Gassing on some more

In the last two posts I have quoted some of the statistics relating to the current state of natural gas production in the US.  The picture looking ahead is a bit grim, for domestic production.  As a result, as with oil, we will need to look abroad for additional supplies. Unfortunately, apart from our immediate neighbors, it is not economic to move gas in its original form, rather it has to be turned into a liquid at a high pressure and low temperature, and then this liquefied natural gas (LNG) can be shipped in specially build vessels and brought from a facility that was built abroad to do the liquefying, to the United States and a special facility that can regasify the fluid and inject it into the gas pipelines.  Which means that if we are to ensure gas supplies we have to have liquefaction plants, LNG carriers and gasification plants.  While some of these exist, Platts points out that a fair amount of the ultimate supply will depend on facilities that are still being built or ordered. Quoting an LNG terminal developer
The world' liquefaction capacity is projected to reach 41 Bcf/d in 2010 from 2004's total of 17 Bcf/d, he said. There are already firm commitments to build 35 Bcf/d in liquefaction capacity by 2009, he added. LNG produced in the Atlantic Basin would mostly be shipped to the US and Europe, while LNG produced in the Pacific Basin would primarily be shipped to Asia, he said. The growing amount of production in the Middle East will help develop a global LNG swing market because the area is positioned between Atlantic and Pacific markets, he said.
However the Asian market is already heavily into LNG that market is anticipated to grow only 6-7 Bcf by 2010. Europe will continue to get most of its supply by pipeline so that demand may go from 4 Bcf to 6 - 8 Bcf in that time.  This would leave around 16-19 Bcf for the United States.  However the article cautions that demand is seasonal, and European winters can be harsh, so that the supply will more likely be 10 Bcf in the winter and 20 Bcf in the summer. Existing and permitted regasification plants (including 2 in Canada and 1 in Mexico) could just about handle this, on an average basis. The article then goes on to discuss the economics of the operation, and the fact that in total this will not satisfy the US demand, (at current estimates of price) so that this will lead to an increase in price.

In an adjacent article Platts also notes that of the import potential there will be 1 Bcf coming from Qatar in 2008 that will fill the needs of a regasification plant that ExxonMobil currently plans to build in Sabine, Texas.

The IEA in their recent MENA Outlook report estimates that it will take an investment of something on the order of $16 billion per year, if the infrastructure is to be emplaced that will meet world needs for LNG from that region over the next 25 years.  (Which will treble gas production from the region during that time frame).  The greatest increases in production are projected, by them, to come from Qatar, Iran, Algeria and Saudi Arabia. (Remember that the 5 rigs that Aramco were borrowing from GOMEX were going after deepwater gas). To give a comparison, the IEA anticipates that the oil investment required will be $23 billion a year, which is more than twice the average annual investment over the past decade.

The most significant resource for the increase, providing 33% of it,  will be from the super-giant North Field/South Pars which is shared between Qatar and Iran, while the Hassi R'Mel field in Algeria is anticipated, by the IEA, to provide another 13%, and they go on to comment that no new gas will need to be discovered to attain projected gas outputs up to the year 2030.  

It is, however, anticipated that some of the Qatari gas will be used in GTL translation. The first plant to do this will come on stream next year, with a capacity of 34 kbd, while Shell have a 140 kbd plant and ExxonMobil have a 154 kbd plant, both in the advanced planning stage, which will all combine (if on time) to give a total production of around 330 kbd in 2011. In contrast Algeria is anticipated to only have a single 36 kbd GTL plant in operation by 2010, and Iran won't have any until later in time.

While the IEA comments that the world as a whole has 66 years of natural gas reserves, at current rates of consumption, MENA, under those same bounds, has 211 years worth. With which cosy outlook,, and having for the second night of the season, just thrown more wood into the tile stove, its time to crawl under the winter covers - with the thought that the predictions for the winter seeming to get a little worse as it approaches.

