 in Texas, Oklahoma
and the Gulf of Mexico. The reason, the wells drillled in the boom of the
1930 to 1950 oil rush used vertical technology which could only pump
50% of a well’s capacity. Now, oil companies are uncapping those old wells
and pumping compressed CO2 to unlock the oil left behind.
There isn’t enough CO2!!!!!!!!!!!!!!!!!
The net is: the new technology holds the potential for not only NG but significant oil from old existing wels.
As jrwakefield noted above, there have been a few of us who have not bought into the natural gas hype. When gas wells drop over 80% in production in the first year one has to continue drilling at an ever increasing rate just to sustain production. With well costs heading towards $10 million it becomes harder to justify (to other than gullible investors) that a well will bring in a viable economic return, as those wells in the “sweet spots” of the different fields become drained. Experience in Poland is already showing that just because there are shales with gas in them does not mean that the gas can be economically produced. A more realistic measure of the size of the US reserve is more likely closer to 23-years than a hundred, and that is within the functional lifetime of new construction. But somebody has to try and shift attention from the problems that Chesapeake is running into, and this is a very well written try.
Dave,
While I am always ready to be better educated, I also like to see both sides of any argument. The Oil Drum post referenced by jrwakefield looks like good work. However, I was wondering if you can provide me with a link to arguments against the rapid decline of shale gas wells?
Thanks, Rutt
For me the best confirmation that rapid production decline will not be a big problem is that a number of major oil companies (not just one but many with highly competent research and engineering staffs) have paid big bucks to purchase a piece of the action. ExxonMobil is a good example. A technology company as well as an oil company and very conservative when doing economics, it recently made a major commitment to shale with the purchase of XTO Energy. For years they have been working on unlocking hydrocarbons from tight rock formations, so this should be a natural for them. They also have drilled what I believe is the longest horizontal well, off Shakhalin Island, so they have that technology as well.
Rutt:
I am not quite sure what you are asking for. Even Chesapeake and others have admitted to the rapid decline in production in their individual gas wells, and the Department of Mineral Resources in North Dakota have documented the declines in the oil wells of the Bakken. (Gas well production data is also available from the Texas Railroad Commission).
The problem that Art Berman and his supporters (such as myself) have is that there are louder voices (such as for example the recent Citicorp Cornucopian message likely got more coverage than the more realistic view of what is likely to happen that folks like us try and get out.
It is much the same way as with the debate over climate change, where one side pretty much controls the major sources of media comment, and those of us with concerns find it somewhat difficult to get a hearing. But that doesn’t stop us from occasionally trying, as I do both at The Oil Drum, and at Bit Tooth Energy (my own site).
Dave – If Citicorp routinely puts out bad information, they will lose customers. And you realize that if Citicorp misleads investors a lawsuit could result? They have skin in the game. What skin, if any, do you have in the game?
Jim:
If you meander over to Bit Tooth Energy and look up “about me” it should help answer the question.
Yes, I am a ninth-generation coal miner, make of that what you will, but I have spent an entire career in developing advanced excavation technology (some of it even with Georgia Tech) with much broader application – including a treatment for skin cancer, if you want to bring “skin” into the game.
Actually I do put my money where my mouth is, (to my broker’s chagrin) and I sold my Chesapeake shares some time ago. And, being now retired, I still enjoy teaching, which is why I run the “Tech Talk” series over at both TOD and BTE. I really do suggest that you read both the Citigroup report and my rebuttal – having spent the past seven years building credibility for my site and my opinions, I do not throw that reputation around lightly – and neither does Art.
Thanks, Dave, that helps. Once the posting dies down I’ll hopefully get a chance to do some research, and also check out Bit Tooth. Meanwhile, good work in getting The Oil Drum started. I’ve spent some time there over the years.
Rutt
Rutt:
I think the heart of the argument lies in the form of the decline curve, and how rapidly wells reach the point where they are unable to supply gas into a pipeline without a compressor. At that point the energy cost balance, and the financial one, at present, usually shut the wells down, and this is increasingly occurring within a 3-year period.
I’d be glad to chat with you offline if you wish, I can be reached through an e-mail address that you can find at the MO S&T website, under the Rock Mechanics and Explosives Research Center faculty, where I am still on staff as Emeritus (for the past two years).
Great article Rutt,
I’m looking forward to reading it in detail.
Very good article. It is unfortunate that we will oxidize a lot of it for electricity production versus using its chemical properties for higher added-value petrochemical and chemical feedstock uses. Although it is a lower polluting fuel, it still contributes ~40% of coal’s CO2 production on a MWHr basis. And don’t forget the radon….
Excellent! CO2 amplifies the productivity of agriculture, and a Philadelphia (?) study, quickly hushed up, found that radon exposure was strongly correlated with breast cancer among nurses … negatively.
When the Earth was young, our progenitors lived in a much higher radioactivity environment, and adapted to use it to keep the cell repair functions active and tuned. We’re seriously deprived of it, nowadays.
No argument from me. I think LNT regarding radiation is flawed. We should have a lot more reactors spinning turbines, and use natural gas for more productive uses.
What’s happening with Chesapeake is normal. They are focused on nat gas. The abundant supply has cut income. They announced a goal to produce more liquids, but fell short. Those two things, plus management issues has caused the stock to go down. CHK will be OK in the long run though.
Jim2,
Unfortunately due to a technical glitch I don’t seem to be able to respond directly to your above comments on small nukes, so I’ll try responding here.
recently I was very pleased to learn that DOE and its Savannah River Site (SRS) announced three public-private partnerships to develop deployment plans for small modular nuclear reactor (SMR) technologies at SRS facilities, near Aiken, South Carolina. At last! Here’s the link:
http://www.pennenergy.com/index/articles/pe-article-tools-template/_printArticle/articles/pennenergy/power/nuclear/2012/march/small-modular_nuclear.QP129867.dcmp%3drss.page%3d1.html
My original draft had a section on SMR’s but I cut it to shorten the article, out of concern that, in Churchill’s words, “This report, by its very length, defends itself against the risk of being read.”
Rutt
Have a look at LPPhysics.com . SMRs may well be obsolete before they’re built. (~5 yrs). It would, of course, also turn all renewables into instant economic roadkill. Who can compete against $50/kW and 0.3¢/kWh? (Base or peaking; completely dispatchable.) Not any possible refinement of wind, solar, geothermal — or even NG or nuclear!
Toshiba is involved in an effort to site a small nuke plant in Galena, Alaska. This town depends on diesel which has to be shipped in at great expense.
http://en.wikipedia.org/wiki/Galena_Nuclear_Power_Plant
Great article! additional resources will become available from underground coal gassification when the price for natrl gas supports that. Long time ago economic regulatory admin, issued Natural gas policy act (1978) and PURPA which forbade natural gas use in power plants. Now the drive to fuel new power plants with natural gas will consume big volumes. That will impact cost to consumers for home heating. Plus require big transportation upgrades, incl gas pipelines to those user facilities. Also big potential as a portable auto fuel, NGP fueled vehicles as per Boone Pickens. Hopefully the political economics will allow use of the gas resource as a transition fuel to renewables and nuclear power, fusion or advanced reactors. CO2 emissions still a problem to envr activists for any fossil fuel. EPA just issued new CO2 controls for new coal fired power plants which is usurping Congressional authority. How CO2 controls roll out to other fossil energy sources take the electrical power industry outside of economics and into political arena.
Rutt, that is a fascinating and as Judith says “superb” article. Unfortunately, at the end of the day it is also a very frustrating article, purely because your approach to citations is … well … a bit lacking.
Here’s a protip for your future articles, Rutt. “US Energy Information Agency 2012” is not a citation. It is a tease. The US EIA puts out entire forests worth of reports every year. You can’t just wave your hand and say that the source is somewhere in that forest.
As a result, what you have posted is not science in its current form. It is anecdote.
CITE YOUR DANG SOURCES, that is what science is about.
Grrrr … a superb article, without a single source.
w.
Willis,
Your criticism is quite valid. I will work on this and try to provide extensive citations. Audiences vary, and this one is certainly more informed and thoughtful than most. However, one frustration that I have with EIA is that the excellent Annual Energy Outlook data tables don’t have repeatable/useable links directly to that table. But let me see what I can do. It may take a bit, but I do have links in most of my original PowerPoint slides and in the original Word file, not just to the figures but to the quoted sources and to most of the figures quoted in the text as well.
Thanks for making this point, Willis.
