UNDERSTANDING NATURAL GAS

Transcription

1 UNDERSTANDING NATURAL GAS Large domestic and North American reserves relative to current demand (U.S. currently imports ~15% and that comes largely from Canada in contrast to US oil imports of approximately 50%) Like all fossil fuels, natural gas is depletable and does contribute to global warming, however, it is the cleanest fossil fuel (lowest particulates, SOx, NOx, and C0 2 ). The Clean Air Act of 1990 and other environmental policies favor natural gas. Natural gas is the leading automotive fuel alternative to gasoline The winter of included the highest natural gas prices in over 15 years.

2 Increased Efficiency of Conversion of ENERGY RESOURCES to ENERGY SERVICES

3

4 Introduction What is Natural Gas Worldwide Natural Gas Production, Reserves Consumption US Natural Gas Reserves Production Consumption Prices The Natural Gas Industry Refining Transportation Pipelines LNG Storage Technology Environmental Impacts Future Lecture Outline

5 Source: EIA, Annual Energy Outlook 2001 December, 2000 World Energy Consumption by Fuel, (quadrillion Btu)

6 World Commercial Energy Consumption Nuclear Energy 8% Hydroelectric 3% by Resource, 1999 (Total Quads) Coal 25% Oil 40% Natural Gas 24% Source: BP Statistical Review, 2000 Note: difficult-to-measure, non-commercial energy sources like biomass are not included in this figure

7 US Commercial Energy Consumption by Resource, Quads Nuclear Energy 9% Hydroelectric 1% Coal 25% Oil 40% Natural Gas 25% Source: BP Statistical Review, 2000 Note: difficult-to-measure, non-commercial energy sources like biomass are not included in this figure

8 Source: The International Energy Outlook, EIA, 2000, World Electricity Production, Quads Oil 9% Coal 36% Hydro 21% Natural Gas 16% Renewables 2% Nuclear 16%

9 Total US Net Electricity Generation 1999, by Source and Industry Sector Note that: In 1998, Gas accounted for 9.1%, Coal accounted for 57.2%, Nuclear 20%, and Hydro 11% Nearly 48% of all gas-fired generation is non-utility

10 Source: EIA, July 2000 Electricity Generation by Fuel in Two Cases, (billion kilowatthours) Reference Case Renewable Hydropower Nuclear Petroleum Natural Gas Coal % Case

11 Gas Introduction Natural gas has attracted global attention as the transition fuel to a more sustainable/renewable energy mix world wide. Recent and dramatic deregulation and restructuring of the pricing and transmission of natural gas (both have been regulated for over fifty years) is allowing the development of new markets in all sectors for natural gas. In 1990, natural gas began trading on NYMEX which has become the primary reference point for U.S. gas prices. Weather and gas storage patterns are the principal influences on wellhead gas prices. With deregulation, the largest boom in natural gas pipeline construction since WW II began in late 80s and lasted into early 90s. Significant construction continues today to better link reserves and markets. New technologies and policies have caused natural gas to be a fuel of choice rather than the "boobie prize" of oil exploration and led to the development of natural gas reserves in "unconventional" reservoirs such as buried coal beds and "tight" sands.

12 Significance The first gas well in the US was drilled in 1825, long before the first oil well. It was connected by pipeline to users in Fredonia, New York. By 1886, an eight-inch gas line had been run 87 miles from Kane, PA to Buffalo, NY. Globally, natural gas has posted dramatic growth over the past four decades. The US and the countries of the former Soviet Union are by far the largest producers of natural gas. The Middle East, although a major holder of natural gas reserves, is not one of the largest producers.

13 How the Natural Gas Industry Changed Since the mid-1980 s Deregulation: Arkoma Basin example: prices, pipelines, third party transactions Oil and Gas have different origins and unconventional resources emerged to become very important Tight sands, Coalbed Methane The Clean Air Act and PURPA the spead of Non-utility generation which both favored natural gas

14 Source: Power Surge Current Production = 87 tcf

15 WHAT IS NATURAL GAS? Definitions Natural Gas is largely composed of methane (CH 4 ), the simplest hydrocarbon molecule. Like oil, natural gas is described as sweet (low) or sour (high) depending on its sulfur content. It is also described as wet or dry depending on the presence of natural gas liquids and other energy gases. If natural gas is greater than 90% methane then it is referred to as dry. Finally, natural gas is described as associated or non-associated depending upon whether or not it is associated with significant oil production. Contrary to popular belief, most natural gas is not associated with oil. In the US, only ~20% of natural gas reserves are believed to be oil associated.

