Thursday, July 31, 2008

So, Is This The Age Of Natural Gas? The Silver Bullet?

Jul 30: The House Select Committee on Energy Independence & Global Warming, Chaired by Representative Ed Markey (D-MA) held a hearing entitled, What’s Cooking with Natural Gas?: Hearing to Examine Fuel’s Role in Global Warming Solutions. According to an announcement, natural gas plays a critical role in numerous sectors of our economy from home heating to chemical production to electricity generation to transportation fuel. With 3.4 percent of global natural gas reserves, the United States has the fifth largest reserves in the world.

Since a low in 1986, domestic consumption of natural gas has generally increased and its uses have broadened. Natural gas has especially become popular as a cleaner alternative to coal in the electrical utility sector and gasoline and diesel in the transportation sector. As Congress considers energy policies that will increase our energy independence and help solve global warming, understanding the role of natural gas in our economy and how it might contribute to energy policies is critical. Witnesses testifying at the hearing included representatives from: Chesapeake Energy; Suez LNG North America; National Grid; The Dow Chemical Company; American Honda; and the Independent Petroleum Association of Mountain States.

Aubrey McClendon, Chairman and CEO of Chesapeake Energy Corporation and Chairman of the American Clean Skies Foundation (ACSF) testified on the natural gas industry and its future. He said, "the U.S. today consumes about 63 billion cubic feet of natural gas per day - in energy BTU equivalency terms, that’s 10.5 million barrels of oil per day, or about half of the amount of oil that the U.S. consumes each day. Of that 63 bcf per day of natural gas consumption, we import about 1 bcf in the form of liquefied natural gas, or LNG, and we import about 8 bcf per day from Canada. This means that we are about 98.5% self-reliant on natural gas supply from North America and about 86% self-reliant on natural gas supply from the U.S. Contrast that with oil, where we are only about 41% North American self-reliant and only about 27% self-reliant from U.S. sources."

In describing the industry he said, "a highly fragmented industry with more than 7,000 American-based companies producing natural gas from 33 different states. Most producers are very small private businesses that may drill a well or two per year. The heavy lifting in the industry is performed by the 20 largest U.S. natural gas producers, which account for about 60% of all U.S. natural gas production. Of these 20 companies, 6 are integrated oil companies with household names, such as Exxon or Chevron, while 14 are much smaller public companies such as Chesapeake."

On the future of oil, natural gas and the energy crisis he said, ". . .despite all the recent commotion over speculation in oil markets, the reality is oil prices have been rising for 10 years for a very good reason -- demand growth is outstripping supply growth -- and, in all likelihood, they will continue to rise in the future. We are on the road to national bankruptcy and must change our ways. The good news is it’s easy to change – we don’t need a new fuel, we don’t need new engine technology, we don’t need hundreds of billions of dollars. All you have to do is modify or replace today’s internal combustion engines that run on gasoline and diesel and replace them with an internal combustion engine that runs on natural gas. And that’s natural gas that costs less than half the price of gasoline, is more than two-thirds cleaner, and best of all, is produced right here at home in America, and we are proving to skeptics everyday that there is plenty of it."

He continued, "Imagine tomorrow if your hometown or national newspaper proclaimed that you had introduced a plan that would, in one stroke, cut gasoline’s cost in half, reduce our oil imports, improve our air quality, enhance national security, strengthen the dollar, reduce greenhouse gas emissions and create tens of thousands of new jobs in the U.S. in the automotive, truck, steel, natural gas and related industries. The papers might say you just have changed the course of American history.

"So is there enough natural gas to do this? The answer is absolutely yes. To convert just 10% of American cars to CNG would take less than 8 years to do and would only require an increase in U.S. natural gas consumption by slightly over 1% per year Yet, this year alone American natural gas producers will increase U.S. natural gas supplies by about 9%. Going forward, I believe U.S. natural gas producers can increase supplies by 5% per year for at least the next decade and that assumes there is no more access to public lands and waters than there is today." [Note: similar statement were made by T. Boone Pickens in his recent compelling testimony before the Senate Homeland Security Committee [
See WIMS 7/23/08].

On the same day as the hearing, the American Clean Skies Foundation (ACSF) and Navigant Consulting, Inc. (NYSE:NCI) released a new comprehensive study -- North American Natural Gas Supply Assessment -- indicating the United States has 2,247 trillion cubic feet (Tcf) of natural gas reserves, which is enough to last more than 100 years. The report expands on and explains why existing forecasts from the U.S. Energy Information Administration (EIA) have historically underestimated and understated the contribution and potential of unconventional natural gas from three sources: tight sands, coalbed methane and gas from shale formations. McClendon said, "New technologies have allowed the rapid emergence of gas shales as a major energy source, representing a truly transformative event for U.S. energy supplies. American producers can clearly supply enough natural gas to meet today’s uses and become an economical source of transportation fuel in the form of CNG or greater supplies of electricity for plug-in hybrids for generations to come.”

Rick Smead, one of the study’s co-authors and overall project manager for NCI said, “The assessments and estimates on natural gas supply are very impressive and have, frankly, caught industry forecasters off guard. The study found that while all three unconventional gas sources have increased production over the past decade, natural gas production from shale formations is growing exponentially, increasing from less than a billion cubic feet a day in 1998, to about 5 billion cubic feet a day now. That’s a compound annual rate of growth of over 20 percent, which is over 600% for the time period. “The extent of this ramp-up has not been fully captured by many reserve estimators,” said Smead, “probably because their emergence has been too rapid for existing models to capture accurately.” There are approximately 22 shale basins located onshore in more than 20 states in the U.S. including Texas, Oklahoma, Arkansas, Louisiana, West Virginia, Wyoming, Colorado, New Mexico, West Virginia, Pennsylvania, New York and Michigan.

Denise Bode, president of ACSF said, “This is the age of natural gas. Frankly, no other energy source can do so much for America from fueling our vehicles to generating our electricity and do so as cleanly as American-produced natural gas. Without question, we know now that we have abundant supplies of domestically produced natural gas to take us to a clean, secure, scalable and affordable energy future. This study authoritatively refutes head-on the mistaken belief that we do not have sufficient supply. The fact is America has substantial natural gas to fuel its future beyond this century and at a price that is likely to remain less than half the price of oil and will provide significant environmental benefits as well.”

In his opening remarks at the hearing, Chairman Markey said, ". . .we must not forget that natural gas, like all fossil fuels, is both a finite resource and a contributor to greenhouse gases. Because of that reality, we must use it wisely, in a targeted manner, and we must use it efficiently and in ways that help transform our economy to one that is more energy secure and climate friendly. Today our witnesses will discuss a number of natural gas uses that are already helping to achieve these goals and what might be possible in the near future.

"Natural gas vehicles are already displacing gasoline and diesel and improving air quality. The replacement of diesel fleets such as buses and trucks with natural gas powered vehicles has especially helped reduce dangerous air pollution in some of our most polluted cities. Fuel cell vehicles hold the promise of using natural gas more efficiently in the transportation sector. As Congress considers energy policies that will increase our energy independence and help solve global warming, understanding the role of natural gas is critical."

Access the hearing website for links to all testimony and Chairman Markey's opening statement (
click here). Access a ACSF blog post on the new study (click here)Access the complete 90-page ACSF report (click here). Access the ACSF website for extensive information (click here). [*Energy]