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  2. 2. Foreword and AcknowledgementsThe Future of Natural Gas is the fourth in a invested in advising us. However, the study is theseries of MIT multidisciplinary reports examin- responsibility of the MIT study group and theing the role of various energy sources that may advisory committee members do not necessarilybe important for meeting future demand under endorse all of its findings and recommendations,carbon dioxide (CO2) emissions constraints. In either individually or collectively.each case, we explore the steps needed to enablecompetitiveness in a future marketplace condi- Finally, we are very appreciative of the supporttioned by a CO2 emissions price or by a set of from several sources. First and foremost, weregulatory initiatives. This report follows an thank the American Clean Skies Foundation.interim report issued in June 2010. Discussions with the Foundation led to the conclusion that an integrative study on theThe first three reports dealt with nuclear power future of natural gas in a carbon-constrained(2003), coal (2007) and the nuclear fuel cycle world could contribute to the energy debate in(2010 and 2011). A study of natural gas is more an important way, and the Foundation steppedcomplex than these previous reports because forward as the major sponsor. MIT Energygas is a major fuel for multiple end uses — Initiative (MITEI) members Hess Corporationelectricity, industry, heating — and is increasingly and Agencia Naçional de Hidrocarburosdiscussed as a potential pathway to reduced oil (Colombia), the Gas Technology Institute (GTI),dependence for transportation. In addition, Exelon, and an anonymous donor providedthe realization over the last few years that the additional support. The Energy Futures Coali-producible unconventional gas resource in the tion supported dissemination of the studyU.S. is very large has intensified the discussion results, and MITEI employed internal funds andabout natural gas as a “bridge” to a low-carbon fellowship sponsorship to support the study asfuture. Recent indications of a similarly large well. As with the advisory committee, theglobal gas shale resource may also transform the sponsors are not responsible for and do notgeopolitical landscape for gas. We have carried necessarily endorse the findings and recommen-out the integrated analysis reported here as dations. That responsibility lies solely with thea contribution to the energy, security and MIT study group.climate debate. We thank Victoria Preston and RebeccaOur primary audience is U.S. government, Marshall-Howarth for editorial support andindustry and academic leaders, and decision Samantha Farrell for administrative support.makers. However, the study is carried out withan international perspective.This study is better as a result of comments andsuggestions from our distinguished externalAdvisory Committee, each of whom broughtimportant perspective and experience to ourdiscussions. We are grateful for the time they MIT Study on the Future of Natural Gas iii
  3. 3. Study ParticipantsSTUDY CO-CHAIRSERNEST J. MONIZ — CHAIR MELANIE A. KENDERDINECecil and Ida Green Professor of Physics Executive Director, MITEI and Engineering Systems, MITDirector, MIT Energy Initiative (MITEI) FRANCIS O’SULLIVAN Research Engineer, MITEIHENRY D. JACOBY — CO-CHAIRProfessor of Management, MIT SERGEY PALTSEV Principal Research Scientist, Joint Program onANTHONY J. M. MEGGS — CO-CHAIR the Science and Policy of Global Change, MITVisiting Engineer, MITEI JOHN E. PARSONSSTUDY GROUP Senior Lecturer, Sloan School of Management, MIT Executive Director, Joint Program on theROBERT C. ARMSTRONG Science and Policy of Global Change andChevron Professor, Department of Chemical Center for Energy and Environmental Engineering, MIT Policy Research, MITDeputy Director, MITEI IGNACIO PEREZ-ARRIAGADANIEL R. COHN Professor of Electrical Engineering,Senior Research Scientist, Plasma Science Comillas University, Spain and Fusion Center, MIT Visiting Professor, Engineering Systems Division, MITExecutive Director, Natural Gas Study JOHN M. REILLYSTEPHEN R. CONNORS Senior Lecturer, Sloan School of Management, MITResearch Engineer, MITEI Co-Director, Joint Program on the Science and Policy of Global Change, MITJOHN M. DEUTCHInstitute Professor, CAROLYN SETO Department of Chemistry, MIT Clare Boothe Luce Postdoctoral Fellow, Department of Chemical Engineering, MITQUDSIA J. EJAZPostdoctoral Associate, MITEI MORT D. WEBSTER Assistant Professor, Engineering SystemsJOSEPH S. HEZIR Division, MITVisiting Engineer, MITEI YINGXIA YANGGORDON M. KAUFMAN MITEIMorris A. Adelman Professor of Management (Emeritus), MIT MIT Study on the Future of Natural Gas v
  5. 5. Advisory Committee MembersTHOMAS F. (MACK) MCLARTY, III — SENATOR (ret.) J. BENNETT JOHNSTONCHAIRMAN Chairman, Johnston AssociatesPresident & CEO, McLarty Associates VELLO A. KUUSKRAADENISE BODE President, Advance Resources International, Inc.CEO, American Wind Energy Association MIKE MINGRALPH CAVANAGH Oklahoma Secretary of EnergySenior Attorney and Co-Director of Energy Program, Natural Resource Defense Council THEODORE ROOSEVELT IV Managing Director & Chairman, Barclays CapitalSUNIL DESHMUKH Clean Tech InitiativeFounding Member, Sierra Club India Advisory Council OCTAVIO SIMOES Vice President of Commercial Development,JOSEPH DOMINGUEZ Sempra EnergySenior Vice President, Exelon Corporation GREG STAPLERON EDELSTEIN CEO, American Clean Skies FoundationDirector, Regulatory and Government Relations, GTI PETER TERTZAKIAN Chief Energy Economist and Managing Director,NEAL ELLIOTT ARC FinancialAssociate Director for Research, American Council for an Energy-Efficient Economy DAVID VICTOR Director, Laboratory on International LawJOHN HESS and Regulation, University of California, San DiegoChairman and CEO, Hess Corporation ARMANDO ZAMORAJAMES T. JENSEN Director, ANH-Agencia Nacional De HidrocarburosPresident, Jensen AssociatesWhile the members of the advisory committee provided invaluable perspective and advice to the study group,individual members may have different views on one or more matters addressed in the report. They are notasked to individually or collectively endorse the report findings and recommendations. MIT Study on the Future of Natural Gas vii