16 Natural Gas Definitions A producing gas well Christmas Tree An approximate breakdown of raw natural gas by component. Other hydrocarbon gases are removed from the methane mixture and sold separately from natural gas

17 WHERE DOES NATURAL GAS OCCUR? WHAT METHODS ARE USED TO EXPLORE AND DEVELOP NATURAL GAS? MINERAL RIGHTS ARE RELEVANT HERE JUST AS THEY WERE FOR OIL WHERE DOES NATURAL GAS COME FROM? COASTAL SWAMP ALLUVIAL PLAIN

18 Mineral Rights in the U.S. FEE SIMPLE Largest, most extensive interest that can be owned in land SURFACE RIGHTS Includes water rights Divisible into: Real Estate Deed Lessee Mineral Deed MINERAL RIGHTS rights to any natural constituent of the earth s crust Oil and Gas Lease Lessor WORKING INTEREST OWNER Gives holder right to explore for and produce oil and gas Leases normally continue as long as wells drilled on the land produce oil and/or gas in commercial quantities ROYALTY INTEREST OWNER Interest in gross revenues of oil and gas production (usually 1/8th of 8/8ths) Limited liability: ownership is free and clear of all costs ( Landowner s Royalty ) Mineral owners receive a cash bonus as an inducement to execute a lease

19 Drilling for Gas Onshore Same procedures and basic equipment as for oil exploration

20 Offshore Gas Fields (North Sea) Source:

21 HOW MUCH NATURAL GAS IS THERE? World Proved Reserves are currently approximately 5171 trillion cubic feet (about 5100 quads) with 73% of these reserves concentrated in the Middle East and former Soviet Union World Natural Gas Proved Reserves Africa 8% Asia & Australia 7% North America 5% Latin America 4% Former Soviet Union 38% Middle East 34% Europe 4% Source: BP Statistical Review, 2000

22 1999 World Natural Gas Production Source: BP Statistical Review, Quads 1 bcf = 1.03 trillion Btu 1 tcf = 1.03 quadrillion Btu Latin America 4% Rest of World 16% North America 32% Middle East 8% Europe 12% Former Soviet Union 28%

23 Source: EIA, Natural Gas Use for Electricity Generation by Region,

24 World Natural Gas Consumption, Source: EIA, International Energy Outlook 2000 While the entire world continues to increase natural gas consumption World Natural Gas Reserves, Reserve Growth is Increasingly in Developing Countries

25 Natural Gas Consumption in Asia Gas growth in China and India Natural Gas Consumption Poised to Increase Gas Use in India, Source: EIA, International Energy Outlook 2000

26 Source: EIA U.S. Crude Oil, Natural Gas, and Natural Gas Liquids Reserves 1999 Annual Report 1999 United States Natural Gas Proved Reserves 167 tcf Rest of US 19% Alaska 6% Kansas 4% Louisiana 6% New Mexico 9% Federal Offshore 16% Oklahoma 8% Wyoming 8% Texas 24%

27 1999 Dry Natural Gas Proved Reserves Source: Energy Information Administration U.S. Crude Oil, Natural Gas, and Natural Gas Liquids Reserves 1999 Annual Report

28

29 Producing Regions and Primary Markets

30 How much Natural Gas is There? At current production levels, world and US reserves to production ratios are approximately 64 and 9, respectively. The size of the natural gas resource base has been growing in recent years as scientists understanding of its origin and occurrence has improved, and as companies are beginning to actively look for gas resources due to rising demand. The DOE states that there are at least 1300 TCF of natural gas in the US that can be recovered. Proved reserves sit at about 167 TCF or about a 9-year supply at current rates of consumption. It is only in the last decade that we have begun to seek gas production. We haven t looked hard yet like we have for oil. Big potential: Deep gas, tight gas reservoirs, coal bed methane. US Government has given substantial tax credits to boost development of resources. Thomas Gold (Cornell) - Natural gas is abundant beyond imagination - not necessarily limited to organic origin, but to the earth s formation and thermal and chemical activity in the earth s mantle

31 Source: EIA Technically Recoverable Gas Resources in North America Comprise Almost 2,500 Trillion Cubic Feet Alaska 0 0 Northern Frontier WCSB* East Coast Resources (trillion cubic feet) Proved Reserves Conventional Resources Nonconventional Resources Western Region *WCSB = Western Canadian Sedimentary Basin Midcontinent Gulf Coast 70 0 Mexico Eastern Region

