WINTER 2011 ISSUE


The Push and Pull of Natural Gas



What role should natural gas play in America’s energy future?




Questions over natural gas and how it best fits into the nation’s future energy landscape seem to be mounting, and the push and pull between making transportation the top target or channeling natural gas reserves toward replacing coal is complicating the picture. The only certainties? With limited reserves of natural gas, movement toward one sector will very likely be at the detriment of supplying the other, and trying to solve a fossil fuel crisis with yet another fossil fuel seems a precarious position to pursue.


Colorless, odorless, tasteless – the attributes of natural gas suggest transparency, but the role of natural gas as a future energy source is far from crystal clear. Is natural gas really a bridge fuel to future alternative transportation and generation fuels, or will it be a bridge to nowhere because development of renewable energy is slowed through reliance on this fossil fuel?


How long will it last?


Supplies of natural gas are not likely to stretch much beyond the 100-year mark. Controversy over how much of that supply is readily available and how much is only potentially accessible has fueled further debate. Clouding the supply issue is a concern that natural gas extraction practices utilized in reaching deposits below shale rock have serious and long-term detrimental impacts on the environment.


Meanwhile, Americans continue to use 22 trillion cubic feet (TCF) of this non-renewable fuel each and every year. According to the United States Energy Information Administration, natural gas accounts for 24 percent of the total energy consumed in the U.S., making it an integral component of the nation’s energy supply.


Natural gas burns cleaner and emits lower levels of greenhouse gases than other fossil fuels. In addition to heating and electricity generation, it can be compressed and used as a transportation fuel, a practice already common in parts of the Asia-Pacific region and Latin America, but slower to catch on elsewhere. Natural gas can also be liquefied for convenient transport and storage.


Although formed primarily of methane, natural gas may also contain propane, ethane, butane and pentane. Like all fossil fuels, it is nonrenewable and its deposits are formed in layers of rock from remnants of plants and animals that died millions of years ago.


However, methane – the primary natural gas ingredient – can also be formed from biomass and other renewable sources. If brought to scale for natural gas production, it could be the gateway for converting what was once a non-renewable fossil fuel into a renewable, alternative one.


Price Rise and Fall


But for now, natural gas is squarely in the same arena as other fossil fuels. The 2010 natural gas market exhibited a glut of oversupply, but levels have been volatile over the past decade.


“The natural gas industry is one that has seen a lot of price churning,” says Bill Horton, Associate Director, Quantitative Group-Research, for E Source. The company, headquartered in Boulder, Colo., caters to utilities and energy management businesses nationwide.


In late 2005, hurricanes shut down production from the Gulf of Mexico and sent prices soaring. Just as those effects were waning, rising commodity prices in 2008 sent natural gas prices climbing again. At the same time, new drilling methods were applied to technologies used in extracting natural gas from beneath shale rock, bringing the promise of tapping into a much greater supply of natural gas in the U.S. than had been previously imagined.


Fracking


The technology used to remove natural gas from layers of rock is known as hydraulic fracturing or by the shortened term, fracking. Water, sand and chemicals are forced at high pressure into cracks in the shale, causing larger fractures to open up, allowing access to natural gas deposits.


“This is making it less expensive to drill for gas, so there is more on the market,” Horton explains. Horizontal drilling combined with fracking has been characterized by its proponents as the gateway to a whole new supply of natural gas in the U.S., meaning less reliance on imports from Canada as well as countries with less-stable geopolitical systems.


With supply more abundant, Horton sees natural gas as a bridge fuel to a more renewable energy grid, believing it to be better-suited for power generation than transportation. He envisions a future where renewable fuels are used in transportation and other applications, with natural gas – an energy source he believes to be more reliable – channeled toward generation applications.


The Pickens Plan


Oil investor and billionaire T. Boone Pickens, Dallas, Texas, disagrees. He has drawn much media attention by advancing a plan to remove natural gas as a generation fuel and move it into the transportation fuel sector. His so-called Pickens Plan proposes a trillion dollar investment in wind turbine farms running from Texas to the Canadian border, an undertaking he claims will reduce foreign oil dependency by 38 percent. With wind generating electricity, his plan calls for natural gas to be redirected into transportation fuels, replacing petroleum products. While some find his plan self-serving – he is developer of one of the world’s largest wind farm and is heavily involved in transportation applications of natural gas – critics have shot it down for other reasons as well.


In an editorial in the Houston Chronicle on July 10, 2008, shortly after Pickens initially announced his plan, business columnist Loren Steffy pointed out the difficulties in logistics involved, from securing rights to land for building wind turbines to fronting the cost of transmission lines. Steffy also noted the lack of infrastructure for fueling America’s automobiles with natural gas, pointing out that thousands of filling stations would need to invest millions of dollars into new pumps and storage facilities.


Despite the criticisms, Pickens has continued to promote his plan in the two-plus years since its announcement, although little real progress is evident. Lack of infrastructure for using natural gas as a transportation fuel continues to be a major roadblock, with fewer than 1,000 stations nationwide available for fueling. Most natural gas fueling stations dispense compressed natural gas (CNG). Availability of liquefied natural gas (LNG) is even more limited with most LNG stations dedicated to a specific fleet’s use.