  6. 6. AbstractNatural gas is finding its place at the heart of the The U.S. natural gas supply situation hasenergy discussion. The recent emergence of enhanced the substitution possibilities forsubstantial new supplies of natural gas in the natural gas in the electricity, industry, buildings,U.S., primarily as a result of the remarkable and transportation sectors.speed and scale of shale gas development, hasheightened awareness of natural gas as a key In the U.S. electricity supply sector, the costcomponent of indigenous energy supply and has benchmark for reducing carbon dioxide emissionslowered prices well below recent expectations. lies with substitution of natural gas for coal,This study seeks to inform discussion about the especially older, less efficient units. Substitutionfuture of natural gas, particularly in a carbon- through increased utilization of existing combinedconstrained economy. cycle natural gas power plants provides a rela- tively low-cost, short-term opportunity to reduceThere are abundant supplies of natural gas in U.S. power sector CO2 emissions by up to 20%,the world, and many of these supplies can be while also reducing emissions of criteria pollut-developed and produced at relatively low cost. ants and mercury.In North America, shale gas development overthe past decade has substantially increased Furthermore, additional gas-fired capacity willassessments of resources producible at modest be needed as backup if variable and intermittentcost. Consequently, the role of natural gas is renewables, especially wind, are introduced on alikely to continue to expand, and its relative large scale. Policy and regulatory steps are neededimportance is likely to increase even further to facilitate adequate capacity investment forwhen greenhouse gas emissions are constrained. system reliability and efficiency. These increas-In a carbon-constrained world, a level playing ingly important roles for natural gas in thefield — a carbon dioxide (CO2) emissions price electricity sector call for a detailed analysis of thefor all fuels without subsidies or other preferen- interdependencies of the natural gas and powertial policy treatment —maximizes the value to generation infrastructures.society of the large U.S. natural gas resource. The primary use of natural gas in the U.S.There are also a number of key uncertainties: manufacturing sector is as fuel for boilers andthe extent and nature of greenhouse gas emission process heating, and replacement with newmitigation measures that will be adopted; the higher efficiency models would cost-effectivelymix of energy sources as the relative costs of fuels reduce natural gas use. Natural gas could alsoand technologies shift over time; the evolution substitute for coal in boilers and process heatersof international natural gas markets. We explore and provide a cost-effective alternative forhow these uncertainties lead to different out- compliance with Environmental Protectioncomes and also quantify uncertainty for natural Agency (EPA) Maximum Achievable Controlgas supply and for the U.S. electricity fuel mix. Technology standards.The environmental impacts of shale development In the residential and commercial buildingsare challenging but manageable. Research and sector, transformation of the current approach toregulation, both state and Federal, are needed to efficiency standards to one based on full fuelminimize the environmental consequences. cycle analysis will enable better comparison of different energy supply options (especially MIT Study on the Future of Natural Gas xiii
  7. 7. natural gas and electricity). Efficiency metrics The evolution of global gas markets is unclear. should be tailored to regional variations in A global “liquid” natural gas market is benefi- climate and electricity supply mix. cial to U.S. and global economic interests and, at the same time, advances security interests Within the U.S. market, the price of oil (which through diversity of supply and resilience to is set globally) compared to the price of natural disruption. The U.S. should pursue policies that gas (which is set regionally) is very important encourage the development of such a market, in determining market share when there is the integrate energy issues fully into the conduct of opportunity for substitution. Over the last U.S. foreign policy, and promote sharing of decade or so, when oil prices have been high, know-how for strategic global expansion of the ratio of the oil price to the natural gas price unconventional gas production. has been consistently higher than any of the standard rules of thumb. If this trend is robust, Past research, development, demonstration, and use of natural gas in transportation, either deployment (RDD&D) programs supported with through direct use or following conversion to a public funding have led to significant advances liquid fuel, could in time increase appreciably. for natural gas supply and use. Public-private partnerships supporting a broad natural gas research, development, and demonstration (RD&D) portfolio should be pursued.xiv MIT STUDY ON THE FUTURE OF NATURAL GAS
