NGVs and Natural Gas Supply

Introduction
The U.S. natural gas resource base is huge. And, because of changes in energy economics and improvements in production technology, the amount that can be produced is actually increasing. Natural gas to serve America’s needs can be produced from the following sources:

• Traditional Lower-48 Natural Gas Resources
• “Off-Limit” Gas
• Alaskan Gas
• Biomethane
• Methane Hydrates
• Coal gasification

Traditional Lower-48 Natural Gas Resources
According to the Potential Gas Committee of the Colorado School of Mines (the most authoritative body on the subject), in 1990, total U.S. recoverable natural gas resources was 1,172 trillion cubic feet (Tcf). That was about a 60 year supply at the 1990 level of natural gas production. Since then, we have produced about a quarter of that gas (314 Tcf ). In 2006, the Potential Gas Committee estimated the size of the recoverable natural gas resources was 1,525 Tcf – an 80 year supply. How is that possible? The answer is that improvements in our knowledge of gas geology, improvements in production technology (such as horizontal drilling, 3D seismology and even 4D seismology) and changes in energy economics keep changing the definition of what is recoverable.

For example, prior to 1990, the recoverable natural gas resource estimate did not include natural gas trapped in coal formations (referred to as coal bed methane)since it was not considered economically recoverable. However, technology improved, and, in 2007, coal bed methane accounted for 10 percent of domestic production of natural gas.

Another example (that is evolving right now) is natural gas from shale formations. Like coal bed methane, geologists have long known about gas in shale, but it was not considered economically recoverable. Changes in production technology and economics have changed the situation completely. The majority of the growth in the recoverable natural gas estimate is gas from shale. Further, evaluation of the potential of gas from shale is only in its early stages. It is expected that the amount of recoverable natural gas from shale will grow considerably.

It is expected that, as production technology continues to improve, the U.S. recoverable natural gas resource base will continue to grow as fast (or faster) than production.

“Off-Limit” Gas
A significant percentage of America’s traditional natural gas resources are in areas of the country that the federal government has defined as “off-limits.” These include: the outer continental shelf (OCS) of the east coast; the OCS of the west coast, the OCS of the eastern Gulf of Mexico (off of Florida) and much of the Rocky Mountains. Not only are these areas off-limits to produce natural gas, but it is not permitted for anyone (including the US Geological Survey) to even evaluate how much natural gas is available there. Therefore, while it is estimated that these areas hold about 15 percent (235 Tcf) of our recoverable natural gas resources, the total could be much greater. Congress is already re-evaluating the wisdom of these moratoria. As concerns about climate change and our dependence on foreign oil grow, it is expected that most of these limits will be removed.

Alaskan Gas
It is estimated that Alaska contains an additional 260 Tcf of natural gas – which is not included in total U.S. recoverable natural gas resources of 1,525 Tcf. To date, there is no means transport the gas to lower-48 state markets, although there are discussions underway to build a pipeline that would provide that transportation.

Biomethane
When organic material decomposes in an oxygen-poor environment, nature makes methane – which is the primary component of natural gas. Sewage treatment plants and landfills are sources of huge quantities of natural-forming methane. Farm waste (both animal and plant) and other biomass also could be used as a feedstock for biomethane production. A 1998 DOE analysis of biogas use for transportation concluded that the U.S. could produce 1.25 Tcf of renewable biomethane annually from from landfill gas, sewage and animal waste alone. Producing biomethane from cellulosic waste and crops could dwarf that number.

Methane Hydrates
Methane hydrates are crystalline solids consisting of methane molecules surrounded by a cage of water molecules. They are stable in Arctic areas and in ocean floor sediments at water depths greater than 1,000 feet. Methane hydrates are found throughout the world – including off all U.S. coasts. While good data on methane hydrates is limited, the U.S. Geological Survey conservatively estimates that energy contained in the world’s methane hydrates is twice the energy contained in all known fossil fuels on earth, i.e., twice that in all the world’s estimated natural gas, petroleum and coal combined. Unfortunately, little research has been conducted into how to “mine” methane hydrates economically. However, this is changing. In the long-term, if and when America’s demand for natural gas begins to exceed its ability to satisfy that need from all the traditional and non-traditional sources discussed above, methane from hydrates produced off America’s coasts may provide a virtually limitless domestic supply.