32 1999 US Natural Gas Production 23.7 Trillion Cubic Feet 24.4 Quads Source: EIA Natural Gas Monthly - February, Kansas 3% Rest of the US 15% Alaska 2% Wyoming 4% Texas 32% New Mexico 8% Oklahoma 8% Louisiana 28%

33 Lower 48 Dry Natural Gas Reserves and Production, Lower 48 Dry Gas Reserves Trillion Cubic Feet World War II Ends Rapid Reserves Peak 1967 Lower 48 Reserves Lower 48 Prod (Dry) AEO 2000 HISTORY Production Peak TCF Proved Reserves Decline Flattens High Gas Prices and Drilling Lower Gas Demand AEO 2000 Reference Case Projected Production in TCF Lower 48 Dry Gas Production Trillion Cubic Feet

34 U.S. Lower-48 Annual Estimates of Proved Natural Gas Reserves Source: PaineWebber (1950 to 1976, American Gas Association; 1977 to the present, Energy Information Agency) Net Reserves-to- Proved Reserves Additions Adjustments Production Year Beginning of YearExtensions Discoveries * & Revisions Production Ending Ratio

35 Source: EIA Trends in US Natural Gas Consumption and Supply Consumption Imports Production

36

37 Source: EIA U.S. Natural Gas Net Imports, (trillion cubic feet) History Projections Canada LNG Mexico

38 Current Natural Gas Spot Prices: Well Above the Recent Price Range $10.50 $8.50 Henry Hub Daily Spot Prices Compared to Typical Range for Dollars per MMBtu $6.50 $4.50 Henry Hub Midpoint $/MMBtu Average, /- two standard deviations, =$0.64 $2.50 $0.50 1/1/98 3/1/98 5/1/98 7/1/98 9/1/98 11/1/98 1/1/99 3/1/99 5/1/99 7/1/99 9/1/99 11/1/99 1/1/00 3/1/00 5/1/00 7/1/00 9/1/00 11/1/00 1/1/01 Average=$2.17 Source: Financial Times Energy, Gas Daily Source: EIA Why the price surge in 2000? Supply Tightness Storage Stocks - lower than average Consumption increases Oil Price Increases Market Perceptions

39 Baker Hughes Oil/Gas Split Rig Count /12/94 09/08/95 07/04/96 04/30/97 02/24/98 12/21/98 10/17/99 08/12/00 Date US Total Rigs US Oil Rigs US Gas Rigs Data Source: Baker Hughes February 10, 2001 Data Through 2/9/01

40 Natural Gas Prices by Sector Note: Year-end 2000 numbers not yet available but for the months June-October 2000 Average Wellhead price - $ 4.42 per Mcf 104% above 99 avg. Average Citygate price - $ 5.18 per Mcf 64% above 99 avg. Average Residential price - $ 9.64 per Mcf 44% above 99 avg. Average Commercial price - $ 6.32 per Mcf 19% above 99 avg. Average Industrial price - $ 4.61 per Mcf 49% above 99 avg. Average Electric Utility price - $ 4.50 per Mcf 72% above 99 avg. EIA Natural Gas Monthly January 2001

41 1998 US Natural Gas Consumption by End-Use 21.3 Trillion Cubic Feet Source: CERA, North American Gas Trends, 2000 Transportation 8% Electricity 15% Residential 21% Commercial 14% Industrial 42%

42 Source: EIA The Industry At A Glance Participants Miles of Pipe Regulatory Regime Producers 8,000 Independents 0 Phased price deregulation 24 Majors Begun in 1979, completed in 1989 Pipelines ,000 Federal Energy Regulatory Commission (FERC) Natural Gas Marketers Unregulated Local Gas Utilities 1, ,000 State Utility Commissions End Users Residential 53 million 0 Unregulated Commercial 4.5 million Industrial 40 thousand Electric Utilities Interstate - FERC Intrastate - State Commissions

43 The Natural Gas Industry

44 Natural Gas Supply and Disposition in the U.S., 1996 Source: EIA 24.1 (Trillion Cubic Feet)

45 How is Natural Gas Refined? Natural gas is the end product in contrast to oil which needs to be refined. Natural gas is gathered from individual wells, processed locally, and then moved via large pipelines to markets. Minimal refining is done near the production to remove water, hydrocarbon liquids, helium, carbon dioxide, hydrogen sulfide, etc. Referred to as gas processing plants; much simpler than an oil refinery and they are located closer to the production. The owners of the production usually receive revenues for the byproducts of processing that have value.