I've got a strange take on LNG shipments; it feels vulnerable in a way that crude oil or overland NG pipes don't. When you were in hospital you could get a snack from the vending machine if you didn't like the food. However if you had a catheter and drip tube in your arm you wouldn't risk it. If my industry depended on those bubble boats arriving every week I would want a fallback energy source.
Thanks for the 3 recent posts on NG, HO. I'm still trying to figure out what's really going on in this area.

In the first of your posts, you stated that US demand was going to be 25 TCF by 2012, but I don't see how it could go that high. We've been using 11.8 TCF for the past two years, and now that the supply situation is getting more and more constrained, I don't see how we double in 7 years.

More industry is moving overseas, and people are getting wise to the gas situation. I believe that we're going to see more and more people replacing gas furnaces with heat pumps, going for the highest efficiency units (92-95%) when they stick with gas, and burning more wood in the coming years. Those trends are already clear this year just because of the fear invoked by the drumbeat of media reports on higher heating prices this winter.

I know Peter Dea said that half of the gas we'll need by 2012 hasn't been discovered yet, but I didn't catch that he was assuming 25 TCF demand. If that's the case, then it's not as bad as it sounds from the standpoint of NG. It could be worse for pollution, however, as more people use electricity (mainly coal) and wood.

If it's true that we could import 10-20 BCF/day, we may be OK for a while after the demand destruction kicks in. There are still a lot of unknowns, however. For example, how likely are we to really get that 10-20 BCF/d when other countries closer to the source want it worse than we do? Peter Dea mentioned the LNG tanker that was on its way to the US this summer (fall?) when Spain offered more than the $14/MCF we were going to pay and the tanker turned around and went to Spain. I think that's one of the trickiest parts about this whole thing.

  According to EIA data, US demand over the past few years has been at about 22 Tcf/year.  US production has been flat at about 19 Tcf/year.
Well, that'll teach me to try to rely on my memory for things like this anymore. I looked into the effects of Katrina and Rita on our winter gas situation a while back and found that our consumption had been about 12 TCF, but now that I've gone back to the EIA website, I find that was the total only for the months October through March. Also, I was pretty sure that when I added up the numbers then they came out to 11.8, but they don't add up to 11.8 now. They add up to about 12.8.

Oh, well, it's been a long day, and I'm past peak thought now, so I guess I'll just go to bed.

Hello HO,

Have you heard about the NG boom in the MidSouth?

Drillers have leased everything from White County AR to Tunica County MS.

The first Exploratory well went in the 1st of November in North Woodruff Co.  The Driller says the gas is 6000 ft down,  they're drilling with water pressure to break thru the shale, and this "pocket" extends up to the MO Bootheel and into Illinois.

I've seen nothing about this anywhere.


There's a link on EnergyBulletin about NG in the Barnett Shale of North Texas.  

The U.S. Geological Survey estimates there are 26 trillion cubic feet of natural gas equivalent in the Barnett Shale, although no one really knows how far the play extends.

Sounds plentiful, but the NG is trapped in small crevices that must be fractured, so I would think there would be considerable setup costs.

Yes, I was told that this area was the prototype for drilling. A successful well had been drilled there. That a similar operation (Maverick Oil & Gas?) was going to use the same type drilling for Eastern AR.
My parents live just south of Fort Worth and report a frenzy of NG drilling all around the area. The FW Star Telegram has had a number of stories on this I understand.

The point is: is this drilling in the Bartlett Shale a sign of how desperate things really are? I mean it seems like this is pretty difficult to get to. How realistic are these estimates of the amount of gas available? How much supply is this in years?

There are alot of artifacts in my County.

With one of the County Historians (aka Geezer) by my side, I can locate old rail beds, brickmaking facilities, old tile drains, and... an old gas well, abandoned.

Why was the well abandoned?

I think, like you, dex3703, because the gas is in pockets, fractured.  And it wasn't economical.

These guys plan to put in a well every 40 acres !? if they hit with the well they're now drilling.