Rutt
The EIA cost data is usually targeting a specific date in the future for a new plant’s all in generation costs. For instance, the data I have seen is for 2016 estimated costs. The data is certainly valid for comparison purposes, but it leaves out some important aspects of power generation costs.
As was alluded to in the article, the fuel costs for nuclear are low. This means the variable operating costs are low. When you build a nuclear plant you are building tomorrow’s generation with today’s dollars. Nuclear will be expensive in years 1-5 and maybe 5-10, but in years 20 and beyond it will be cheap because it is has not been exposed to the price inflation associated with NG or coal. The fuel costs of a nuclear plant are a small portion of total operating costs. Of course, this also means we should never build any nuclear plant that won’t be operated as a base load plant. This would amount to idle capital and wasted investment.
It was an excellent point, and one I have seldom seen acknowledged, that shale gas is currently being produced at a loss. This is not sustainable in the long term. In the not too distant future the variable operating cost of coal will be less than NG once again IMHO. NG may still have a total cost advantage, but that matters little when deciding which one of your existing assets to operate. When you decide which plant to operate next as demand changes, it does not matter how much the plant cost to build, it only matters how much it costs to operate.
The above creates an interesting conundrum for a merchant generator. If I build a nat gas plant with 4 dollar nat gas, that plant will still not be dispatched until after nuclear and coal plants. That merchant generator will be insolvent if he built a 750 million dollar plant that never needs to operate.
Doug,
Thanks for your contributions to the discussion.
The arguments ‘against’ nuclear are not economic, they are public perception, and the inevitable politics that goes with that. Prior to Fukushima, public opinion had moved up to 62% in favor. Shortly afterward 64% opposed nuclear, 47% strongly. Fortunately the current administration held steady in its support of the loan guarantees. Today, 57% of Americans support nuclear energy, an encouraging turnaround. Reference: http://safetyfirst.nei.org/news/gallup-finds-nuclear-support-steady-at-pre-fukushima-levels/
There is hope, but several utilities that were considering building modern nuclear plants (as opposed to the pre-1979 designs that are today’s US base) backed away. It appears that they will wait to see how the new Vogtle Westinghouse reactor project turns out before committing. But I agree that it has the potential to provide relatively low-cost 24/7 baseload electricity at a low cost over the long term. I just don’t expect a significant impact within the next 6-8 years due to utilities ‘wait and see’ attitude and relatively long total lead time for new plants (project approval + ~4 years for construction).
BTW, you’ll also find some references to Small Nuclear Reactors in my other posts that may be of interest.
However, though shale gas is currently being produced at a loss, prices are expected to rise. All of the cost comparisons are based on $4.78/MMBtu gas, which is profitable, not current market price ($2.345). And in December 2011, an unusual amount of gas was burned instead of coal due to low gas prices. But almost all nuclear plants ran at maximum capacity.
I hope this additional information is useful.
Rutt
Rutt,
Thanks for the reply. Just to reiterate, at $4.78 for nat gas those nat gas plants will be the dispatched after most coal plants. Unless of course, coal prices rise significantly also.
I agree that utilities are waiting to see how Vogtle and V.C. Summer construction goes. These plants are bet the company propositions for most IOUs.
FYI: I work at a nuclear plant for AEP, but speak for myself only.
There is no science here. This is a technical/economic/political discussion. If you’d like a citation, feel free to ask. Just don’t confuse the proportions of energy produced by different sources as science.
Willis (and any others who are interested),
Thought it took a while, I just completed a Word file version with extensive hyperlinks included to most all of the reference material used in the preparation of the paper. Though not the traditional citation style, I believe this is a quicker way to access relevant material than footnotes and numbered references.
I hope that you find this to be useful. I can also forward my slides which have attached spreadsheets where it was necessary to calculate graphed values directly from the EIA data (such as the ratio of oil prices to natural gas prices) if you’ll just add a request for them.
Again, I appreciate the contribution of your posted comments to the discussion. This has been very collegial and very helpful and educational for me.
Unfortunately since I don’t have your email address I can’t send you a copy. However, If you’ll drop me a note at rutt@bridgesfamily.net I’ll be happy to provide copies.
All the best,
Rutt
Great article.
I think Wiliis’s point is valid but I have to say the lack of citations didn’t bother me in the slightest.
I did have a double-take with the designation of nitrous oxide as NOx. On this side of the Atlantic [ie not the ‘4%’ side] we like to think of nitrous oxide as N2O.
Sorry, Anteros… NOx is a pretty common emissions slang on this side of the pond.
Two nations, separated by a common language…
Rutt
Not a problem…
Do you not have the potential for confusion if you call nitrous oxide, nitrogen dioxide and nitric oxide all by the same name?
I do understand the temptation to label everything as nox(ious) …
I checked the (notoriously unreliable) Wikipedia and they caution
BTW, please don’t mistake me for a Chemist – I’m just a Brit with some Pedantry issues..
P.S In comparison to the States I think we have the same issues with shale gas as we do with biotech. The people who successfully sold the horror of ‘Frankenfoods’ are doing a good job convincing people that earthquakes, poisoned aquifers and explosive tapwater are inevitable if fracking is allowed…. We’re rich enough by and large to not miss the benefits of biotech, but it seems absurd to me to plough on with our dirty coal and ludicrous windmills when there is such a quantity of natural gas easily accessible.
NOx (at least for U.S. regulatory purposes) is not nitrous oxide. NOx is a term for the arithmetic sum of oxides of nitrogen (principally NO and NO2) per U.S. federal emissions regulations. Particularly 40 CFR 60, Appendix A, Method 7E, if you want some light reading…
I once ran an emissions measurement lab, and I can make your eyes glaze over in ten seconds flat discussing the joys of chemiluminescent NOx analyzers! :-)
Judith Curry
Several months ago you posted an excellent article by Rutt Bridges on the problems associated with Carbon Capture and Storage schemes (CCS). This latest post by Bridges on the future of natural gas in the USA is even more informative.
Thanks very much for posting it here.
Bridges points out that while petrochemical investments on LPG from natural gas are again booming and the switchover of heavy vehicles to natural gas will also result in more demand, gas prices are still very low.
Regulations now make it impossible to construct any new coal-fired electrical power plants without CCS, but this technology is “dead on arrival” because of its high cost (and uncertain environmental impact).
New electrical power generation from natural gas is much less costly than from coal (even without the added costs of CCS) and also less expensive (as well as politically less problematic) than new nuclear fission plants.
Wind and solar power generation are unable to really compete because of their low reliability (less than 30% versus 95% on-line factor).
The USA has a very large reservoir of natural gas.
As a result of the above factors, Bridges sees a shift of more new power plants switching to natural gas.
Bridges clears up many of the myths surrounding fracing (frakking), including the claim of water pollution from these operations.
Looks like natural gas should have a bright future in the USA (and I should hold on to my Chesapeake stock despite a bumpy first quarter).
Max
Max,
Don’t forget the pipeline MLPs, which provide good tax deferred returns and have much lower commodity pricing risk, and the service companies will also benefit from nat gas E&P, also without the commodity pricing risk. I too own CHK hoping there is a pot of gold at the end of that rainbow, but MacClendon needs to be rained in.
Max do you have a link for this other article?
We Canadians have been trying to build the McKenzie Valley pipeline for decades. This is supposed to bring the known reserves of oil and natural gas from the Arctic to our markets. The cost is huge. Frakking of natural gas seems to have put this project on hold indefinitely.
Mr. Bridges,
One topic I note is not discussed your post is shale resources outside the US and Canada. That could have a significant impact on price (especially to the extent future US exports eat into our current surpluses), and thus on utilization. Care to comment on what is known about shale resources elsewhere?
Thx,
mkantor
mkantor,
I’d be happy to comment on shale resources outside the US. The shale gas/shale oil phenomenon is not unique to the US and Canada. Here is a link to an excellent study on worldwide shale gas resources published in April 2011 by the US EIA:
http://www.eia.gov/analysis/studies/worldshalegas/pdf/fullreport.pdf
EIA’s initial estimate of technically recoverable shale gas resources in the 32 countries examined is 5,760 trillion cubic feet. The US (862) and Canada (388) have about 22% of that total. For perspective, the US consumes 24.4 trillion cubic feet per year, the most of any country. The total worldwide technically recoverable gas resources are roughly 16,000 trillion cubic feet, largely excluding shale gas.