  8. 8. Chapter 1: Overview and ConclusionsPURPOSE AND OUTLINE OF THE STUDYDespite its vital importance to the national Having explored supply volumes and costs, weeconomy, natural gas has often been overlooked, use integrated models to examine the role thator at best taken for granted, in the debate about natural gas could play in the energy system underthe future of energy in the U.S. Over the past different carbon-constraining mechanisms ortwo or three years this has started to change, and policies. It is important to recognize that the studynatural gas is finding its place at the heart of the does not set out to make predictions or forecastsenergy discussion. of the likelihood or direction of CO2 policy in the U.S. Rather, we examine a number of differentThere are a number of reasons for this shift. scenarios and explore their possible impacts onThe recent emergence of substantial new sup- the future of natural gas supply and demand.plies of natural gas in the U.S., primarily as aresult of the remarkable speed and scale of shale Natural gas is important in many sectors of thegas development, has heightened awareness of economy — for electricity generation, as annatural gas as a key component of indigenous industrial heat source and chemical feedstock,energy supply and lowered prices well below and for water and space heating in residentialrecent expectations. Instead of the anticipated and commercial buildings. Natural gas competesgrowth of natural gas imports, the scale of domes- directly with other energy inputs in these sectors.tic production has led producers to seek new But it is in the electric power sector — wheremarkets for natural gas, such as an expanded role natural gas competes with coal, nuclear, hydro,in transportation. Most importantly for this wind and solar — that inter-fuel competition isstudy, there has been a growing recognition that most intense. We have, therefore, explored inthe low carbon content of natural gas relative to depth how natural gas performs in the electricother fossil fuels could allow it to play a signifi- power sector under different scenarios. We havecant role in reducing carbon dioxide (CO2) emis- also taken a close look at the critical interactionsions, acting as a “bridge” to a low-carbon future. between intermittent forms of renewable energy, such as wind and solar, and gas-fired power as aWithin this context, the MIT study of The Future reliable source of backup capacity.of Natural Gas seeks to inform the discussionaround natural gas by addressing a fundamental We look at the drivers of natural gas use in thequestion: what is the role of natural gas in a industrial, commercial and residential sectors,carbon-constrained economy? and examine the important question of whether natural gas, in one form or another, could be aIn exploring this question, we seek to improve viable and efficient substitute for gasoline or dieselgeneral understanding of natural gas, and in the transportation sector. We also examine theexamine a number of specific issues. How much possible futures of global natural gas markets, andnatural gas is there in the world, how expensive the geopolitical significance of the ever-expandingis it to develop, and at what rate can it be pro- role of natural gas in the global economy. Finally,duced? We start from a global perspective, and we make recommendations for research andthen look in detail at U.S. natural gas resources, development priorities and for the means bypaying particular attention to the extent and cost which public support should be provided.of shale gas resources, and whether these sup-plies can be developed and produced in anenvironmentally sound manner. Chapter 1: Overview and Conclusions 1
  9. 9. HIGH-LEVEL FINDINGS 5. Increased utilization of existing natural gas combined cycle (NGCC) power plants The findings and recommendations of the provides a relatively, low-cost short-term study are discussed later in this chapter, and opportunity to reduce U.S. CO2 emissions covered in detail in the body of this report. by up to 20% in the electric power sector, Nevertheless, it is worth summarizing here or 8% overall, with minimal additional the highest level conclusions of our study: capital investment in generation and no new technology requirements. 1. There are abundant supplies of natural gas in the world, and many of these supplies 6. Natural gas-fired power capacity will play can be developed and produced at relatively an increasingly important role in providing low cost. In the U.S., despite their relative backup to growing supplies of intermittent maturity, natural gas resources continue to renewable energy, in the absence of a grow, and the development of low-cost and breakthrough that provides affordable abundant unconventional natural gas utility-scale storage. But in most cases, resources, particularly shale gas, has a increases in renewable power generation material impact on future availability will be at the expense of natural gas-fired and price. power generation in the U.S. 2. Unlike other fossil fuels, natural gas plays 7. The current supply outlook for natural gas a major role in most sectors of the modern will contribute to greater competitiveness economy — power generation, industrial, of U.S. manufacturing, while the use of commercial and residential. It is clean and more efficient technologies could offset flexible. The role of natural gas in the world increases in demand and provide cost- is likely to continue to expand under almost effective compliance with emerging envi- all circumstances, as a result of its availability, ronmental requirements. its utility and its comparatively low cost. 8. Transformation of the current approach 3. In a carbon-constrained economy, the to appliance standards to one based on full relative importance of natural gas is likely fuel cycle analysis will enable better com- to increase even further, as it is one of the parison of different energy supply options most cost-effective means by which to in commercial and residential applications. maintain energy supplies while reducing CO2 emissions. This is particularly true in 9. Natural gas use in the transportation sector the electric power sector, where, in the U.S., is likely to increase, with the primary natural gas sets the cost benchmark against benefit being reduced oil dependence. which other clean power sources must Compressed natural gas (CNG) will play compete to remove the marginal ton of CO2. a role, particularly for high-mileage fleets, but the advantages of liquid fuel in trans- 4. In the U.S., a combination of demand portation suggest that the chemical conver- reduction and displacement of coal-fired sion of gas into some form of liquid fuel may power by gas-fired generation is the lowest- be the best pathway to significant market cost way to reduce CO2 emissions by up to penetration. 