Is this possible?  How many rigs are we talking, and is a water injection system necessary for each well?  I was told a rice irrigation well (12 " diameter pipe) was needed to drill.  That's alot of water.


HO, re: "...a regasification plant that ExxonMobil currently plans to build in Sabine, Texas" and from that NY Times article Natural Gas: Big Worry This Winter you cited the other day:
The United States currently has five [LNG] terminals for importing natural gas. Regulators have approved the construction of eight more; all but one are planned in coastal areas of Louisiana and Texas that are prone to hurricanes.
Location of these facilities are subject to Not In My Backyard (NIMBY) politics but recent events would seem to confirm the Times' statement that these GOM coastal areas are subject to some pretty nasty weather ;)

Protecting America's NG supply by building accidents waiting to happen.
We have 2 about to be approved here in Or-e-gone.

Natty gas is coming form the Sakhilin Islands in Russia.

From what I've seen, natural gas from LNG will cost about $8-9, if everything goes as planned.  Still no bargain here, ahhh the days of $2.00 natual gas.

One way around the NIMBY problem is to put the LNG terminals in existing military bases like Norfolk, Kings Bay, and Camp Pendelton. Local and state governments have no direct say in what happens inside military bases.
I notice that you say the IEA expects Saudi Arabia to be a major source of LNG for export. According to Matt Simmons' book, Saudi gas reserves are poor and they'll be needing everything they can produce for domestic consumption in order to provide electricity and water for their exploding population. Natural gas shortages may be looming there too, which could destablize the Saudi elite's fragile grip on power. An Islamic revolution in Saudi Arabia would make the debate about how many barrels of oil are still in the ground there academic.
The top gas producing countries have shown very different strategies which directly impact how much LNG is going to be available for import.  Here they ranked by gas reserves.

No. 1 - Russia -- They already have several pipelines to Western Europe and have no reason to go LNG.  It's a win-win supply-demand relationship that neither side wants to rock, but Europe's demand is rising faster than Russia can supply.

No. 2 - Iran -- They have toyed with the idea of LNG in the recent past, but have no active projects.  Iran has a three-tier strategy (as voiced by a number of Majlis members and NIOC officials): (a) Export gas only by pipeline (to India via Pakistan, and longer term, Europe via Turkey).  They already export gas via pipeline to Armenia and Turkey. (b) Use gas for re-injection into large oil fields undergoing depletion.  (c) Export value-added gas products.  This includes condensate and LPG, as well as methanol, olefins, and derivatives.  The largest steam cracker and methanol plants in the world are being built there.  (I think the ethylene plant is complete and the Zagros Methanol is due to startup in '06.)

No. 3 - Qatar -- Here is the darling of the western oil and gas companies.  Unlike Russia and Iran that have a large domestic natural gas demand, Qatar has few options but LNG and GTL.  The problem is that they have maxed out on how many projects they can handle.  There are more expat E&C personnel there than Qatari citizens!  The ports cannot take any more ships delivering compressors and pumps.  A few months ago, Qatar Petroleum cancelled/postponed several BCF/D worth of gas export projects with Conoco Phillips, Marathon, and others.

No. 4 - Algeria -- They had a big explosion in an LNG facility a couple year ago that killed ~200 people.  So despite their long history as an LNG exporter, they are not as enthusiastic about it anymore.  There are presently three pipelines connecting North Africa to Europe:  one through Morocco to Spain, another to France, and a new one from Libya to Sicily.

I guess we can go on and talk about Nigeria too...but not much is going on there that I know of.  So there you have the largest ones.  LNG is not going to be a solution to America's gas shortage.    

The siting of these large LNG terminals will not be a trivial matter. My home state, Delaware, is currently involved in a bitter dispute with New Jersey regarding plans by BP to build an LNG terminal in New Jersey, just across the river from the northern tip of Delaware.

