The problems of natural gas supply
Posted by Heading Out on November 15, 2005 - 12:21am
We need to declare a national crisis," Andrew N. Liveris, the chief executive of the Dow Chemical Company, said in recent testimony before the Senate. Dow, the nation's largest chemical maker, has shut 23 plants in the United States in the last three years in places like Somerset, N.J.; South Charleston, W.Va.; and Elizabethtown, Ky., as it shifted production to Kuwait, Argentina, Malaysia and Germany, where natural gas is cheaper.And while the article suggests that some of the problem arises from the loss of production in the Gulf, there are other causes."Call it demand destruction," Mr. Liveris said. "Dozens of plants around the country have closed their doors and gone away, and are never coming back."
But it has also revealed two disturbing trends: disappointing production elsewhere in the United States and an inadequate imports via pipeline from Canada.That does not tell the entire story, since even with permits, there are no drilling rigs or crews to be had. Remember that it was not so long ago that companies were bringing in rigs from China. The first arrived in August and is scheduled to drill four wells this year. A second rig arrived in September and a third is due this month. Up to ten may be currently under negotiation.Wildcatters are frenetically trying to drill as much as possible in parts of the Rocky Mountain West, but these efforts have produced severe bottlenecks as companies have flooded the Bureau of Land Management with a 30 percent increase in drilling applications over last year.
Any prudent company will look at all the options," Croyle said. "There's still a shortage of drilling rigs. We skipped a generation-and-a-half of rigs in the United States."There are 80 rigs reported as working in Colorado, but the article points out that there is a shortage of around 200. And at present about 83% of the activity in the state is in gas, rather than oil.Daily rig rates in the area range from $12,000 to $16,000 a day, he said. A year ago the rate started at $8,500 a day.
"A lot will be flowing into the Colorado and Wyoming region. We've used up whatever slack there is and refurbished equipment, but trained folks are really hard to come by," he said.
Croyle noted some trade schools are gearing up to train drilling rig workers, and Canadian rigs and crews have already arrived to work in the area.
It was Peter Dea who covered this at the ASPO Conference ( pdf file), pointing out that we are in an era where there is no excess capacity, and where price increases will drive demand destruction to meet supply. He pointed out that even though rig count increased 63%, production has dropped 2% since January 2003. Because natural gas is also produced and then depletes faster, perhaps the greater concern was his point that in order to meet projected demand for the year 2012, more than half that gas will have to be discovered by then, `cos so far it hasn't been. In his slide 5 note that only about 3 trillion cubic feet will come from current wells, and about 7 tcf from existing fields. If US demand is 25 tcf that demands not only that we find 10 tcf from domestic resources, but also that we import 5 tcf. (Against demands for the same product from elsewhere).
One of the illustrative numbers that Peter gave is also a warning shot to those following the oil situation in the Middle East. As the number of rigs drilling per year rises, so the production drops by 325% in terms of production added per well. (This is in part due to the number of dry holes drilled, but between 2000 and 2004 the average for the first 450 rigs dropped from 22 mmcfd/rig to 17 mmcfd/rig). With this declining production we would need to drill an additional 380,000 wells through 2020 to meet anticipated needs, providing we find the resource in the first place. And the Rocky Mountain region is currently the major hope for finding those.
In my chat with Chris Skrebowski I asked him about the problems that the UK will face this winter from a shortage of gas, if the winter were at all harsh. His answer was "Pray that it isn't !"
I think we are going to have the same situation here, ere long.
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I just installed a new natural gas water heater and have it set to just above "vacation"-level heat. I'll monitor to see how much money I can save by doing this.
Also being in MN. I gave up last week and turned on the heat. I have the temp at 66F during the day and 55F at night; am ramping it down every other day. I don't like wearing a hat to sleep.
UK gas extraction to Q2-2005:
link
July 71.1 TWh
August 54.7 TWh
This means production in August 2005 was 23% down on August 2004. The UK has no facilities to import liquid natural gas and only a small pipeline across the English Channel to mainland Europe that is already working at full capacity.
Link to blog comments.