However, since Canada and the US have led the way on fracing and horizontal drilling, those technologies are far more cost-effective here than in the rest of the world. The greatest challenge to developing those resources may be getting the local costs for these advanced technologies down to make the resources economic. For example, I was in Russia last year, and found the quantities of oil and gas in place to be astounding. They don’t bother with fields that in the US would be a bonanza, because getting it out of the ground and to market is so much more expensive. The US and Canada really excel at cost-effective recovery. I would expect China (1,275 Tcf) to be one of the first to get development and production costs down significantly, and they have about as much gas as the US and Canada combined. Argentina’s reserves (774 Tcf) are also very significant, almost as large as the US, but the recent nationalization of Repsol’s 57% stake in YPF will discourage investment. But please bear in mind these are only preliminary estimates, and it remains to be seen whether or when these resources will be aggressively developed. There’s lots of talk, and some action.
I hope that is useful.
Rutt
Thank you, Mr. Bridges. The EIA study does not consider any countries in the Middle East or Central Asia or Russia, all of which are obviously major oil & gas producers. Does the omission of those regions reflect the likelihood that shale formations will not be present or just lack of information?
mkantor
mkantor,
I believe that they may be excluded due to lack of accurate data. However, development and pipeline costs, plus substantial proven conventional gas resources, may make shale gas uneconomic in these areas.
Rutt
For better or worse, the market doesn’t give a damn about supply and demand, what it wants is profit. That being said the ability to deploy gas turbine electricity generators rapidly is a huge advantage
Eli, sometimes it sounds like you have issues with people making money. The tighter the regulations and the greater the liability, the more profit has to be made to offset the inflated business expenses.
Bart R has that same vision of some Utopian society where the infallibly benevolent government can collect CO2 usage fees and magically redistribute all the money to only the deserving.
I tend to think y’all place too much trust in the wrong entities.
as in profit motive. AFAEK there is no such thing as supply motive or demand motive. Otherwise what Maksimovich said
Eli – FYI, it is companies that want profits. Markets are composed of buyers and sellers. Sellers want a high price. Buyers want a low price.
Eli,
Which “market” does this reflect and where are the profits going?
http://barrons.wsj.net/public/resources/images/BA-AY522M_stude_G_20120414005705.jpg
Must admit I agree with Eli,and might add that the “market” is never perfect and mostly askewed to the operations of the larger players.
Freeman Dyson (infinite in all directions pg194 ) suggested that the most efficient markets are the most diverse,and the importance of small -fast solutions to the then energy crisis.The then constraint on the then power plant use act on steam injection gas turbine (STIG) was a foremost impediment to technological development.
The benefits he outlined was the ability to build smaller generation systems faster and to meet the present needs of the electricity market not the uncertain future.
As technology has advanced,and the ability to adapt renewable with STIG systems seems to be the evolutionary pathway ,securing both baseline generation and constraining fast energy inputs eg .
http://www.sciencedirect.com/science/article/pii/S0038092X1100346X
Damn, Bunny. That was … amazing.
Of course, in Rabett’s Bizzaro world, supply and demand doesn’t work.
This ^
Eli,
You should consider sitting in on some of the Junior Achievement classes I teach. You could possible skip the grades 1 through 4 lesson plans. After that you would have to start paying attention.
Want to tell Eli more about that supply motive?
I apologize in advance if this has been addressed already but there is a cost to liquify natural gas (refrigertation) and then return the liquid form back to its gaseous state. What is the cost to do this as this might give us a clue of what the minimum price differential between origin and destination for LNG would be needed in order for it to make sense to export natural gas.
Sean,
Here are some rough numbers based on a 2009 study published by Nexant, Inc. First, here’s the link:
http://www.chemsystems.com/about/cs/news/items/PERP%200708S10_Floating%20LNG.cfm
And here are the COST (not delivered price) numbers for this example:
For LNG produced in the Middle East and shipped to Japan:
(costs are US$/thousand cubic feet)
$0.50 Development and Production
$2.25 Purification and Liquification
$1.50 Shipping (LNG Tankers)
$0.80 Re-gasification
$5.05 Total costs (delivered prices are much higher)
For LNG produced in SE Asia and shipped to Japan:
(costs are US$/thousand cubic feet)
$1.00 Development and Production
$2.25 Purification and Liquification
$0.70 Shipping (LNG Tankers)
$0.80 Re-gasification
$4.75 Total costs (delivered prices are much higher)
Note that these are 2009 COSTS. Actual LNG prices have tracked oil prices to some degree, which is much higher than 2009.
Hope that helps.
Rutt
Thanks for this Rutt, I had wondered what these costs where.
Worldwide coal is still king growing faster than oil, nat/gas, nuclear and renewables combined when measured in BTU`s consumed. And when Obama is ousted new coal exporting facilities will be built and old ones expanded so hold on to your coal stocks. The future for coal is very bright.
We have a problem in the West with coal exporting facilities. It’s not just the export terminals…it’s rail track limitations.
Appendix 4 – Page 95 of this report.
http://www.discovery.org/scripts/viewDB/filesDB-download.php?command=download&id=7961
The rail lines in Washington State are at or near capacity. All the ‘protestors’ protesting some huge increase in west coast coal exports haven’t done their math. With ‘clever’ capacity utilization maybe an extra 20 or 30 million tons of coal will be exported. A drop in the bucket compared to China’s almost 4 billion ton per year consumption.
I would be rather interested in the costs of methane to liquid fuels (such as the plant in Qatar), LNG for transphort (with infrastructure costs) and combined methane/coal to liquids.
I cannot hell but thin that coal/methane to liquid fuels and using nuclear/coal for 90% of base load would be the best long term solution to energy independence.
I suspect that strategic planning with an eye on energy independence would be better that a free market in this area.
Doc,
Thanks for the questions, they are both challenging and helpful to the discussion. You’ll find some comments in a separate post below on LNG for long-haul trucks. Regarding gas-to-liquids, Shell seems to be convinced of the methane’s viability. They are considering investing $10B in a new Louisiana plant similar in size to the $18M Qatar Perl plant which also converts natural gas into diesel fuel. Not surprisingly, Louisiana is a less expensive place to build a petrochemical plant. See
http://online.wsj.com/article/SB10001424052702304072004577323770856080102.html
I think the market, oddly enough, is moving America towards energy independence, though not for political reasons. High oil prices are a great motivator for production growth and conservation as well! But natural gas is unfortunately still a largely unexploited resource. However, I think market drivers will move things in that direction, but I may be wrong. Time will tell.
Rutt
The article represents an excellent work of scholarship (citations to be followed up) and is a valuable resource for all who are interested in a financially and ecologically viable energy sector in the US.
I would like to see this study used as a template for similar studies in other countries around the globe. In particular, I would very much appreciate such a study being undertaken in Australia, where I live.
Given that intrinsic cost structures for oil and gas exploration and drilling and for the ultimate extraction, storage, transport and consumption vary widely around the globe, it makes sound economic sense to do a proper inventory of global resources generally.
err .. and consumption OF THE OUTPUTS vary widely ….
Peter,
Thanks, the study was a joy to research, though I’m always suspicious when the data aligns with what I suspected was true. The US EIA data was a terrific resource, though their website can be difficult to navigate at times. In my opinion these public servants deserve more credit (and less criticism) than they get. Without EIA, it would have been impossible. I am no expert on the International Energy Agency, but they would likely be a starting point for a broader study. Mind you, I’m not signing up!
And by the way, like many Americans I do love your country. I have a number of friends over there, and many wonderful memories.
And hopefully many more to come.
Rutt
I can see that you had enjoyed preparing the paper judging from the overall tone of your writing and the extent of your illustrations, which, BTW were bright and clearly set out.
The US Energy Information Agency certainly appears to be to have been a most fruitful resource. I just wish that we have such a resource in Australia.
I also see that you have also written on the subject of carbon sequestering and I will try to locate this article and read this too, because if that is as half as good as the subject of this post, it will be most worthwhile.
Thanks for your kind words about Australia. We do have some good points as a nation but I realise that we also have our faults, among which which seems to be a tendency to over-debate our issues and put off the hard things that need doing for another day.
Peter,
The only nations I know that don’t over-debate issues are dictatorships, though I’ll pass on giving up my country for one. Churchill was right, democracy is the worst form of government except for all the others.
My CCS article was in First Break, published by the European Association of Geoscientists and Engineers, Vol 29, January 2011, but is also on Judy’s blog… with some great comments and criticisms.
Peter,
Please see my note above regarding availability of a version with reference hyperlinks via email (rutt@bridgesfamily.net). Just drop me a note.
Thanks
Methane Hydrates are next.