46 How is Natural Gas Transported? By Pipeline! The majority of the gas reserves in the US and the world aren t located near the markets for the gas. Oil goes by rail, truck, tanker and pipeline. Coal goes by rail, barge, truck and pipeline. Natural gas goes almost exclusively by pipeline. Why? Lack of energy density. Remember 7.5 gallons of oil as the same energy content as a 10x10x10 room filled with natural gas at standard conditions. Compressing natural gas is feasible but expensive. Compress to 1000 lbs/ sq inch to move economically.

47 Natural Gas Transportation - Pipelines Big upfront expense (low operating costs). Must be confident that the production and the markets that the pipeline will link will both last long enough to amortize the cost of the pipeline. Monopoly power: Intrastate: only made sense for cities and other customers to have one set of pipes rather than two competing sets - essentially have utility monopoly control and resulting regulations. Interstate: commerce laws like trucking, electric power transmission, again monopoly control for most of the century - only one pipeline between production and markets: no competition. This is changing radically now. First boom in long-distance high pressure pipeline construction right after WWII. Second boom began five years ago with deregulation. LNG: Indonesia Japan; N. Africa Italy; Russia W. Europe (-250 degrees C) If no pipeline: flare, reinject, shut-in, build a fertilizer plant or a power plant right next to production

48 Natural Gas Transportation - Pipelines Pipelines move raw gas from wellheads to regional distribution centers. A pipeline company is a totally separate company from a producer or a distributor, although sometimes pipelines sell gas directly to large customers. Most sections of large pipeline are made of steel piping, measuring anywhere from 20 to 42 inches in diameter. When natural gas is moved through a pipeline, it is transmitted at higher pressures (from 200 to 1500 psi) to reduce the volume of the gas, and provide a pushing force to propel the gas through the pipe. Periodic compressor stations maintain pressure in pipeline to keep large volumes of gas moving Compressor stations are installed about every 100 miles along the pipeline, and require significant amounts of electricity.

49 Source: Liquified Natural Gas When natural gas is cooled to a temperature of approximately -260 F at atmospheric pressure it condenses to a liquid called liquefied natural gas (LNG). One volume of this liquid takes up about 1/600th the volume of natural gas at a stove burner tip. LNG weighs less than one-half that of water, actually about 45% as much. LNG is odorless, colorless, non-corrosive, and non-toxic. When vaporized it burns only in concentrations of 5% to 15% when mixed with air. Neither LNG, nor its vapor, can explode in an unconfined environment. Shipping LNG by tanker is an ideal solution in cases where pipeline export is ruled out for technical, economic or indeed geopolitical reasons. But the process is expensive and the LNG chain requires heavy capital investment in liquefaction and regasification plants, refrigerated storage tanks, port facilities for loading and unloading and of course the specially-designed LNG tankers. A LNG Tanker Source:

50 Source: The Liquified Natural Gas Cycle Natural gas is composed primarily of methane (typically, at least 90%), but may also contain ethane, propane and heavier hydrocarbons. Small quantities of nitrogen, oxygen, carbon dioxide, sulfur compounds, and water may also be found in "pipeline" natural gas. The liquefaction process removes the oxygen, carbon dioxide, sulfur compounds, and water. The process can also be designed to purify the LNG to almost 100% methane. A typical liquefaction plant producing 5 million tonnes of LNG per year needs 110 MW of electric power for the compression cycle and another 60 MW (not to mention 60,000 cu.m/hr of water) for the cooling process. The investment involved is quite considerable: construction of the plant alone would cost about $1.5 billion, and then there is the cost of developing the gas field to supply the plant, and the cost of the tankers to ship the LNG to market. Controlling costs will undoubtedly be a major factor in keeping LNG competitive.

51 World LNG Exporters PJ Indonesia Algeria Malaysia Australia Brunei UAE Qatar USA Libya Source: BP Amoco

52 LNG Trade Is Important in U.S. Regional Markets (1998, Billion Cubic Feet) 64 To Japan LNG Terminal Facilities Gas Storage From UAE, Algeria, and Australia Inactive, planned for late 2000 reopening Source: Energy Information Administration, Natural Gas Monthly (June 1999).

