The US is poised to become the Saudi Arabia for natural gas and has the potential to quickly become a net exporter as shale reserves are exploited.
“It’s clear from the supply side that the US is the Saudi Arabia of gas we have based on the most recent estimates at least 40 years of supply from shale alone based on current demand in the economy,” Deutsche Bank vice president and senior research analyst Nils Mellquist told Breaking Energy. “China has around 400 years of supply based on their relatively modest gas demand.”
Mellquist was the lead author of a Deutsche Bank report which acknowledged that last year’s changes in Congressional majorities would result in a US energy policy expected to focus more on gas than renewable fuel sources
“There is significant potential for a transformation towards a more natural gas orientated energy plan view for the US. But it does raise longer term questions is natural gas a transition or a destination fuel,” he said.
The report, titled “Natural Gas and Renewables: A Secure Low Carbon Future Energy Plan for the United States,” found that a significant switch by the US electricity sector from coal to natural gas would be the most secure, least cost approach to lower emissions.
“When combined with further renewables and nuclear deployment, this plan would involve a reduction in coal’s share of energy generation from 47% currently to 22% by 2030. This would make the Obama Administration’s targets of a 17% over all economy-wide reduction in greenhouse gas emissions by 2020 and an 83% reduction by 2050, realistically achievable.”
But Mellquist told the Ceres conference in Oakland, California on May 11 that the Fukushima nuclear disaster had improved the outlook for natural gas in the US. Technical expertise in the industry was already attracting attention from other countries, such as France, which was sending a delegation to visit the Marcellus shale formation the week beginning May 16.
“The US, whether you like it or not, is becoming a laboratory for this shale revolution. France is clearly a nuclear dominated country but post the situation in Japan everyone is taking a fresh look at their energy.”
The US, whether you like it or not, is becoming a laboratory for this shale revolution.
“The US will be the laboratory for shale for it makes perfect sense for stakeholders to come and see what’s happened both from a regulatory standpoint and from a best practice standpoint. If supplies are close to what people think they might be it will only be a matter of time before seeing exporting US technology to other regions. It is a very efficient way to extract hydrocarbon,” Mellquist said at the conference.
Mellquist also said that gas prices would not remain relatively low if suppliers looked to generate demand from other markets, such as transport, pointing out that price stability from coal-generated electricity, for example, had been guaranteed by long-term contracts.
“We see competition not just from power generation but from the industrial complex as well as transportation for natural gas. The gas industry would like to see this because compound growth of gas demand in the US has been zero for the past 10 years.
“Pricing is clearly the driver and what makes investors and utilities figure out which generation they should dispatch. Gas, in contrast to coal, has not had a history of long term contracts it’s been much more of a spot market transaction market so as a consequence there hasn’t been that price stability. Most people believe we’re not going to be in this $3 to $5 trading range forever.”
But he said that recent environmental concerns over water pollution related to hydrofracking and lifecycle emissions from gas vs coal “must be responsibly addressed”.
“We think that on a lifecycle analysis, natural gas is about 50% cleaner than coal. But more pressing is the hydrofracking – the biggest challenge are adequate regulations to deal with this and we’re unlikely to see any solution on a national level.”
He said it would be incumbent on states like Pennsylvania, where the US’s largest gas reserve, the Marcellus formation, is located, to put forward best practice to make sure companies act responsibly.
Concerns have grown in recent months over the lack of federal regulation over the “shale gale” of increased drilling.
The US natural gas has largely seen one operator, Chesapeake Energy, dominate an industry of hundreds of smaller operators. In February, three workers were injured when a fire broke out in the storage tanks at one of Chesapeake’s drilling sites, fuelling safety concerns.
Last week, US energy secretary Stephen Chu set up a new natural gas subcommittee to examine safety and regulation concerns.
Dr Susan Tierney, an energy strategist and analyst who will sit on the subcommittee, admitted that regulating the natural gas industry would not be easy.
She said: “I don’t know what appropriate regulation means here and that’s part of the journey that we’re on. It’s not automatically a federal issue. I don’t know what the right combination is here. We have to all figure that out because there’s a huge opportunity with natural gas that we could really blow.”