Natural Gas Operation


Although cars running on natural gas originally could go only 150 miles between fill-ups, today that number has stretched closer to 300 miles. Technology has also reduced tank size, which was a major consideration as the bulky tanks frequently took away from desired cargo space. But the price of natural gas vehicles, as well as the price of conversion, remains considerably higher than conventional routes. Currently, the technology is used most often in fleet vehicles, as well as public transit where 12 to 15 percent of the nation’s buses and other vehicles use natural gas. The U.S. Department of Energy reports that the availability of new, light-duty original equipment manufacturer natural gas vehicles (NGV), has declined in recent years, although it notes that certified installers can retrofit many light-duty vehicles for natural gas operation.


In addition to infrastructure issues, expansion of natural gas use is likely to be limited, at least momentarily, by a rise in environmental concerns. Moratoriums on fracking have popped up in both New York and Pennsylvania. Although very water-intensive, stewardship of resources has not been a priority. There are also concerns over contamination of nearby drinking water supplies.


Gasland


The Josh Fox documentary, “Gasland,” was produced to shed light on environmental impacts of fracking. The documentary is scheduled to be broadcast on HBO until 2012 and is catching the attention of both the public and media. Fox, a filmmaker known for his socially conscious work who was asked to allow fracking on his own land, believes the natural gas industry is wrongly portraying the process as safe.


Further, he believes that growing reliance on natural gas may adversely affect necessary development of alternative renewable fuels, whether for transportation or other applications.


Shedding light on the controversy through his film and website spurred more than 25 environmental and citizen groups in August 2010 to ask the Environmental Protection Agency (EPA) and the U.S. House of Representatives Energy and Commerce Committee to investigate potential gas industry violations to the federal Safe Drinking Water Act due to fracking.


Key Variables


Concerns over the natural gas industry’s impact on the environment are not likely to ebb soon, according to Deepa Poduval, Principal Consultant for Black & Veatch, Overland Park, Kan. The company provides consulting and strategic planning services surrounding generation fuels, including natural gas. She says the newer methods of extracting natural gas – those necessary to tap into those shale deposits – require millions of gallons of water compared to only thousands of gallons needed with more traditional extraction processes. Treatment and disposal of that water have become key regulatory issues and potentially significant cost factors.


She expects, however, that the industry will address the controversy with advances in technologies directed at optimizing water use and safeguarding its disposal in the future, although how long those developments will take remains open to speculation.


Poduval believes interest in natural gas and greener technologies surrounding its use will continue to grow, buoyed by some form of regulations controlling greenhouse gas emissions.


“The pace of economic growth and the timing and extent of costs related to greenhouse gas emissions are the key variables impacting natural gas demand for power generation and the ultimate opportunity for growth of the natural gas industry,” she says.


A Greener Approach


Most natural gas proponents, particularly those focused on transportation; believe it can be used in new, greener ways to achieve a more secure energy future. There are currently several federal tax credits available for alternative fuel development that could apply to advances in natural gas, including the alternative fuel infrastructure tax credit, qualified alternative fuel motor vehicle tax credit and alternative fuel tax exemption, as well as a guaranteed loan program for improved energy technology.


Attempts at greening up gas are growing.


Carbon Sciences is developing a CO2-based gas-to-liquids transportation fuel technology that transforms greenhouse gases into liquid portable fuels, such as gasoline, diesel and jet fuel. The methane used in the process can be sourced from traditional natural gas fields, as well as through renewable production via landfills and plant biomass. Elton says the gas-to-liquid technology has been around for some time, but it was not a particularly green or economical process. He anticipates that his company will be ready to attract the attention of investors sometime within the first half of 2011. The technology could be road-ready in five years.


“We are a green fuel technology company currently working on developing a technology to make gasoline without using crude oil,” relates Byron Elton, CEO, Carbon Sciences, Santa Barbara, Calif. “There is a lot of talk about an energy crisis. But the world is not running out of energy, it’s running out of cheap crude oil.”


While Carbon Sciences utilizes its own proprietary process, it is not alone in its quest of exploring the use of natural gas for transportation fuels


The Outlook


Natural gas clearly holds a number of notable advantages over other fossil fuel sources. It burns cleaner and emits lower levels of greenhouse gases. Both qualities are high on the priority list for traits in alternative sources of energy. Its availability to users in the United States also makes it an attractive energy option.


The question of whether we should use natural gas appears to be less of an issue than how we should use natural gas.


The debate leans towards power generation as concerns of infrastructure and the price of natural gas vehicles cause some apprehension in the feasibility of natural gas as a transportation fuel.


As further evidence of debate over where best to channel natural gas resources, Exxon Mobil Corp. Chief Executive Rex Tillerson has gone on record as saying he believes the future of natural gas lies not in transportation, but in electricity generation.  Exxon purchased XTO, a natural gas company, for $41 billion in 2009.


Decreasing diversity in the energy mix by combining transportation sources with traditional power generation runs contrary to the lessons of the last century. Would plentiful supplies of natural gas remain plentiful if the U.S. turned to natural gas for all of its energy needs? Attempts to “green” the fuel are in the works, but for now, its main source is still a non-renewable fossil fuel.


Natural gas will certainly play an important role in the future energy landscape in the United States. Whether that role will be in the transportation sector is less certain.





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