50%. For more stringent CO2 emissions reductions, further de-carbonization of the energy sector will be required; but natural gas provides a cost-effective bridge to such a low-carbon future.2 MIT STUDY ON THE FUTURE OF NATURAL GAS
  10. 10. 10. International gas trade continues to grow natural gas allows high recoveries from conven- in scope and scale, but its economic, tional reservoirs at relatively low cost, and also security and political significance is not yet enables natural gas to be economically recov- adequately recognized as an important ered from even the most unfavorable subsurface focus for U.S. energy concerns. environments, as recent developments in shale formations have demonstrated.11. Past research, development, demonstration and deployment (RDD&D) programs These physical characteristics underpin the supported with public funding have led to current expansion of the unconventional significant advances for natural gas supply resource base in North America, and the and use. potential for natural gas to displace more carbon-intensive fossil fuels in a carbon-BACKGROUND constrained world.The Fundamental Characteristics On the other hand, because of its gaseous formof Natural Gas and low energy density, natural gas is uniquely disadvantaged in terms of transmission andFossil fuels occur in each of the three funda- storage. As a liquid, oil can be readily trans-mental states of matter: in solid form as coal; ported over any distance by a variety of means,in liquid form as oil and in gaseous form as and oil transportation costs are generally a smallnatural gas. These differing physical character- fraction of the overall cost of developing oilistics for each fuel type play a crucial part in fields and delivering oil products to market. Thisshaping each link in their respective supply has facilitated the development of a truly globalchains: from initial resource development and market in oil over the past 40 years or more.production through transportation, conversionto final products and sale to customers. Their By contrast, the vast majority of natural gasphysical form fundamentally shapes the supplies are delivered to market by pipeline, andmarkets for each type of fossil fuel. delivery costs typically represent a relatively large fraction of the total cost in the supply chain.Natural gas possesses remarkable qualities. These characteristics have contributed to theAmong the fossil fuels, it has the lowest carbon evolution of regional markets rather than aintensity, emitting less CO2 per unit of energy truly global market in natural gas. Outsidegenerated than other fossil fuels. It burns cleanly North America, this somewhat inflexibleand efficiently, with very few non-carbon pipeline infrastructure gives strong politicalemissions. Unlike oil, natural gas generally and economic power to those countries thatrequires limited processing to prepare it for control the pipelines. To some degree, theend use. These favorable characteristics have evolution of the spot market in Liquefiedenabled natural gas to penetrate many markets, Natural Gas (LNG) is beginning to introduceincluding domestic and commercial heating, more flexibility into global gas markets andmultiple industrial processes and electrical stimulate real global trade. The way this tradepower. may evolve over time is a critical uncertainty that is explored in this report.Natural gas also has favorable characteristicswith respect to its development and production.The high compressibility and low viscosity of Chapter 1: Overview and Conclusions 3
  11. 11. The Importance of Natural Gas in the coming from indigenous resources. Perhaps of Energy System more significance, is the very important role that natural gas plays in all sectors of the economy, Natural gas represents a very important, and with the exception of transport. Very approxi- growing, part of the global energy system. mately, the use of natural gas is divided evenly Over the past half century, natural gas has between three major sectors: industrial, residen- gained market share on an almost continuous tial and commercial, and electric power. The 3% basis, growing from some 15.6% of global share that goes to transport is almost all associ- energy consumption in 1965 to around 24% ated with natural gas use for powering oil and today. In absolute terms, global natural gas gas pipeline systems, with only a tiny fraction consumption over this period has grown from going into vehicle transport. around 23 trillion cubic feet (Tcf) in 1965 to 104 Tcf in 2009, a more than fourfold increase. In the Residential and Commercial sectors, natural gas provides more than three-quarters Within the U.S. economy, natural gas plays a of the total primary energy, largely as a result vital role. Figure 1.1 displays the sources and uses of its efficiency, cleanliness and convenience of natural gas in the U.S. in 2009, and it reveals a for uses such as space and hot water heating. number of interesting features that It is also a major primary energy input into the are explored