“The Energy Department says last winter’s test, conducted in Alaska along with ConocoPhillips and Japan Oil, Gas and Metals National Corp., produced a “steady flow” of gas by injecting carbon dioxide and nitrogen that displaces methane from the crystalline structres.”
http://www.alaskadispatch.com/article/alaska-methane-hydrate-test-delivered-steady-flow-gas
Er, snap.
One other thing.
Gas hydrates shown harvestable in fed test
By SEAN COCKERHAM
Anchorage Daily News
WASHINGTON – The U.S. Department of Energy has completed an unprecedented successful test of harvesting the vast storehouse of methane hydrates on Alaska’s North Slope, essentially natural gas locked in ice crystals under the permafrost.
It is still a long way from being commercial but the potential is huge. The U.S. Geological Survey has estimated that the North Slope holds 590 trillion cubic feet of methane hydrate, potentially at least three times as much as the huge amount of conventional natural gas on the North Slope.
The Department of Energy said it also has the potential to eventually unlock massive reservoirs of methane hydrates that are believed to exist under the ocean floor of the Gulf of Mexico.
http://www.adn.com/2012/05/02/2449013/federal-testing-shows-vast-gas.html#storylink=cpy
Doc,
Thanks, this is a great contribution to the discussion.
I agree that the ability to harvest methane from hydrates would be a real game-changer for natural gas. I have seen the anomalies associated with near surface methane on marine seismic reflection data not just in the Arctic but around the world. It also has the advantage of being located near the coasts, where most of the world’s population is concentrated. It certainly bears watching, as well as R&D investment.
Rutt
Methane hydrates. Someone has to speak up and tell me that this is not a joke.
First there is that 590 tillion cubic feet number. This is what the USGS actually says, from 2008:
The North Slope is about 56,000 square miles. Divide that gas hydrate volume of 85.4 TCF into that area and you get a layer of about 54 feet deep. But that is an effective volume of gas alone. The density of methane hydrate is that of a solid, so we have to find the equivalent packing fraction:
So we divide 54 feet by 168 and we get a packed layer of about 4 inches thick of solid methane hydrate buried in the permafrost.
These bands are likely the same as you would find at the bottom of the ocean.
http://204.154.137.14/technologies/oil-gas/FutureSupply/MethaneHydrates/images/sub-nav/hydrate%20deposit%20types_sm.jpg
The sad fact is that methane hydrates are very dispersed, and dispersed energy sources are not the easiest to get a return on. Its hard for me to imagine how someone is going to suck out an equivalent 4 inch thick layer across the North Slope and capture the gas before the hydrate starts outgassing like crazy when it gets exposed to higher temperatures.
I suppose coal seams are also often only a few inches thick and prospectors will go to the trouble of blowing off mountaintops to get at the coal, yet that seems almost like a sane plan compared to what people have as pipe dreams for methane hydrates.
Someone has to actually do the bean-counting and book-keeping and explain how this is all going to work for methane clathrates.
Like I have said before, oil depletion and fossil fuel depletion are the real drivers to alternative energy schemes, not climate change, otherwise people wouldn’t be proposing these half-baked ideas to a problem (i.e. Peak Oil) that most people claim does not exist.
So, WHT, you didn’t think to put methane hydrates in your model? Tsk, tsk.
WHT, you said:
“Its hard for me to imagine how someone is going to suck out an equivalent 4 inch thick layer across the North Slope and capture the gas before the hydrate starts outgassing like crazy when it gets exposed to higher temperatures.”
But isn’t your imagination running a bit wild thinking that a small amount of warming in the oceans will have much effect on the stability of the methane hydrates. Surely, the changes in water temperature that are happening all the time as cold water and warm water currents pass over the deposits would be far more significant than the small change in average temperature.
I meant that it can’t be mined conventionally like other solid ores. It has to be converted to gas and captured right away because the hydrate is unstable at higher temperatures. No one is thinking about raising the solid hydrates to the surface, as all the stuff will do is change phase and outgas in place, unless refrigerated immediately. And no one is going to refrigerate the stuff.
So I have no idea of what you are getting at.
BTW, the reason the hydrates are so dispersed is because the solid hydrates form their own capping layer at the permafrost layer. Oil and natural gas need non-permeable capping layers such as salt domes and shale to trap the upward migration. So I imagine the hydrates will form a more or less continuous layer across a large permafrost region. That means the deposits are probably not as super-sized as people imagine.
Because I like to to do the bookkeeping and bean-counting that other people avoid, it seems that there is a huge gap in awareness of what the numbers mean. I have a model for oil reservoir generation that accurately predicts the proportion of large and small reservoirs based on a random distribution of capping layers and rates at which they collect oil. It is possible that methane hydrates behave similarly but I have yet to see any data. From what I read, it is always described as more or less uniform layers and bands of methane hydrates within the permafrost layer. You can probably find some wherever they tap into a band, but how long each will last is the big unknown.
The Japanese will go after the stuff because they have no other choice. I remember estimating it once and the average Japanese oil production per capita is about one cup per person per day. They are desperate for liquid fossil fuel, just like at least half the world is, and will gamble on the slightest possibility of a successful outcome.
The Japanese are drilling already.
http://www.japantimes.co.jp/text/nb20120216a3.html
I appreciate that Rutt Bridges has followed the discussion adding additional thoughts, etc. The absence of the usual trolls and their attempts to hijack the thread has also made the discussion much more collegial and informative than is often the case.
Ray,
I suspect the paper defended itself from trolls by its very length. Trolls tend to have a hard time focusing for very long!
Rutt
Another facet to this: CNG and LNG have motor fuel potential, at least for very large vehicles. Many municipal bus systems currently run on CNG, and have for decades. Penetrating into the long-haul trucking market involves no technical challenges, and could probably be catalyzed with some fuel tax incentives.
This would reduce carbon footprint vis-a-vis diesel, and reduce oil imports without any big government research boondoggles.
there is a huge difference in the energy density of CNG and LNG, about 2.4 times. You can use CNG for buses and garbage trucks, but not for highway traveling trucks as LNG has only 60% of the energy density of diesel and 70% that of gasoline.
Losses of LNG would also be a bit of a pain for many city motorists. A gas tank can be an odd shape, but LNG tanks really need to be spheres or cylinders, and be insulated.
P.E.,
You may have noticed my brief comment about LNG heavy trucks:
“However, Westport Power estimates that if every heavy-duty US and Canada vehicle was converted to LNG, annual gas consumption would increase by 5 Bcf, increasing gas demand by 23%.”
There was much more to say on this subject but space was limited. In Europe, the EU Commission is currently setting up an €8 ($13) million project for a large-scale trial of LNG corridors (“Blue Corridors”) where truckers can fuel up. Fuel access is always the biggest issue for new transportation technologies, whether electric, CNG or LNG. Volvo is building long haul semis (http://www.ngvjournal.com/en/lng–h2–blends/item/8414-volvo-gets-involved-in-european-lng-blue-corridors-for-heavy-duty-transportation) to capitalize on this opportunity. Europe has the advantage of many coastal LNG import facilities to supply nations with natural gas.
Ultimately any transition will and should be driven by the market. Fuel represents about 25% of trucking costs. Early tests indicate savings of up to 30% over diesel. According to the Union of Concerned Scientists, “These [long haul] trucks represent only 4 percent of vehicles on the road, but they consume 20 percent of the fuel.”
http://www.ucsusa.org/news/press_release/proposed-truck-standards-0464.html
Obviously conversion to LNG would have a big impact on US oil imports.
LNG is also being considered as a fuel for ships.
Rutt
Union of Concerned Scientists?!?!?!?!? You had me and you just lost me. They may be a union and they may be concerned, but they are not scientists. Why don’t you just quote WWF (either the Hulk Hogan version or the Panda one)
Dennis,
I admit that in my rush to respond I didn’t really do my homework. A quick web search, even in respond to a blog, just isn’t good scholarship. Long haul trucks appear to use 15% rather than the 20% I quoted. A better source (which I subsequently located) is the US EIA’s report, “Natural gas as a fuel for heavy trucks: Issues and incentives ” from their Annual Energy Outlook 2010. Here’s a link:
http://www.eia.gov/oiaf/aeo/otheranalysis/aeo_2010analysispapers/natgas_fuel.html
And here is a excerpt: “Petroleum-based diesel use by freight trucks in 2008 accounted for 15 percent of total petroleum consumption (excluding biofuels and other non-petroleum-based products) in the transportation sector (13.2 million barrels per day) and 12 percent of the U.S. total for all sectors (18.7 million barrels per day).” I stand corrected.
But those semi’s sure do use a lot of petroleum, and it represents an economic and market-driven opportunity.