53 Natural gas: Major trade movements Trade flows worldwide (billion cubic metres) Natural gas LNG USA Canada Mexico S. & Cent. America Europe Former Soviet Union Middle East Africa Asia Pacific

54 SOURCE: El Paso Energy Building Our Merchant LNG Business, February 6, 2001

55 Natural Gas Storage A) Salt caverns, B) Mines, C) Aquifers, D) Reservoirs, E) Hard Rock Caverns The three principal types of underground storage sites used in the United States today are: 1. Depleted reservoirs in oil and/or gas fields 2. Aquifers 3. Salt cavern formations There are more than 400 underground storage sites in 27 states across the United States and Canada. Together, these sites can hold upwards of 3 quads of natural gas, Storage acts as a sort of buffer between the pipeline and the distribution system, allowing distribution companies to serve their customers more reliably by withdrawing more gas from storage to meet customer demands during peak use periods. It also allows the sale of fixed quantities of natural gas on the spot market during off-peak periods. Having local storage of gas also reduces the time necessary for a delivery system to respond to increased gas demand. Storage also allows continuous service, even when production or pipeline transportation services are interrupted.

56 How Has Natural Gas Been Regulated? History of US Government Regulation of Price and Distribution Local distributors of natural gas have long been regulated by states as public utilities. They were included with the natural monopoly concept because it is inefficient to let more than one company lay gas mains under the street. Once large transmission lines began to cross the country, Congress decided that serious matters of interstate commerce were involved Congress created the Federal Power Commission to regulate the price, transportation and production of natural gas. FPC set unrealistically low prices for interstate commerce. These artificially low wellhead prices for natural gas, which existed through the 70 s, increased demand but simultaneously gave producers no incentive to develop new reserves, thereby reducing overall supply Arab Oil Embargo. Oil price increase caused natural gas on intrastate markets (uncontrolled by FPC) to rise dramatically Natural Gas Policy Act; A new system of gas pricing that distinguished between old gas and new gas. Old gas still heavily controlled at low price levels. New gas decontrolled by January 1, s FERC (Federal Energy Regulatory Commission, successor to FPC) ruled in a series of orders that the role of pipeline companies would change from being gas purchasers and marketers to more strict transporters of gas and allowing the producers to sell their gas directly to customers Congress passed legislation to lead to complete decontrol of prices by January 1, 1993.

57 Environmental Benefits of Natural Gas CCGT Technology is the cleanest and most efficient fossil generation option Source: Power Surge

58 US Capacity Additions ( ) Steam 13% 40 GW Total US additions over this period Source: EPRI GT/CC 87% Steam = 5 GW GT/CC = 35 GW Forecasts for the US and Western Europe show that over 90% of new installed capacity over the next five years will be combined-cycle natural gas-fired turbines

59 Source: US Planned New Generating Capacity Utility 27,505 MW Non-Utility Total 61,220 MW Oil 3% Hydro 2% Other 3% Hydro 0% Wind 0% Other 5% Gas/Oil 27% Gas 92% Oil 0% Gas 68%

60 Natural Gas Will Hold a Larger Share of the US Energy Market in 2020 Total Energy Consumption 94.7 Q Natural Gas Consumption 94.7 Q (Quadrillion Btu) 22.5 Q Q 33.0 Q Natural Gas Coal Petroleum Products Other Industrial Electric Utility Other Residential Commercial Source: EIA

61 Source: Oil and Gas Journal

62 The Link Between Natural Gas and Fuel Cells See the attached article from The Oil and Gas Investor When a hydrocarbon fuel is introduced into the system, the catalyst surface of the membrane splits hydrogen gas molecules into protons and electrons The protons pass through the membrane to react with oxygen in the air (forming water). The electrons, which cannot pass through the membrane, must travel around it, thus creating the source of DC electricity The Role of Natural Gas it is sent through a reformer that pulls hydrogen atoms off methane (NG) molecule, thereby providing source of hydrogen for the fuel cell Note that any hydrocarbon could be sent through a reformer, but NG is best because of its high H/C ratio compared to longer hydrocarbon chains (such as those in petroleum), thereby limiting the energy needed and waste produced to form Hydrogen Green sources of Hydrogen (windpower) would eliminate CO 2 produced in NG reforming

63 Helpful Resources Australian Gas Association American Gas Association Energy Information Association Gaz de France LNG information - Consolidated Natural Gas Natural Gas Council - Natural Gas Supply Association - Gas Research Institute Insterstate Natural Gas Association of America - DOE Fossil Energy Site - Enron DOE -

64 Helpful Resources CERA Cambridge Energy Research Associates in Cambridge, MA is the leading energy information consultancy in the world. They publish a book every year called North American Natural Gas Trends. Worldwatch Institute in Washington D.C. Excellent recent paper July 2000 on the micropower revolution by Seth Dunn Ron Barone and the Investment Research info provided by Paine Webber. Will release an annual paper on U.S. Natural Gas this week. BP Statistical Review of Energy (see BPAmoco s website) February 10,2001 Economist Survey of Energy