in more detail in the body of this Industrial sector, and thus the price of natural report. At 23.4 quadrillion British thermal units gas has a very significant impact on the com- (Btu)1, or approximately 23 Tcf, gas represents a petitiveness of some U.S. manufacturing little under a quarter of the total energy supply industries. While natural gas provided 18% of in the U.S., with almost all of this supply now the primary fuel for power generation in 2009, Figure 1.1 Sources and Use of Primary Energy Sources in the U.S. with Natural Gas Highlighted (quadrillion Btu), 2009 Supply Sources Demand Sources 94.6 Quads Percent of Source Percent of Sector 72% 94% Petroleum 35.3 22% 27.0 Transportation 1% 3% 3% 5% 41% 3% Natural Gas 23.4 32% 40% 18.8 Industrial 11% 30% 35% 7% 17% 76% 10.6 Residential & 1% 7% 1% Commercial Coal 19.7 <1% 93% 12% 26% 48% 18% 1% 9% 11% Electric Renewables 7.7 38.6 53% 22% Power 100% Nuclear 8.3 Source: EIA, Annual Energy Outlook, 20094 MIT STUDY ON THE FUTURE OF NATURAL GAS
  12. 12. it provided 23% of the produced electricity, By the mid 1990s, wholesale electricity marketsreflecting the higher efficiency of natural gas and wellhead natural gas prices had beenplants. As will be seen later in this report, deregulated; new, highly efficient and relativelynatural gas-fired capacity represents far more inexpensive combined cycle gas turbines hadthan 23% of total power generating capacity, been deployed and new upstream technologiesproviding a real opportunity for early action in had enabled the development of offshorecontrolling CO2 emissions. natural gas resources. This contributed to the perception that domestic natural gas suppliesA Brief History of Natural Gas in the U.S. were sufficient to increase the size of the U.S. natural gas market from around 20 Tcf/year toThe somewhat erratic history of natural gas much higher levels. New gas-fired powerin the U.S. over the last three decades or so capacity was added at a rapid pace.provides eloquent testimony to the difficultiesof forecasting energy futures, particularly for Between 1989 after the repeal of the FUA andnatural gas. It also serves as a reminder of the 2009, the U.S. added 306 GW of generationneed for caution in the current period of capacity, 88% of which was gas fired and 4%supply exuberance. was coal fired.2 Today, the nameplate capacity of this gas-fired generation is significantly under-The development of the U.S. natural gas market utilized, and the anticipated large increase inwas facilitated by the emergence of an interstate natural gas use has not materialized.natural gas pipeline system, supplying localdistribution systems. This market structure was By the turn of the 21st century, a new set ofinitially viewed as a natural monopoly and was concerns arose about the adequacy of domesticsubjected to cost-of-service regulation by both natural gas supplies. Conventional suppliesthe Federal government and the states. Natural were in decline, unconventional natural gasgas production and use grew considerably resources remained expensive and difficult tounder this framework in the 1950s, 1960s and develop and overall confidence in gas plum-into the 1970s. meted. Natural gas prices started to rise, becom- ing more closely linked to the oil price, whichThen came a perception of supply scarcity. itself was rising. Periods of significant naturalAfter the first oil embargo, energy consumers gas price volatility were experienced.sought to switch to natural gas. However, thecombination of price controls and tightly This rapid buildup in natural gas price, andregulated natural gas markets dampened perception of long-term shortage, createdincentives for domestic gas development, economic incentives for the accelerated devel-contributing to a perception that U.S. natural opment of an LNG import infrastructure. Sincegas resources were limited. In 1978, convinced 2000, North America’s rated LNG capacity hasthat the U.S. was running out of natural gas, expanded from approximately 2.3 billion cubicCongress passed the Power Plant and Industrial feet (Bcf)/day to 22.7 Bcf/day, around 35% ofFuel Use Act (FUA) that essentially outlawed the nation’s average daily requirement.the building of new gas-fired power plants.Between 1978 and 1987 (the year the FUA was This expansion of LNG capacity coincided withrepealed), the U.S. added 172 Gigawatts (GW) an overall rise in the natural gas price and theof net power generation capacity. Of this, market diffusion of technologies to developalmost 81 GW was new coal capacity, around affordable unconventional gas. The game-26% of today’s entire coal fleet. About half of changing potential of these technologies,the remainder was nuclear power. combined with the large unconventional Chapter 1: Overview and Conclusions 5
  13. 13. resource base, has become more obvious over The likely technology mix in a carbon- the last few years, radically altering the U.S. constrained world, particularly in the power supply picture. We have once again returned to sector: the relative costs of different tech- a period where supply is seen to be abundant. nologies may shift significantly in response New LNG import capacity goes largely unused to RD&D, and a CO2 emissions price will at present, although it provides a valuable affect the relative costs. Moreover, the tech- supply option for the future. nology mix will be affected by regulatory and subsidy measures that will skew economic These cycles of perceived “feast and famine” choices. demonstrate the genuine difficulty of forecast- ing the future and providing appropriate policy The ultimate size and production cost of the support for natural gas production and use. natural gas resource base, and the environ- They underpin the efforts of this study to mental acceptability of production methods: account for this