Rutt
They have successfully tested LNG for locomotives for years. I think there are regulations against fuel tenders, but LNG would be a great choice.
You can even do dual fuel. LNG + enough diesel to ignite the LNG when compression occurs.
“In 1993 the Boise Locomotive Company was approached by the Union Pacific Railroad (UP) and the Atchison, Topeka and Santa Fe Railway (now part of the Burlington Northern Santa Fe, BNSF) to produce two MKI200G locomotives for each company for use by each railroad as an LNG demonstration project in the Los Angeles Basin. This resulted in the delivery of locomotive UP 1298 and LTP 1299 to the Union Pacific in August of 1994 and ATSF 1200 and ATSF 1201 to the Burlington Northern Santa Fe in December of 1994. The Union Pacific 1200Gs went into service on September 22, 1994 and the ATSF 1200Gs on December 5, 1994. ”
http://www.lngplants.com/mk1200G.htm
http://www.energyconversions.com/tender.htm
Sunshinehours1,
I had heard mention of LNG locomotives, but hadn’t followed up. Thanks for the links, and thanks for helping broaden the discussion.
Rutt
The page on the LNG Tenders makes a good point about LNG vs CNG.
“The tandem of 7890 and 7149, for example used a single 20,000 gallon tender on its 1600 mile coal route, refueling once each way at a fueling system located at the half way point. The 800 mile range per locomotive pair far exceeds the 80-100 mile reach that the same tender filled with CNG would provide.
There are certain applications however which CNG may be preferable. Switch locomotives for one usually remain close to a station, and can be refilled easily during long idle periods. Commuter rails may also favor CNG due to their frequent and routine stops, and their typically close proximity to available gas supply.”
http://www.energyconversions.com/tender.htm
It seems apparent that long term gas prices will cycle up slowly over time, as excess production is used up prices go up, possibly to a new slightly higher level, making the next level of production cost effective find and produce. At some point other fuels may be come competitive again. But most likely not for the foreseeable future.
Like Doc, I would be interested in seeing what can be done with putting domestic energy sources into tranprtation fuels that fit easily into our current infrastructure. Coal to liquids or Methane to liquids, specifically with all fuels going through methanol as suggested by George Olah.
http://en.wikipedia.org/wiki/Methanol_economy
Methane to methanol is easy then you can make dimethyl ether as a replacement for diesel. Also, you could use the Exxon Mobile methanol to gasoline process to fuel cars.
It would also be interseting to use coal and nuclear together to make liquid fuels for transportation. You build a nuclear powered hydrogen factory near the coal and feed that hydrogen into a coal to liquid plant to make any fuel you want. Under this scheme, you would be putting coal and nuclear power into your car, which to me sounds like an electric vehicle without the battery problems. Of course it won’t happen because we don’t do big ideas any more.
Methanol is a truly horrid fuel. On storage it hydrates, oxidizes and corrodes metal. You cannot use the existing gasoline infrastructure to hold, pipe and to dispense methanol. Keeping the methanol away from water will be the biggest challenge. The ability of methanol to dissolve chloride salts and the use of ‘Rock Salt’ in deicing Norther Cities is a big nightmare; get salt water into a storage tank and place that in engines would be hugely damaging.
On burning in internal combustion engines it generates formaldehyde, which will not all get burnt up by the cat. I would guess that one would also increase the levels of airborne nitrosamines in inner cities; cold engines and older oxidized fuels from twice a week motorists.
I think DME is the way to go, and avoids the problems associated with methanol.
The idea is that you can use methanol as the primary raw material because it is the simplest liquid fuel to make via gasification, then you make other fuels with the methanol like DME, gasoline or mixed higher alcohols. Then, if the problems you cited can be fixed economically, you have the option of switching to methanol as fuel, perhaps for methanol fuel cells.
And as bad as methanol is, DME is an outstanding deisel replacement, and DME is one step from methanol. 2 MeOH minus 1 water equals 1 DME. And DME is the first step in the Exxon Mobile methanol to gasoline process.
DocMartin
Methanol is the race drivers preferred fuel – much higher octane ~ 108, and thus higher engine efficiency, much safer in a crash than gasoline etc. It is more efficient to make methanol than Fisher Tropsch fuels, or even to then convert methanol to gasoline or diesel.
China is already pushing ahead with methanol from coal.
Think through an optimized system.
The biggest danger is drinking it – but you will also die from drinking gasoline or diesel fuel.
“Methanol is the race drivers preferred fuel”
Thanks to the 1964 Indianapolis 500;
http://www.youtube.com/watch?v=PPinI7idHV8
A methanol fire releases energy at around 20% of the rate of a gasoline fire.
1964 was also when British cars began there almost 50 year domination of Indy Car.
The fact that greens and AGW believers don’t get, and that green profiteers hope few people notice, is that liquid fuels are pretty darned good.
Gasoline, diesel, jet fuels, etc. pack a lot of energy per unit, can be burned pretty clean, do not destroy engines, are readily available, cost much less energy to produce than what they provide, and do not distort things like food supplies or national budgets to use. ALL of the alternatives fail at least some of those points.
Frankly the more one considers the so-called alternative energy industry, the more ‘alternative’ is synonymous with ‘scam’.
Read David Hagen’s comments elsewhere on this thread, and particular his reference to prof. Patzek.
Also retired prof. Summers who commented here.
Everyone agrees that liquid fossil fuels are great, but they are a nonrenewable form of energy.
Duh
From what is said here, communism is apparently responsible for the nonrenewable nature of fossil fuels.
Very nice article and lots of good commentary.
It seems to me that well-developed international LNG trade would help mitigate some of those spikes that scare off utilities. The problem there is supply/demand mismatches, which are going to be worse as the market’s extent is more continental rather than international. If fracing gets well-established around the world, and a reliable international trade network can be established, both the continental boom/bust cycles and associated price spikes will be smoothed out. That will take time to develop, but a well-developed international market would help mitigate both production and price risks.
Thanks for your excellent presentation of information, Rutt Bridges.
Enlightened leadership would use natural gas while it learns how to safely extract and use the energy stored as mass in the cores of atoms.
Why? Because nuclear energy is the most abundant source of energy. I am confident it can be safely used if political leaders would not allow their decisions to be influenced by political contributions.
Will LNG take over as the main marine fuel some day?
DNV has said there are “three main solutions” for emission control areas (ECAs) compliance after 2015 when the sulphur limit falls to 0.10%; low sulphur fuel, scrubbers for exhaust gas purification or the ship can be fuelled by LNG.
http://www.bunkerworld.com/forum/polls/96009/Will-LNG-take-over-as-the-main-marine-fuel-some-day#discussion
The use of LNG as fuel for propulsion on board merchant ships
http://core.theenergyexchange.co.uk/agile_assets/1320/12.05_-_Marco_Andreola.pdf
Singapore to study LNG bunkering amid search for cleaner marine fuels
http://www.hydrocarbonprocessing.com/Article/3010678/Singapore-to-study-LNG-bunkering-amid-search-for-cleaner-marine-fuels.html
Rutt,
Thanks for opening up the topic wrt fueling electrical generation.
Even though there are many interesting tradeoffs and choices to be made just looking at that, I really think the subject needs to be broadened further to look how we fuel the future, beyond just electrical generation.
As you (and PE) noted, there is interest and technical possibility in using CNG or LNG for transportation fuel
Given the I would say more challenging long term issues in fueling transportation vs electrical generation, I’m a little wary of overly committing to NG for electrical generation, without looking at the bigger picture.
all the best
brent
Brent,
Thanks, these are very informative links and a welcome addition to this thoughtful discussion. I wasn’t aware that Norway had 25 LNG ferries operating, or that 24 LNG ships were on order. More importantly, it appears that they have direct economic advantages over marine diesel in addition to the obvious environmental advantages. Again, the market needs to drive change. As usual with new transportation technologies, though, it appears that refueling infrastructure is once again an issue for wider adoption. Europe has a great network of LNG delivery ports that could be used to build out the needed infrastructure (and for long haul trucks as well), though natural gas prices remain high (albeit reportedly more cost-effective than marine diesel, with 2.5 to 5 year paybacks).
Thanks for helping broaden my perspective.
I wouldn’t be too concerned about the competition between transportation and electricity for natural gas consumption. There is a lot of conventional natural gas worldwide, and much more to be developed if markets can grow. However, most E&P companies are much more focused on oil right now due to recent prices, which is a concern. Do you have any data projections of potential natural gas consumption of this market segment?
Rutt
Hopefully the investment gurus won’t forget this too soon!!