Coal Gasification
The U.S. is estimated to have coal reserves of over 500 billion tons (over 10,000 Tcf-equivalent), more than one-half of which can be recovered under present technical and economic conditions. While technology has minimized most of the air pollution issues associated with coal, coal combustion still produces substantial amounts of carbon dioxide (CO2) – a major greenhouse gas. Currently, there is much publicly and privately funded research into CO2 sequestration, i.e., injection of gaseous CO2 into old gas wells and other underground storage where it is suppose to remain secure for tens of thousands of years. However, another method of CO2 sequestration is to gasify the coal through a pyrolysis process. The gas can then be converted into a natural gas substitute, and transported through the country’s 1.5 million mile gas line system. Importantly, the excess carbon is converted into a solid (charcoal) – not a gas. The solid can then be easily buried, without concern that, at a future time, it will escape into the atmosphere. Currently, coal gasification is not economic.

Natural Gas Imports
While America has a huge (and growing) natural gas resource base, for historical and economic reasons, we currently import about 15 percent of the natural gas we use.

Canada and Mexico. Of the 15 percent of that natural gas we import, 80 percent is produced in Canada and delivered via pipeline. Canada has a huge natural gas resource base and can produce far more natural gas than it can use. It is more economic for customers in northern U.S. cities to purchase Canadian gas than to purchase gas transported from the Gulf coast. Mexico, too, has a large natural gas resource base that, sometime in the future, may be a valuable supplemental gas supply to serve U.S. customers in the west and southwest. Today, however, the U.S. actually is a net exporter of gas to Mexico to serve industries growing along the Mexico side of the U.S.-Mexico border.

LNG Imports. A small quantity of gas is imported to the U.S. in the form of liquefied natural gas (LNG). Currently, there are only four active U.S. LNG importation terminals – in Boston, Massachusetts; Cove Point, Maryland; Savannah, Georgia; and Lake Charles, Louisiana. More are planned, but the total amount of gas imported into the U.S. via LNG is expected to remain small. In 2007, imported LNG represented less than one-quarter of one Tcf (less than one percent) of gas used in the U.S. – about 3 percent of U.S. consumption. This is not expected to increase, and, in fact, during the first half of 2008, LNG imports actually declined.

The Worldwide Trade in Natural Gas
The world has more natural gas than petroleum, and natural gas resources are more evenly distributed. As a result, a growing number of countries have discovered indigenous natural gas resources that they are interested in selling in the international market. Meanwhile, the demand for natural gas from countries with a limited domestic energy resource base (e.g., Japan, Korea) is increasing. So it is expected that worldwide trade in natural gas will be expanding steadily.

The direct impact of this on the United States will be very limited. The world market for natural gas is very different than that for petroleum. With petroleum, America imports almost three-quarters of what it uses and all the oil used is affected by the worldwide oil price. On the other hand, the U.S. natural gas market has the following characteristics: (1) the vast majority of the natural gas used here is produced here, and (2) except for one small exception, the United States and Canada have no ability to produce and sell their natural gas on the international market via LNG. As a result, the U.S. and Canada) are largely isolated from the international market and the world clearing price for natural gas. In other words, supply and demand in America – not the world price -- determines the average natural gas price in America. As a case in point, during the first part of 2008, the price of natural gas in the U.S. was significantly less than the world price for natural gas. As a result, the U.S. LNG importation terminals were only operating at 20 percent of their capacity since they couldn’t “bid away” LNG from other countries.

There are no plans to build any LNG export terminals in the U.S. and, because of all the domestic U.S. natural gas resources, the U.S. will continue to rely on its own its domestic supply to satisfy the vast majority of its domestic demand.

NGVs Impact on Natural Gas Use
In 2007, America used 22.9 trillion cubic feet (Tcf) of natural gas, which represented about 24 percent of all primary energy used in the U.S.  Of that amount, the 130,000 NGVs operating on U.S roads used no more than 0.052 percent!.  Even if the number of NGVs were to increase 100-fold in the next ten years to 11,000,000 or roughly 5 percent of the entire vehicle market (a formidable goal), the impact on natural gas supplies and the natural gas delivery infrastructure would be small -- equating to about 4 percent of total U.S. natural gas consumption.