A number of years ago Delaware enacted its Coastal Zone act which forbids the construction of new heavy industrial facilities, including bulk material handling facilities, within areas designated as Coastal Zone. What does this have to do with New Jersey?  Well, through a quaint accident of colonial history, the northern boundary of Delaware was established as a line forming a 12-mile radius from the New Castle, DE courthouse. As such, the northeastern boundary of Delaware extends across the Delaware River to a few hundred yards from the Jersey shore.

As the proposed BP LNG  terminal would largely sit inside the Delaware boundary, Delaware exerted its perogative re the Coastal Zone Act and denied BP a permit to build the terminal. New Jersey is howling mad, and there is now vigorous litigation that is rapidly moving all the way up to the Supreme Court.

Silly?  Yes, but I think it's a good example of some of the problems we're going to face getting LNG terminals up and running.

 It may get so bad that New Jersey will reactivate the battleship New Jersey,currently a museum ship docked in Camden, and send her down river to shell Wilmington. Of course my beloved Delaware won't take this sitting down and will rearm Fort Delaware, the old Civil War fort sitting smack in the middle of the Delaware River so that no LNG tanker will ever make it up river in one piece. Hey, this is but the start of the First Delaware-Jersey War :-)

My understanding about LNG terminals is that there has been much debate about building terminals off the coast of California. BHP Biliton has been behind this proposal to build such a terminal to land gas from its Gorgan field.

Having some gas come from Australia seems a better choice than Iran.

Whether environmental concerns will shrink once gas prices becomes more scarce and dearer remain to be seen.

I guarantee that my fellow Delawareans will soften their opposition to the proposed BP LNG terminal on the Jersey side of the river after they get clobbered by sky-high gas bills this winter. Sure, a large LNG terminal poses a not-insignificant safety risk, but so does nearly freezing to death in the winter.

I'd bet good money that the BP terminal will get built, and built soon.
And maybe when that happens, New Jersey will be spiteful and keep the gas to inself and let Delaware scrounge for its own.

Professor Joule,

Love your moniker!  Excellent choice.

$16 billion just for LNG (not even for energy production - just transport), $23 billion for oil... we are investing overwhelming amounts of capital in energy sources without a future... what is this madness we are doing?? take this money add the Iraq war expenses and we could annually build 50 pebble bed nuclear reactors here at home, providing the energy equivalent of 1 Mbd of oil or 6 Bcfd of NG. Given the efficiency gains from electricity after just 20 years we will not need neither oil, neither LNG bombs around. So... what are we doing?
The US will absolutely need LNG to just to meet residential and industrial demands with our depletion rates so build terminals we must.

However, there is absolutely no reason to build more natural gas-fueled, baseload electric generation!!!!

Not only would so doing be scraffing up a scare commodity, but it would be uneconomical in $/MWhr.

Here's my comparative analysis of LNG-fueled electrical generation versus new nuclear plants.  It ignores the field E&P and collection costs (rolls them into royalities).  The basic assumption is the National Petroleum Council's estimate of capital costs for liquification, transport, and receiving terminal capital costs of $5 to $10 billion per 1 bcf/day.

It shows that nuclear is a clear winner on costs even giving LNG every financial and engineering break feasible.  Since it now looks like my assumptions for royalities make $6 LNG wishful thinking, nuclear looks that much better.

Over the last several years I 've become increasingly convinced that the building of gas-fired electrical generation capacity is folly. Recent developments certainly support that notion.  It is quite understandable why public utilities found gas turbine-powered  generators so attractive:  relatively low capital investment, minimal air emissions problems, and short lead-times due to modularization.
However, do so has put so much pressure on gas demand that we now have a real problem. LNG is a half-assed solution, but a solution nonetheless, albeit a short-term one.

And yes, it is tragic, in the most literal sense, that for the a fraction of the price of Bush's Iraq adventure, we could have built many state-of-the-art nuclear reactors. Why is it acceptable to our rulers to spend $300 billion on a war to take over some else's oil resources (something which isn't even working), yet unacceptable to spend a fraction of that on something with clear long-lasting benefits?  Ideology always seems to trump common sense.