Hopefully the “market fundamentalists” will learn something as well.
Texas May Triple Power Prices to Avert Summer Blackouts
The state has two choices: raise prices high enough that generators will determine it’s safe to build, or change to a model such as that used by PJM, which sets prices for needed power years in advance, said Oren, the Berkeley professor.
He expects Texas to hew to its model of paying for power only as its generated, which means the state will need to raise prices.
http://www.businessweek.com/news/2012-06-01/texas-may-triple-power-prices-to-avert-summer-blackouts
A Record Buyout Turns Sour for Investors
Struck at the peak of the buyout boom five years ago, the $45 billion acquisition of the Texas energy giant TXU — the biggest leveraged buyout in history — has been a painful investment for its private equity owners.
They did not need Warren E. Buffett to remind them how bad things were.
America’s most famous investor, in his annual shareholder letter on Saturday, highlighted his $2 billion wrong-way bet on the bonds of the company, which its new owners have renamed Energy Future Holdings. He called the investment “a big mistake” and said it was at risk of losing all of its value.
http://dealbook.nytimes.com/2012/02/28/a-record-buyout-turns-sour-for-investors/
Fears grow for $45bn utility as hedges near expiry
“Once the hedges roll off, it’s all over”, said one person very close to the original investors, “the single thing we got wrong was gas prices, no one saw shale gas coming”.
http://tinyurl.com/829ymeu
Hi Rutt,
I’m an old/former downstreamer , a supply and refining guy who spent most of his career heavily involved in optimization and scheduling. So I can readily relate to the issues you raise regarding opportunities for NG utilization.
WRT marine fuel developments, I just occasionally cast my evil eye on goings on to see at a high level which way winds are blowing.
The point I would want to make is broader however (not just restricted to marine fuel). We’ve been on a real roller coaster ride
with visions of plenty of conventional gas in 1990’s in North America. Then in early part of last decade, we had Energy Sec Spencer Abraham as I recall urging development of LNG import on urgent basis. Now we have visions of plenty again wrt shale gas.
My caution is that when we are talking about new electrical generation, these are very long life assets. New nuclear plants intended design life is 60 years (other than Candu).
In a way I do think we are at an inflection point regarding paradigm for energy use. There is plenty of opportunity, and also the risk of locking in a next generation of “big mistakes”.
Because we are talking very long life assets, we should at least examine (long term) scenarios for meeting energy demands for transportation as well because of competing uses for NG.
I’ll reiterate that I believe that long term options for fueling transportation are more challenging than for electrical generation.
While the marine industry (just as an example) is grappling with fueling options specifically focused on pollution issues, the real longer term issues are broader.
Energy in 2050: Shell’s Peter Voser
http://www.forbes.com/sites/richkarlgaard/2012/04/04/energy-in-2050-shells-peter-voser/
Shell Chief: Energy Prices Too Cheap to Change Consumption
Peter Voser told Silicon Valley investors at a dinner held by the Churchill Club: “For certain things energy prices need to go up otherwise the behavior will not change.
“We have hit the cheap oil peak. So the cheap oil is over. It’s going to be more expensive and energy in general is going to be more expensive.”
http://energy.aol.com/2012/03/23/shell-chief-energy-prices-too-cheap-to-change-consumption/
I recall one Chinese cargo line at least mentioned considering going nuclear.
WRT marine fueling here are a few links which could be of interest
Bunker Fuel: Supply Demand and Pricing
http://i.pmcdn.net/p/events/2010/houston/presentations/1_2_Barrow.pdf
Refining and Bunker Trends to 2015
http://i.pmcdn.net/p/events/2009/bunker-asia/presentations/Vautrain.pdf
Outlook For Marine Bunkers and Fuel Oil to 2030
http://www.fgenergy.com/?page=download&id=1347
Residual Fuel Market Outlook: Impact of Bunker
Quality Changes on Marine Fuels and Refining
http://www.seaat.org/GetFile.aspx?fileid=99
http://www.egcsa.com/pdfs/Purvin-Gertz-EGCS-SMM-workshop-2010.pdf
all the best
brent
You lost me when you brought in C02. You really should keep up.
Rutt
This is a very good article. Is it available as a pdf?
tonyb
Tony,
Of course… drop me a note at rutt@bridgesfamily.net and I’ll send you a pdf copy.
Rutt
Why a Coal Guy is Going Green
Published October 16, 2009
I sat down with Rogers recently after he spoke at the Society of Environmental Journalists conference in Madison, Wisconsin. He’s a pleasure to interview — he answers questions, he’s direct and he’s charming. (He used to be a newspaper reporter so he knows how to tell a story, too. You can listen to excerpts of our talk in a podcast at The Energy Collective, where I’m a lead blogger. ) By the end of our conversation, I had a better understanding of why Rogers and Duke have become advocates of a cap-and-trade scheme to regulate global warming pollution.
Rogers, who is 62, has been a utility-company CEO since 1988. He’s also been a consumer advocate (as an assistant attorney general in Kentucky) and a federal regulator (at the FERC) so he sees issues from different perspectives. More important, Duke Energy is, for the most part, a regulated utility — meaning that its major investments and electricity rates must be approved by state public utility regulators. So if Rogers can convince those regulators that his investments in low-carbon power generation make sense, he should be able to make a good return.
“Moving to a low carbon world is an earnings opportunity for me,” Rogers said. “If I have to retrofit my fleet, that’s earnings growth.” That’s assuming, of course, that state regulators will permit him to raise rates for customers to cover the costs of renewable power, cleaner coal or new nuclear plants.
This helps explain why Rogers doesn’t try to pretend that the transition to a low-carbon world will be easy or cost-free. He needs to set the stage for future price increases that he knows are an inevitable. He says:
“As we transform, as we invest in renewables, as we invest in smart grid, as we invest in retiring existing plants and building new plants, the price of electricity is going to go up.”
http://www.greenbiz.com/blog/2009/10/16/why-coal-guy-going-green
GE CEO explains practical realities to free marketeers
Real entrepreneurs. That set Immelt off. “We compete our asses off,” he snapped. “We’re No. 1 at what we do!”
http://grist.org/business-technology/economics-immelt-vs-the-ideologues/
Climate warriors and heroes
THE PROFITEER
Jeff Immelt
As the CEO of General Electric, Jeff Immelt is interested in global warming for only one reason: the bottom line. “Rest assured, I am not tackling climate concerns because it’s moral or trendy or good for P.R.,” he says. “The biggest driver for me is business potential: It will accelerate economic growth.” In May, Immelt announced that G.E. is doubling its annual R&D spending on clean technology to $1.5 billion — developing a dizzying array of wind turbines, hybrid-engine trains, state-of-the-art jet engines, zero-emission coal plants and superefficient home appliances. In return, the 49-year-old chairman expects to double revenues from those same inventions, taking in $20 billion a year by 2010. “Immelt is the tipping point,” says Joel Makower of Clean Edge, a leading green-business consulting firm. “Where he goes on climate, industry will follow.”
http://www.salon.com/2005/11/04/heroes_3/
Goddess Gaia’s heretic? General Electric CEO Jeff Immelt says he regrets going too green.
http://www.ihatethemedia.com/goddess-gaias-heretic-general-electric-ceo-jeff-immelt-says-he-regrets-going-too-green
Rutt Bridges
Thanks for the extensive graphs and data.
On aggregate, drilling rig companies appear to have a pragmatic highly sensitive response to the relative value of drilling for natural gas versus oil.
When the price of gas plummeted in 2008 to below production recovery prices, most drilling rigs switched away from drilling for gas to drilling for oil.
e.g. See: Gas Boom Goes Bust. Somewhere I recently saw that about 73% of drilling rigs are now seeking oil.
The major concern over the current massive increase in shale gas is its very rapid decline rate. See Tad Patzek’s publications,
Note especially his graphs showing the very rapid decline of unconventional gas production:
Unconventional Resources in US: Potential & Lessons Learned
Repeated fracking is needed to extend production. This raises a major question on the reliability of gas forecasts. Power plants can easily last 40 years. The history of reduced availability and rapid increases in gas prices suggest gas fired power is highly problematic over the long term.
Patzek’s presentations expose the unrealistically high IPCC projections. see: e.g.,: Physical limitations on mining planet earth
However, current depletion rates of liquid fuel production are of far greater concern. See Patzek’s slide 2 from the IEA showing > 50 billion bbl/day decline from current depletion rates that needs to be replaced by 2030.
That is equivalent to about six new Saudi Arabia’s of production!