uncertainty in an analytical much remains to be learned about the perfor- manner. mance of shale gas plays, both in the U.S. and in other parts of the world. Indeed, even higher Major Uncertainties risk and less well-defined unconventional natural gas resources, such as methane Looking forward, we anticipate policy and hydrates, could make a contribution to geopolitics, along with resource economics and supply in the later decades of the study’s technology developments, will continue to play time horizon. a major role in determining global supply and market structures. Thus, any analysis of the The evolution of international natural gas future of natural gas must deal explicitly with markets: very large natural gas resources are multiple uncertainties: to be found in several areas outside the U.S., and the role of U.S. natural gas will be The extent and nature of the greenhouse gas influenced by the evolution of this market — (GHG) mitigation measures that will be particularly the growth and efficiency of adopted: the U.S. legislative response to the trade in LNG. Only a few years back, U.S. climate threat has proved quite challenging. industry was investing in facilities for sub- However, the Environmental Protection stantial LNG imports. The emergence of the Agency (EPA) is developing regulations domestic shale gas resource has depressed under the Clean Air Act, and a variety of this business in the U.S., but in the future, local, state and regional GHG limitation the nation may again look to international programs have been put in place. At the markets. international level, reliance upon a system of voluntary national pledges of emission Of these uncertainties, the last three can be reductions by 2020, as set out initially in the explored by applying technically grounded Copenhagen Accord, leaves uncertainty analysis: lower cost for carbon capture and concerning the likely structure of any future sequestration (CCS), renewables and nuclear agreements that may emerge to replace the power; producible resources of different levels Kyoto Protocol. The absence of a clear and regional versus global integrated markets. international regime for mitigating GHG In contrast, the shape and size of GHG mitiga- emissions in turn raises questions about the tion measures is likely to be resolved only likely stringency of national policies in both through complex ongoing political discussions industrialized countries and major emerging at the national level in the major emitting economies over coming decades. countries and through multilateral negotiations.6 MIT STUDY ON THE FUTURE OF NATURAL GAS
  14. 14. The analysis in this study is based on three Unconventional natural gas, and particularlypolicy scenarios: shale gas, will make an important contribution to future U.S. energy supply and CO2 emission-1. A business-as-usual case, with no significant reduction efforts. Assessments of the recover- carbon constraints; able volumes of shale gas in the U.S. have increased dramatically over the last five years,2. GHG emissions pricing, through a cap- and continue to grow. The mean projection of and-trade system or emissions tax, leading the recoverable shale gas resource in this report to a 50% reduction in U.S. emissions below is approximately 650 Tcf, with low and high the 2005 level, by 2050. projections of 420 Tcf and 870 Tcf, respectively. Of the mean projection, approximately 400 Tcf3. GHG reduction via U.S. regulatory could be economically developed with a natural measures without emissions pricing: a gas price at or below $6/MMBtu at the wellhead. renewable portfolio standard and measures While the pace of shale technology development forcing the retirement of some coal plants. has been very rapid over the past few years, there are still many scientific and technologicalOur analysis is long term in nature, with challenges to overcome before we can bea 2050 time horizon. We do not attempt to confident that this very large resource base ismake detailed short-term projections of being developed in an optimum manner.volumes, prices or price volatility, but ratherfocus on the long-term consequences of the Although there are large supplies, global conven-carbon mitigation scenarios outlined above, tional natural gas resources are concentratedtaking into account the manifold uncertainties geographically, with 70% in three countries:in a highly complex and interdependent Qatar, Iran and Russia. There is considerableenergy system. potential for unconventional natural gas supply outside North America, but these resources areMAJOR FINDINGS AND largely unproven with very high resourceRECOMMENDATIONS uncertainty. Nevertheless, unconventional supplies could provide a major opportunity forIn the following section we summarize the diversification and improved security of supplymajor findings and recommendations for each in some parts of the world.chapter of the report. The environmental impacts of shale develop-Supply ment are challenging but manageable. Shale development requires large-scale fracturingGlobally, there are abundant supplies of of the shale formation to induce economicnatural gas, much of which can be developed production rates. There has been concern thatat relatively low cost. The mean projection of these fractures can also penetrate shallowremaining recoverable resource in this report freshwater zones and contaminate them withis 16,200 Tcf, 150 times current annual global fracturing fluid, but there is no evidence thatnatural gas consumption, with low and high this is occurring. There is, however, evidenceprojections of 12,400 Tcf and 20,800 Tcf, of natural gas migration into freshwater zonesrespectively. Of the mean projection, approxi- in some areas, most likely as a result of sub-mately 9,000 Tcf could be developed economi- standard well completion practices by a fewcally with a natural gas price at or below $4/ operators. There are additional environmentalMillion British thermal units (MMBtu) at theexport point. Chapter 1: Overview and Conclusions 7