One of the areas i find most worrying is when you look into lead times for the UK expanding import capacity. You cant help but wonder how, even if we get through this winter we would be able to get through 2006 with depletion continuing at such a rate. With most new projects only coming online in 2007/2008 we could face quite a crunch period.
clv101 makes an excellent point about the transport issues with natural gas. I see gas becoming a bigger problem for the US and Canada (due to legal requirements to export to the US) far sooner than oil does. The main reason being the buying power the US commands on the world market for oil cannot be applied to gas.
Natural gas is a whole different ball of wax. It's not easily shipped. And we've become very dependent on it. Partly because environmental regulations encourage its use, partly because the oil crisis of the '70s discouraged the use of oil to generate electricity, partly because it has been so cheap and so plentiful for so long.
We've come close to running out of natural gas before. That is, using so much that the pressure drops to null, meaning no gas flows through the pipeline. And that was with relatively mild summers and winters. In the winter of 2004, areas in the northeast were warned that rolling blackouts might be necessary - during one of the bitterest cold snaps of the year. (Of course. Just as energy crisis hit on hot days in summer, they're more likely on cold days in winter.)
We've been lucky the past four or five years. Our luck may have run out this year. A hot summer plus those hurricanes...even if the winter isn't too bad, we could be in trouble this year.
Some companies that rely on natural gas to generate electricity are, meanwhile, scrambling to find substitutes, creating greater demand for coal, fuel oil and even wind energy. Prices for coal from the Powder River basin of Wyoming have almost doubled since September, to about $19.50 a ton from $10 a ton, and railroads there are under strain to take more coal from the area.
I'm worried because my folks live in the Midwest US and are entirely dependent on gas.
In our household here, we have a coal system that we use three ways: heat, cooking and hot water. Sound great?
We've had a hell of a time getting coal. Suppliers say they're being rationed by their Pennsylvania suppliers. Costs have risen, and some companies won't ship.
We just loaded a trailer with 1-1/2 tons and brought it home ourselves. One more load, and we should have enough to squeak by winter. We do have access to plenty of firewood, but oh the work.
Everyone's going to suffer, even those of us with access to "alternatives." I get more concerned (ie frightened) every day.
Now I see we should be also looking at NG along with oil when we talk about peak... That's a good sign..
Helium is generated by alpha particle decay of radioactive elements in the Earth, and is trapped in the same formations as NG. Almost all helium production is from separating He from NG. Most helium production is from around Amarillo, TX. If those fields around Amarillo are seriously depleted, is that all she wrote for helium?
Just think, in one or two decades, MRIs, blimps, space craft, particle accelerators, low-temperature physics, tokamaks, and deep sea diving mixtures may all be gone or greatly restricted because of a lack of helium.
Most (all?) helium is extracted from natural gas wells where it is a dilutant that lowers the heating value of the gas. While helium is almost never enough on its own to make the untreated gas non-commercial (max 7% or so, usually 1% or less), there are usually co-mingled non-combustibles like nitrogen that are also present. Nitrogen is expensive to remove and is seldom done unless there is a lot of gas to amortize the big cyrogenic plants required.
The bottom line is that helium is often from non-commercial-grade gas resources that can't be sold and won't burn. They are two different markets.
In a sense, we are also seeing this with industrial uses of NG. Industries like plastics and fertilizers move to where NG is plentiful (not North America), then use gas-to-plastic or gas-to-ammonia to create a more marketable, transportable product.
Natural gas wells have the nasty habbit to loose pressure much quicker tha oil-wells. So production collapses happen suddenly.
Beware for cold winters
As of now total global GTL capacities are well below 200 kb/d, mostly operated in Bintulu in Malaysia, South Africa (Sasol) and perhaps some other plants I can't recall names of right now.
Shell is in the process of constructing so far the greatest GTL plant in Qatar which is planned operational by 2009 and with a design capacity of 140 kb/d. The project has experienced some serious cost overruns.
Giving sanctioned and planned GTL projects worldwide, as of now, global capacities could reach 1 Mb/d by 2015.