Where will that come from? Modern transport systems don’t run on fumes!
David,
Thanks for your insight. It seems to me that the market is doing exactly what it is supposed to do. Low gas prices are shifting economic resources (rigs) from gas to oil. This is driven by prices, not politics or philosophy. And after a sustained and significant decline from 1986 through 2006, US domestic crude production flattened and since 2009 has actually grown by 23%. Not due to need, but due to price. Price drove new oil drilling, more enhanced recovery and shale oil development. Reference:
http://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=pet&s=mcrfpus2&f=m
Meanwhile, US net oil imports dropped from 60% in 2006 to 45% in 2011, helped by increased production as well as less driving in more efficient vehicles. Not because of politics, but because of the market.
Reference: http://www.eia.gov/oog/info/twip/twiparch/110525/twipprint.html
2011 net imports reference: http://www.eia.gov/energy_in_brief/foreign_oil_dependence.cfm
I believe the arguments for high gas decline rates are made by informed people who truly believe their results. But obviously there are different informed people with different results within the companies investing in gas. I’m only a geophysicist, not a petroleum engineer, so I’m afraid I’ll have to let them sort that out. But again, profitability of these gas plays will depend not just on decline curve analysis but on natural gas prices as well. If Europe is paying $12, and gas is five times cheaper than oil based on historic ratios, surely we will see prices rise from the pit they are in at this time. And then some of the oil rigs may shift back to gas, or new rigs may be built. And LNG, CNG and other technologies will eventually take hold in the transportation sector if oil becomes more scarce and prices rise to unreasonable levels. My astrology skills are fairly weak, but I’ll continue to bet on the market to find a rational equilibrium. I’m pretty pragmatic that way!
Rutt
Henry Groppe predicts $8 natural gas this year. Even if that were to happen, natural gas is still a winner in a lot of competitions.
http://www.firstenercastfinancial.com/news/?cont=36869
Wow!! Mr. Groppe is really going out on the limb with that prediction but as mentioned in todays WSJ major drillers like Exxon and Conoco Phillips are cutting back on their drilling while others are sealing their wells and waiting for nat/gas prices to go higher. It will go a lot higher than today`s price of $2.37 but in my mind $8.00 will be unattainable in that short amount of time.
“Henry Groppe, a Texas petroleum analyst with a long track record of betting against the herd, believes natural gas will double by the end of summer 2010.”
http://www.energyandcapital.com/articles/contrarian-natural-gas/1151
How did that work out ….
Rutt
It is my understanding that the EPA is NOT under a court order to regulate CO2. The Supreme Court ruled that if the EPA deemed CO2 to be a pollutant, then it must regulate it; the Obama EPA, wishing to regulate it, then deemed it to be a pollutant.
Washington might do a James Lovelock about face on CO2, either through a regime change or because of continued stagnant global warming, and coal would then be less demonized. Lead times are long in power plant construction, but coal has a future – not only in China and India.
Don,
Thanks for your comments. I agree that a regime change in Washington would likely result in the elimination of CO2 limitations on coal, and perhaps new limits on mercury, NOx and SOx as well. While I don’t agree that this is in people’s best interest, I am a political realist. However, for new plant construction I believe that if the problem of natural gas price spikes can be mitigated, the market will choose gas over coal. But that is just one person’s opinion, based on my own perception and interpretation of the data. I respect the fact that others may see this issue differently and draw different conclusions.
Rutt
Correction that is >50 million bbl/day replacement oil production is needed or > 19 billion bbl/year.
David,
Production does not equal depletion. Study the depletion rates. They are not anywhere close to what you are projecting.
Hunter: Re: “Study the depletion rates. They are not anywhere close to what you are projecting.”
Show your evidence and calculations.
e.g. See: Global Oil Depletion: An assessment of the evidence for a near-term peak in global oil production UK Energy Research Centre 2009
Table 3.5 Estimates of production-weighted aggregate decline rates for samples of large post-peak fields (%/year)
IEA 5.1%/year
Hook 5.5%/year
CERA 5.8%/year
Average 5.5%/year
IEA Oil Market Report 1 Q 2012
OPEC Crude 31.4 million bbl/day
Non-OPEC crude 29.77 million bbl/day
Global crude oil supply ~ 61 million bbl/day
5.5%/year depletion = 3.36 million bbl/day
20 years x 3.3 = 67 million bbl/day
(18 years = 60 million bbl/day.)
In reality, depletion rates increase as fields age.
This is an excellent article, but carries a misconception that is common in discussions in the UK, and is probably a misconception relevant to the US.
In the UK, a lot of work was carried out to produce as efficient and effective as possible, two shifting coal plant that was originally designed for base load. As a result, coal fired plant that is still warm can be called upon to synchronise in time spans similar to CCGT.
I dare say that a similar line of work has been carried out in the US.
Galvanize,
Thanks for your input. I admit to being ignorant with regard to the UK/US work on switching fuel resources. The newest GE FlexEfficiency 50 CCGT plants claim 61% base load efficiency (70% with solar assist) and a hot start to full load in 30 minutes, though I’m sure older plants don’t perform that well. Reference (page deep into the press kit to get to the specs): http://www.ge-flexibility.com/downloads/CS06480-01%20EDF%20E-press%20Kit_R13_new.pdf
What sort of start-ups are the latest coal plants able to achieve? Can you provide me with a link?
Again, I appreciate your contribution to this discussion, any your help in educating me. It is a challenge to be knowledgeable on such a broad topic.
Rutt
Rutt
Be warned, GE’s “70% with solar assist” ONLY counts the solar on the output, NOT on the input. GE was trying to grab attention away from MHI that had 61% efficiency. GE’s claim is like saying an SUV would get 133 mpg on 85% ethanol compared to 20 mpg on gasoline! There are no “polite” descriptions for that advertiser.
In practical mechanical engineering reality, GE’s actual gas 61% efficiency – without solar – is about 73% of the Carnot efficiency of ~83%.
The hot temperature solar steam input may be of the order of 550C (823K) for a power tower (250C for parabolic trough), compared to 1500 C (1773 K) for the GE/MHI turbines. The solar REDUCES the turbine inlet temperature (TIT) below 1500C , which REDUCES the system efficiency on electricity out/enthalpy in basis. Appealing to “climate change” does not change the laws of thermodynamics – just his credibility.
PS on startup time, Rapid thermal cycling severely damages conventional welded boiler connections. Steam turbine startup times are conventionally about four hours. “Once through steam generators” are used to reduce that problem. Siemens is advertising 30 minute startups.
Rutt,
Excellent article, excellent commentary, and the best dang response to Willis Eschenbach that I have ever seen.
Michael,
Actually, I thought Willis’ criticism regarding my lack of references was very fair. I just need a long break from responding on the blog to get it done! Hopefully this weekend.
Rutt
Rutt,
I wonder if you misunderstood me? I am genuinely a great fan of Willis’s and I agree with his point, though there was a tinge of his astringency. Your response was appropriate and showed humility. Few people, when upbraided by Willis, however mildly, manage to behave this way.
Could be my British sense of humour! :-)
Michael,
Please see my note above regarding availability of a version with reference hyperlinks via email (rutt@bridgesfamily.net). Just drop me a note.
Thanks!
Rutt,
Thank you for an excellent article. Have you presented this to the Houston Geological Society? I believe, if you have not, you would find the audience very interested, and attentive.
http://www.hgs.org/
and the meals are better than typical for a large professional society.
Hunter,
Actually the talk was prepared as a keynote for Sercel’s annual Technology Forum. I’m presenting it at the Denver Geophysical Society luncheon this Wednesday, and there has been some other interest. I really don’t have any connections at HGS, given that I’m a mere geophysicist! (but a loyal AAPG member…)
Rutt
Rutt,
I believe you are being far too shy.
I will contact some friends and see what might happen, if that is OK with you.
By all means… thanks.
Rutt
Hi Rutt — well, in spite of my massive disappointment that we can use nuclear devices for enhanced recovery, I’ll ask another question anyway. Do you have any more thoughts to add concerning production rates from shale of nat gas, or even oil for that matter.
disappointment that we can’t use
Jim2,
There are good arguments on both sides whether fraced gas or oil shales will rapidly decline in production beyond company estimates. I’m not knowledgeable enough to have a clear answer on this. Some well respected engineers argue that these wells will decline rapidly and not produce as much as the resource companies believe. Others argue that the resource companies (Exxon, Devon, Shell, etc) have excellent scientists who have run their own models and believe in their ultimate recovery values for the produced oil and gas. Obviously they are betting billions of their own of dollars that they are correct. I’d say the jury is still out. However, whether the wells are economic or not also depends on commodity prices. Time will tell.
