With easy-to-access oil on the decline, nuclear power in the cold box following Tokyo Electric Power’s Fukushima plant disaster, and coal still tarred as a dirty fuel, could this be natural gas’ moment to shine?
The International Energy Agency (IEA) seems to think so. As part of its World Energy Outlook 2011, it is predicting that global natural gas use may increase by more than 50% by 2035 and jump over coal as the second-most used fuel behind oil.
The North American shale gas boom and expansion of LNG trade have increased supplies in the near-term and bolstered the prospect of larger amounts of future gas supply.
While lower gas prices and the rising use of gas as a transportation fuel (see the Pickens Plan) are major factors, the primary driver behind the new assumptions about increased gas use are based on growing demand for the fuel in China, which has 16 of the world’s 20 most polluted cities. According to IEA’s chief economist, Fatih Birol, about half the reductions in carbon-dioxide emissions will derive from more gas use and less coal use in China. Chinese gas demand, now about 100 billion cubic meters a year (the same as Germany) will become equal to that of the entire European Union by 2035. Unconventional gas would account for 40% of the 1.8 trillion-cubic-meter gain in consumption.
The production of gas from unconventional sources is currently experiencing a boom in the US, particularly in shale plays such as the Marcellus, Barnett, Haynesville, and Eagle Ford, with numerous big players engaged (including Exxon Mobil, Anadarko Petroleum, Chesapeake Energy, and EOG Resources).
However, there is a gloomy scenario that may take the glister off the proposed golden age of gas. Fracking. The production of gas from shale deposits requires large volumes of water and chemicals to hydraulically fracture the rock in order to release methane trapped in the strata. Mitigating the environmental impact of shale production is an issue where the industry is still struggling to win over the public (although the gas companies swear that fracking is safe).
My sense is that there will be no golden age of natural gas, at least in the US, if the cleaner-burning fuel improves air quality while contaminating water tables during the extraction process. The degree and depth of new US federal regulations regarding fracking remains uncertain and is making gas exploration and production companies nervous.