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Regional Report: US natural gas

LNG Industry,

Natural gas has always been a major energy source in the US. The nation consumes approximately 61 billion ft3/d: 21 billion ft3/d to heat homes, stores and offices; 17 billion ft3/d consumed by industry; and 19 billion ft3/d burned by utilities. Yet natural gas has rarely been seen as irreplaceable. The long term outlook for natural gas as a utility power source was to slowly be replaced by renewables and nuclear energy. That, however, was before shale gas.

Price tumble

Growth in natural gas supplies has far outstripped demand, and that has had a dampening effect on the price of natural gas. While US production roughly meets consumption, North America has an integrated gas market, and over 10 billion ft3 arrives from Canada each day, saturating the market and filling up the 4 trillion ft3 of storage space long before the winter heating season starts. As a result, prices have tumbled from an annual average range of US$ 6 - 7 /1000 ft3 to less than US$ 4. Unless something is done to correct the current over production, the price outlook for the next several years is bleak.

There are several ways to remedy the dire situation. The first, of course, is to shut in production until gas prices improve. The second option is to drill for less new gas, and to some extent this is indeed the case. A third option is to increase demand. Another outlet for the gas is LNG exports.

There is also great opportunity for transportation fuel switching. T. Boone Pickens, a Texas oil billionaire, has been making the rounds in Washington and editorial boardrooms throughout North America touting a plan to convert the continent’s seven million or so transportation trucks from diesel burning to natural gas. In addition to reducing the US dependency on imported oil by 2.5 million bpd, it would also promote the use of surplus gas. Even if only half of all trucks converted, it would boost consumption by as much as 10 billion ft3/d. While the plan is quite popular politically, the cost of converting that many vehicles and installing fueling infrastructure would be in the tens of billions. Another, far more viable option for increasing demand is gas to power (GTP).

While few doubt that US gas will ride out the current low prices and supply glut, any attempt to predict how the sector will evolve over the next few years, let alone the next decade, is fraught with uncertainty. One prediction is abundantly clear, however; the ride is going to be tumultuous. 'There are going to be lots of twists and turns,' said Santa.

The full article by Gordon Cope, Contributing Editor can be found in the February issue of Hydrocarbon Engineering.

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