I hope that doesn’t sound like too much of a waffle, but I don’t want to tell you 110% of what I really know about this.
Rutt
“Water lost forever”
I suspect we can deal with a cubic mile, per year, of water.
If you took all the oil used in one year and spread it over the whole globe, then there would not be enough to make a ‘Newtons rings’ rainbow.
Your post yesterday was first rate. The author appeared to be even handed for the most part, but his work needs to be supplemented and amplified.
1. The US renewable sourced (wind and solar component) electricity production in 2011 based upon EIA data is stated to be 2.9%. However, a MasterResource blog posr citing the same data indicates it to be 1.3%, which is major difference. See: http://www.masterresource.org/2012/04/hard-facts-energy-primer/
2. I am too lazy to search for the source information, but I recall that discovery of a major shale gas/oil basin in central CA was announced recently by the USGS. This basin is not shown on the map of shale gas basins in the US.
3. In addition to the shale gas and traditional sources, CO2 hydrates are now in play. See: http://www.masterresource.org/2012/04/hard-facts-energy-primer/ As Bernie Preiser states: “it is a game changer.”
4. The section concerning the footprint for fracking wells is misleading in part. One picture shows a collection of temporary buildings sited on top of a cleared, filled and leveled area. While clearing was required, the site can be easily restored and reforested.
Here is graphic evidence of the total and permanent destruction of pristine mountain ridges in Vermont that occurs when installing wind turbines: http://notrickszone.com/2012/04/28/how-vermont-protects-the-environment-warning-graphic-photos/
There is nothing temporary about turbines other than their useful life span and intermittent productivity. All weather roads needed to access massive rock pits, turbine construction sites, and transmission line right-of-ways must be built. Then too, the excavation and filling needed for the turbine foundations is gigantic. Trees do not grow well on exposed bed rock.
I emailed these comments rather than posting them because they become untimely. Feel free to post these comments.
W F Lenihan,
Thanks for the good and useful input.
1. Actually, both numbers are correct. Wind provides about 1.2% of total US energy, and 2.8% of total US electricity energy.
2. This is a legitimate criticism. The gas basin map is a little out of date, and new fields are being added on a fairly regular basis. The main point is visual… there are a lot of them!
3. I believe the reference should be to methane hydrates. It’s interesting that you used the same language as me for hydrates: “A game-changer”! Here is one of my posts:
Doc,
Thanks, this is a great contribution to the discussion.
I agree that the ability to harvest methane from hydrates would be a real game-changer for natural gas. I have seen the anomalies associated with near surface methane on marine seismic reflection data not just in the Arctic but around the world. It also has the advantage of being located near the coasts, where most of the world’s population is concentrated. It certainly bears watching, as well as R&D investment.
Rutt
4. The argument of the “Devastated Forests” isn’t mine, but it is that of fracing opponents. The point in the article is that it is an effective visual argument with the general public, not that it is a valid claim. And you are right, it is misleading at best. But that’s the point. And of course, gas development requires roads and pipelines. There is always some cost to energy development. But those Vermont photos are really ugly, just like the ‘before’ gas development photo. Most of our Colorado wind farms are in flattish agricultural land. I suppose there are places where neither kind of development is appropriate.
Rutt
Wind responds to topography. As I recall Bernolli’s principal applies to wind. Favorable wind velocities makes ridge and mountain tops favorable locations for wind turbines. These locations are the rule rather than an exception to it. There are wind farms all over eastern WA, OR and CA where turbines are sited on ridge and mountain tops.
The west coast states all have laws mandating production and consumption of specified minimums of so-called renewable sources, primarily wind and solar. Fortunately, in WA and OR their intermittent and variable outputs can be mitigated with electricity from the Columbia and Snake River dams to become part of the base load output.
In other areas the wind and solar electricity must be augmented with backup production, usually gas turbine plants. One question that occurs to me when considering the characteristics of wind and solar generated electricity, is why waste the billions of dollars needed to build, operate and transmit from wind and solar farms when gas turbines that produce 80% of the renewable production? Why not just boost the capacity of the gas fueled plant another 20% and save the wasted billions of dollars needed to build and operate the feel good but cost ineffective wind and solar producers?
It’s more worser than that. The fast-response gas plants are different, and less efficient. They also wear out faster. The net inefficiency more than wipes out any putative “free wind” savings. Why not just forget the whole thing and make baseload gas generators in the first place?
W F Lenihan
Thanks for the post and the email note. Hopefully you’ve received my email response and copy of the Word version of the paper with full references by now.
I really enjoyed this post. The final thought is one that should be broadcast far and wide: “Unless we can find reasonable compromises to our differences, we will waste far too much of our lives and far too much of our treasure waging war.”
In conjunction with this post I want to mention that there are going to be two fascinating experiments over the next ten or so years. I completely agree with the author that natural gas will be the fuel of the future over coal. Nonetheless any new facility is going to be expensive so cost is going to become a major controversy as new capacity is developed.
Experiment number one is how long will it take the public to figure out that the renewable energy option for future generation requires natural gas backup capacity of at least 75% of the total capacity needed? Also note that there will have to be some kind of support for the natural gas plant developer because they won’t be able to run in base load mode when the renewables are on. They only get to run when the renewables are off. Somebody has to pay for that idle capacity and no developer is going to go there without upfront support. I for one believe we should just build the natural gas facilities.
Experiment number two is how long will it take the public to figure out that the public health benefits quoted (These new standards are expected to save $280 billion in annual health care costs and prevent tens of thousands of premature deaths) are not happening. Surely somebody is going to be able to see a $280 billion savings in health care costs but I predict the numbers won’t even come close. I base my guess on the fact that while ambient air pollution levels have dropped as emissions have come down, asthma rates have continued to rise.
Roger, Thanks for the post and the email note. Hopefully you’ve received my email response and copy of the Word version of the paper with full references by now.
Rutt Bridges, thank you for an interesting and detailed article. One comment however puzzled me:
• The US Energy Information Agency apparently agrees, and predicts very little growth in wind energy from 2013 through 2019. Unfortunately, this clean source of electricity may be stuck at 3% for some time.
I don’t understand your lament for the demise of wind subsidies in the US, you never explain it? As I understand it wind has some fundamental characteristics that would appear to make it somewhat less than optimal:
• Dilute
• Intermittent
• Non-dispatchable
• No capacity value
• Volatile
Because a power grids needs to balance the supply and demand of electrical energy, the introduction of a volatile and intermittent supply needs to be managed (obviously incurring some cost). Because wind has no capacity value it offers no security of supply and replaces no existing plant (substantially increasing capital costs). In effect wind acts as a supplemental energy source, saving the fuel and emissions at other plants (if conditions are favourable).
So my first questions is, does wind energy have any inherent value to a power grid? Common sense would say not.
In the UK wind is effectively mandated by the Renewable Obligation Certificate, which also acts as subsidy (having a financial value) plus other subsidies (feed in tariff, etc.). Therefore wind does not compete in the normal sense. It’s difficult to understand the costs of wind, as so many are “hidden”:
• The costs of any subsidies.
• The cost of replicating existing capacity.
• The maintenance cost.
• The cost of hydro-carbon plant operating in cycling mode when shadowing winds volatile output.
• The cost of having to buy all wind output regardless of whether it can be used (which I understand is the case in the UK)
• And/or the cost of paying wind farms not to supply energy either when it can’t be used, or would overwhelm the grid.
• Cost of transmission (wind tends to be remote).
So my second question is, is wind affordable taking into account all of the costs? Given these factors, I simply can’t believe that wind is cost effective, or anywhere close, in the real world. That the lifetime levelized costs quoted for wind are like your metaphor of a river whose average depth is three foot and in which you can easily drown.
Gary,
Thanks for your post. One of my best friends is a wind opponent, and I will share your comments with him as well (some of my best friends are… now, how does that go?).
I do believe that wind has value in the energy mix, though it is pricey and due to capacity factor issues must be supplemented with a load base that includes dispatch-able fuel sources that can be started up and shut down fairly quickly, such as gas.We do need variety in our electricity fuel mix (including coal), just as we need it in our genome pool… for rapid changes in the external environment. Just ask Darwin!
I had hoped that by now the cost of wind would have decreased as a result of volume of production, but that hasn’t seemed to be the case. I do believe that if the cost of wind cannot be decreased without heavy subsidies, it will have a difficult time playing in a market that eventually rewards only the most efficient.
Rutt
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