Natural Gas: The Revolution Is Coming

Summary Natural gas today accounts for approximately 22% of world energy demand. This figure is skewed because of the 26% gas market share in the U.S., the biggest consumer. In Europe, outside of the former Soviet Union, with a population of 1.5 times that of the U.S., gas accounts for 19% of the market. In terms of per-capita energy consumption, the average U.S. citizen consumes approximately 2.2 times more gas than a European. These ratios for both total usage and gas market share in the energy mix became much more lopsided for almost all countries. A move toward increasing gas use is now under way, from both demand and supply standpoints. For example, Brazil (the world's 10th largest economy with a current gas market share of 5%) has embarked on a very ambitious plan to increase gas use. Several gas-producing countries also announced ambitious plans for markedly increasing gas output: Qatar, Oman, Venezuela, and Saudi Arabia. Liquefied natural-gas (LNG) facilities are currently being built, and serious LNG tanker shortages are forecast for the next 3 to 4 years. The U.S. has made an emphatic move toward increased gas use. Already less than 5% of electric-power generation uses oil; natural gas will fuel well over 90% of new power generation built in the U.S. over the next decade. Gas-fired turbine manufacturing has a 3-year backlog. Once manufacturing catches up with demand, the transition to natural gas will cause substantial shortages for a considerable time. This will cover new peaks associated with summer electricity demands, not just the traditional peaks in winter heating. More crucial, we believe that environmental concerns, real or imagined, will push the emergence of fuel cells much faster than currently envisioned. Natural gas will be in the center of this transformation, resulting in a greatly expanded market share of gas in the world energy mix, increasing to 40 to 50% by 2020. We present a comprehensive analysis of the current state of natural-gas supply and demand. We provide the conventional forecasts and rationalize our forecasts, which are heavily influenced by electric deregulation, LNG conversion, and fuel cells. Introduction At the time of this writing, natural-gas consumption in the U.S. reached an estimated 23 Tcf/yr, close to the highest consumption rate of natural gas, which occurred during 1972-74. Fig. 1 presents the history of natural-gas consumption in the U.S. and the other G-7 countries (Canada, France, Germany, Italy, Japan, and the U.K.).1 Of significance is the dip in U.S. gas consumption after 1974, with the low point experienced in 1986 (˜16 Tcf) followed by a subsequent increase of annual consumption at a rather steep pace. The second important conclusion is that the annual rate of natural-gas consumption of the other G-7 countries is significantly below that of the U.S., suggesting a potentially much steeper future annual increase to catch up. Together, with a combined population 1.5 times that of the U.S., these countries consume only three-fourths as much natural gas (17 vs. 23 Tscf/yr). Russia, the world's eighth largest economy, consumes 15 Tcf/yr of natural gas, nearly as much as the consumption of Canada, Germany, the U.K., Italy, France, and Japan combined. Of all the nations in the world, only the U.S. and Canada have the pipeline network in place to take the natural gas from the well to the market. For all others to develop natural gas for both domestic consumption and export, several issues (e.g., regulatory and cultural) have to be resolved to attract the necessary financial and technical investments. Venezuela, with the second largest natural-gas reserves in the Western Hemisphere, has plans to develop its natural-gas industry reserves by using its domestic market as an impetus. The Amazon region, more specifically Peru and the Brazilian Federal States of Amazonas (Acre and Rondonia), has been constantly mentioned as the next place for development for massive natural-gas usage in the Western Hemisphere.2 The Asia Pacific region, with rapidly emerging and large economies, is likely to augment the already highly developed Japanese natural-gas activity. This includes increasing demand in indigenous gas supplies, imports and exports of LNG, and a transnational pipeline grid.3,4 The Natl. Petroleum Council (NPC) in its December 1999 report forecasts that annual natural-gas consumption in the U.S. is likely to increase to 29 Tcf by 2010 and that this increase will be "beyond" 31 Tcf by 2015.5 These figures represent 26 and 27% of the anticipated U.S. energy consumption, which is supposed to be 111 and 116 quadrillion Btu (quad), respectively.6 This 1999 report is a reassessment of NPC's 1992 report. It is noteworthy that even "the most robust scenario projected" in the 1992 report was exceeded by actual gas demand. Environmental regulations and restrictions imposed on facilities that burn fossil fuels were cited as some of the main reasons for this unexpected turn of events. While natural gas is also a fossil fuel, its environmental performance in terms of reduced emissions is far superior to that of oil and, especially, to that of coal. Environmentalism, frequently with an ideological hue and couched in difficult-to-combat imagery, has captured a sizeable portion of the national and international political debate and, unavoidably, the political agenda.

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