  15. 15. challenges in the area of water management, development through both research and particularly the effective disposal of fracture regulation. Transparency is key, both fluids. Concerns with this issue are particularly for fracturing operations and for water acute in regions that have not previously management. Better communication of experienced large-scale oil and natural gas oil- and gas-field best practices should development, especially those overlying the massive Marcellus shale, and do not have a be facilitated. Integrated regional water well-developed subsurface water disposal usage and disposal plans and disclosure of infrastructure. It is essential that both large and hydraulic fracture fluid components should small companies follow industry best practices; be required. that water supply and disposal are coordinated on a regional basis and that improved methods The U.S. should support unconventional are developed for recycling of returned fracture natural gas development outside U.S., fluids. particularly in Europe and China, as a means of diversifying the natural gas supply base. Natural gas trapped in the ice-like form known as methane hydrate represents a vast potential The U.S. government should continue to resource for the long term. Recent research is sponsor methane hydrate research, with a beginning to provide better definition of the particular emphasis on the demonstration overall resource potential, but many issues of production feasibility and economics. remain to be resolved. In particular, while there have been limited production tests, the long- term producibility of methane hydrates U.S. Natural Gas Production, Use and remains unproven, and sustained research Trade: Potential Futures will be required. In a carbon-constrained world, a level playing M A J O R R E CO M M E N D AT I O N S field — a CO2 emissions price for all fuels Government-supported research on the without subsidies or other preferential policy fundamental challenges of unconventional treatment — maximizes the value to society of the large U.S. natural gas resource. natural gas development, particularly shale gas, should be greatly increased Under a scenario with 50% CO2 reductions to in scope and scale. In particular, support 2050, using an established model of the global should be put in place for a comprehensive economy and natural gas cost curves that and integrated research program to include uncertainty, the principal effects of the build a system-wide understanding of associated CO2 emissions price are to lower all subsurface aspects of the U.S. shale energy demand and displace coal with natural gas in the electricity sector. In effect, gas-fired resource. In addition, research should be power sets a competitive benchmark against pursued to reduce water usage in fracturing which other technologies must compete in a lower and to develop cost-effective water carbon environment. A major uncertainty that recycling technology. could impact this picture in the longer term is technology development that lowers the costs A concerted coordinated effort by industry of alternatives, in particular, renewables, and government, both state and Federal, nuclear and CCS. should be organized so as to minimize the environmental impacts of shale gas8 MIT STUDY ON THE FUTURE OF NATURAL GAS
  16. 16. A more stringent CO2 reduction of, for exam- Natural gas can make an importantple, 80% would probably require the complete contribution to GHG reduction in comingde-carbonization of the power sector. This decades, but investment in low-emissionmakes it imperative that the development of technologies, such as nuclear, CCS andcompeting low-carbon technology continues renewables, should be actively pursuedapace, including CCS for both coal and naturalgas. It would be a significant error of policy to to ensure that a mitigation regime can becrowd out the development of other, currently sustained in the longer term.more costly, technologies because of the newassessment of the natural gas supply. Con- Natural Gas for Electric Powerversely, it would also be a mistake to encourage,via policy and long-term subsidy, more costly In the U.S., around 30% of natural gas istechnologies to crowd out natural gas in the consumed in the electric power sector. Withinshort to medium term, as this could signifi- the power sector, gas-fired power plants playcantly increase the cost of CO2 reduction. a critical role in the provision of peaking capacity, due to their inherent ability to respondThe evolution of global natural gas markets is rapidly to changes in demand. In 2009, 23% ofunclear; but under some scenarios, the U.S. the total power generated was from natural gas,could import 50% or more of its natural gas while natural gas plants represented over 40%by 2050, despite the significant new resources of the total generating capacity.created in the last few years. Imports canprevent natural gas-price inflation in future In a carbon-constrained world, the poweryears. sector represents the best opportunity for a significant increase in natural gas demand, inM A J O R R E CO M M E N D AT I O N S direct competition with other primary energyTo maximize the value to society of the sources. Displacement of coal-fired power by gas-fired power over the next 25 to 30 years issubstantial U.S. natural gas resource base, the most cost-effective way of reducing CO2U.S. CO2 reduction policy should be designed emissions in the power create a “level playing field,” where allenergy technologies can compete against As a result of the boom in the constructioneach other in an open marketplace of gas-fired power