We hit peak uranium about twenty years ago. Sorry, but we are running our reactors on stockpiled uranium.
But that stockpile of uranium is quite large, if reprocessing and breeder reactors are used.  There is enough U238 in the "spent" fuel that we have right now to keep us going over 100 years, no mining needed.
Yes, we can reprocess the spent fuel and build fast breeder reactors. The cost of doing this is so high that it won't be done because coal is cheaper. We can reprocess oil tailings and take apart nukes for fuel for the reactors we have, and that is what we have been doing for the last ten years.
It's like oil. The cheap oil is mostly gone, the reasonably priced oil is going fast, and it's cheaper to make synfuels out of coal then to drill for the expensive oil. Same for nukes.
Sorry, but reports of near-term uranium resource exhaustion are greatly exagerated by people who HOPE it were true.

For a factual report on the urnaium resource base, check here:

There's great gobs of the stuff waiting to be used - uranium resource availablity or costs are in no wise constraints on the expansion of commercial nuclear power within our lifetimes or those of our children or of the plants they build.

Go for it.

For what it's worth . . .

In Sept EnergySEER (M. Lynch's firm) issued a 2010 forecast for North America:
A increase in LNG imports from the current 1.8 Bcfd to close to 11 Bcfd.
A decrease in price to $4-5 per MMBtu, largely due to the lower cost of LNG and declining oil prices.
A increase in non-conventional gas production of 10 Bcfd (coal bed methane, tight gas, deep shelf, shale and
deepwater); they note that conventional gas production has been in decline since 1990.,%20%202005%20Color.pdf

There are a number of interesting presentations on their site:

It's worth noting that they've been consistently wrong (low) on their gas price forcasts for a number of years now, similar to their oil forecasts.  They also assume that LNG will drop the price for gas because the cost for LNG imported from Qatar to the East Coast is close to $3 per MMBtu.  Of course price is only close to the the cost if there is ample supply and suppliers are competing to meet limited demand; in a world where demand is rising faster than supply the price is more likely set by what consumers are willing to pay and thus can be quite a bit higher.  For these reasons I'm confident EnergySEER's price projections are again far too low.

Although we may be in a tight spot this winter, on the whole I am not so concerned about gas supply in the US.  There are huge conventional gas reserves in remote locations around the world; if prices remain high long enough they will be developed and shipped as LNG.  Like oil, there are also tremendous unconventional reserves that can be utilized if the price incentive is there, although I wouldn't methane hydrates in this category - it's still too uncertain whether these hydrates are worth harvesting at any price.  The US is in a similar situation now with natural gas compared to where we were in the late 70's with oil - although we have to rebuild a lot of our infrastructure as we transition from internal to external sources, there is no reason why natural gas consumption can't growth (at more modest rates at much higher prices than the historical average) for decades to come.

It might be available, but it wont be cheap. It makes little sense to sell it for $4/mcf when you can convert it into liquid fuels worth around $9-10 today. So, maybe we could buy it in today's prices at $8, but then we lose 15% as it is shipped to the US, plus we have to amortize billions in new infrastructure. HIgher oil will directly mean higher gas because we will always have to bid higher than the equivalent oil price.
As for decades... pretty tough to predict that far out regarding supplies that are far away.
You won't be able to get LNG delivered to the US unless the overall capital cost of the liquefaction, transport, and regasification terminal chain drops dramatically.  The National Petroleum Council expects that chain to cost from $5 to $10 billion per billion cubic foot per day capacity.

Pencil it out with a 20% ROE at the midrange cost estimate, twenty year depreciation, add 50 cents/mmBTU gas owner royalty and you get $6/MMBTU delivered.

Compare to competitive uses for stranded gas like GTL, and the 50 cents for royalty looks real stupid.

People who promise $4 LNG are lying to you or using a market penetration stategy or both.