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Last updated on April 19, 2014 at 21:20 EDT

Natural Gas: Cheap, Clean, And Reliable

December 22, 2009

With the fight against global warming in high gear, natural gas is becoming the fuel of choice, according to an Associated Press report.

Natural gas, which is cheaper than oil and cleaner than coal, is the same fossil fuel that was so scarce just a decade ago that it was considered unreliable. Now, it is emerging so quickly that its price has been driven to the lowest it has been in seven years.

Half the homes in America have been heated using natural gas for quite a while, and it is becoming the fuel of choice for new power plants. Utilities and other companies see natural gas as a way to cut emissions and costs. In the future it may commonly be used in vehicles instead of gasoline.

The ample supply and low cost of natural gas has come just in time to become part of the international discussion about how to reduce carbon dioxide and other factors contributing to climate change. Many are expecting the debate to lead to a tax increase on companies responsible for exorbitant amounts of greenhouse gas emissions. 
 
Impending climate laws have changed the way U.S. utilities calculate the most cost efficient way to deliver power. Though coal may be the least expensive, natural gas emits half as much carbon when burned to generate the same amount of electricity.

Currently, coal-fueled power plants are responsible for about 27 percent of the nation’s carbon dioxide emissions. They generate 44 percent of the electricity used in the U.S., and a little under 25 percent of power comes from burning natural gas, which is more than twice its share a decade ago and still growing.

In order for natural gas to become a viable fuel source, it will have to be plentiful and come at a reliable price. Factories that wanted to burn gas instead of coal in the 1990′s were forced to install equipment that could use gas and coal because the gas supply was unsteady and extreme price fluctuations were common. In some states, a fear of shortages led to homebuilders being told that new gas hookups were not allowed.

Now, energy experts think that the large volume of supply will serve to balance the price of natural gas.

Gas is now being traded on future markets for about $5.50 per 1,000 cubic feet. That is up from a recent low of $2.41 in September as the recession cut demand and storage caverns filled to overflowing, but it is still less than half what it was in the summer of 2008 when oil prices surged close to $150 a barrel.

The recession and growing realization of how much gas has been discovered in the last three years has caused the trends in oil and gas prices to split. The introduction of horizontal drilling technology has opened up unbelievable amounts of gas in what used to be off-limits shale formations. Estimates of total gas reserves have gone up 58 percent from 2004 to 2008, giving the U.S. a 90-year supply at the current usage rate of about 23 trillion cubic feet per year.

It is uncertain whether enough gas can be delivered at affordable enough prices for these trends to accelerate.

On Monday, the world’s largest oil company, Exxon Mobil Corp., announced a $30 billion deal to acquire XTO Energy Inc. This will may Exxon the country’s leading producer of natural gas.

The company expects to be able to dramatically raise natural gas sales to electric utilities, and CEO Rex Tillerson says that is what makes it such a wise acquisition.

Tillerson told AP he predicts the demand for natural gas to grow by 50 percent by 2030, much of it for electricity generation and running factories.

This month, Progress Energy Inc. scrapped a $2 billion plan to add scrubbers for reducing sulfur emissions at four older coal-fired power plants in North Carolina. It is now planning to phase out those plants and redirect a portion of those funds toward cleaner burning gas-fired plants.

Lloyd Yates, CEO of Progress Energy Carolina, told AP that planners were 99 percent certain that retrofitting plants was logical after they began a review late last year. But then a drop in gas prices and the recession triggered gas-turbine makers to cut prices just as global warming pressures intensified.

“Everyone saw it pretty quickly,” he said. “The environmental component of coal is where we see instability.”

Nevada power company NV Energy Inc. called off plans for a $5 billion coal-fired plant early this year. It made the decision after its home-state senator Majority Leader Harry Reid made it clear he would fight to block its approval, and executives became increasingly afraid of the costs of meeting future environmental rules.

“It was obvious to us that Congress or the EPA or both were going to act to reduce carbon emissions,” said CEO Michael Yackira, whose utility already gets two-thirds of its electricity from gas-fired units. “Without understanding the economic ramifications, it would have been foolish for us to go forward.”
 
Despite the expected jump in demand from utilities, gas prices are not likely to rise much beyond $6.50 per 1,000 cubic feet for many years, according to Ken Medlock, an energy fellow at the James A. Baker III Institute for Public Policy at Rice University in Houston.
 
Predictions like that are partly founded on the belief that the recent burst of gas discoveries may only be the start of a golden age for gas drillers, one that creates wealth that rivals the “ËœGusher Age’ of the early 20th century, when  oil strikes in Texas created a new class of oil barons.

The company being acquired by Exxon was one of the front-runners in developing new drilling technologies that allow a single well to descend 9,000 feet and then bore horizontally through shale formations up to 1 1/2 miles away. Water, sand and chemical additives are pumped through these pipes to give access to trillions of cubic feet of natural gas that, until recently, had been deemed unobtainable.

The expansion plans of XTO and its competitors were limited by the debt they took on to fund these projects that can cost up to $3 million each.

Seeing how Exxon raked in $45.2 billion last year, that is no longer considered an issue.

The wells are still only drawing about a fourth of the gas locked in the shale formations, and future improvements could double that recovery rate. It is estimated that the U.S. contains 83 percent more recoverable natural gas than was thought in 1990.
 
“The question now is how does this change the energy discussion in the U.S. and by how much?” says Daniel Yergin, a Pulitzer Prize winning author and chairman of IHS CERA, an energy consultancy. “This is domestic energy … it’s low carbon, it’s low cost and it’s abundant. When you add it up, it’s revolutionary.”