plants in the 1990s, thereconditioned by legislated CO2 emissions is a substantial amount of underutilized NGCCgoals. A CO2 price for all fuels without capacity in the U.S. today. In the short term, displacement of coal-fired power by gas-firedlong-term subsidies or other preferential power provides an opportunity to reduce CO2policy treatment is the most effective way emissions from the power sector by about 20%,to achieve this result. at a cost of less than $20/ton of CO2 avoided.In the absence of such policy, interim energy This displacement would use existing generating capacity, and would, therefore, require little inpolicies should attempt to replicate as the way of incremental capital expenditure forclosely as possible the major consequences new generation capacity. It would also signifi-of a “level playing field” approach to carbon- cantly reduce pollutants such as sulfur dioxideemissions reduction. At least for the near (SO2), nitrous oxide (NOX), particulates andterm, that would entail facilitating energy mercury (Hg).demand reduction and displacement ofsome coal generation with natural gas. Chapter 1: Overview and Conclusions 9
  17. 17. Natural gas-fired power generation provides the END USE GAS DEMAND major source of backup to intermittent renew- able supplies in most U.S. markets. If policy In the U.S., around 32% of all natural gas support continues to increase the supply of consumption is in the Industrial sector, where intermittent power, then, in the absence of its primary uses are for boiler fuel and process affordable utility-scale storage options, addi- heat; and 35% of use is in the Residential and tional natural gas capacity will be needed to Commercial sectors, where its primary applica- provide system reliability. In some markets, tion is space heating. Only 0.15% of natural gas existing regulation does not provide the is used as a vehicle transportation fuel. appropriate incentives to build incremental capacity with low load factors, and regulatory Industrial, Commercial and Residential changes may be required. Within the Industrial sector, there are opportu- In the short term, where a rapid increase in nities for improved efficiency of the Industrial renewable generation occurs without any boiler fleet, replacing less-efficient natural gas adjustment to the rest of the system, increased boilers with high-efficiency, or super-high renewable power displaces gas-fired power efficiency boilers with conversion efficiencies up generation and thus reduces demand for to 94%. There are also opportunities to improve natural gas in the power sector. In the longer the efficiency of natural gas use in process term, where the overall system can adjust heating and to reduce process heating require- through plant retirements and new construc- ments through changes in process technologies tion, increased renewables displace baseload and material substitutions. generation. This could mean displacement of coal, nuclear or NGCC generation, depending Our analysis suggests that conversion of on the region and policy scenario under coal-fired boilers in the Industrial sector to consideration. For example, in the 50% CO2 high-efficiency gas boilers could provide a reduction scenario described earlier, where cost-effective option for compliance with new gas-fired generation drives out coal generation, hazardous air pollutant reductions and create increased renewable penetration as a result of significant CO2 reduction opportunities at cost reduction or government policy will modest cost, with a potential to increase natural reduce natural gas generation on a nearly gas demand by up to 0.9 Tcf/year. one-for-one basis. Natural gas and natural gas liquids (NGLs) are M A J O R R E CO M M E N D AT I O N S a principal feedstock in the chemicals industry The displacement of coal generation with and a growing source of hydrogen production NGCC generation should be pursued as for petroleum refining. Our analysis of selected the most practical near-term option for cases indicates that a robust domestic market for natural gas and NGLs will improve the significantly reducing CO2 emissions from competitiveness of manufacturing industries power generation. dependent on these inputs. In the event of a significant penetration of intermittent renewable production in Natural gas has significant advantages in the the generation technology mix, policy and Residential and Commercial sectors due in part regulatory measures should be developed to its cleanliness and life cycle energy efficiency. to facilitate adequate levels of investment However, understanding the comparative in natural gas generation capacity to ensure cost-effectiveness and CO2 impacts of different energy options is complex. Comparison of system reliability and efficiency.10 MIT STUDY ON THE FUTURE OF NATURAL GAS
  18. 18. end use or “site” energy efficiencies can be Transportationmisleading, since it does not take into accountfull system energy use and emissions (such as The ample domestic supply of natural gas hasthe efficiency and emissions of electricity stimulated interest in its use in transportation.generation). However, quantitatively account- There are multiple drivers: the oil-natural gasing for the full system impacts from the “source” price spread on an energy basis generally favorscan be challenging, requiring a complex natural gas, and today that spread is at histori-end-to-end, full fuel cycle (FFC) analysis that cally high levels; an opportunity to lessen oilis not generally available to the consumer dependence in favor of a domestically suppliedor to the policy maker. fuel, including natural gas-derived liquid fuels with modest changes in vehicle and/or infra-Consumer and policy maker choices are further structure requirements and reduced CO2complicated by the influence of local climatic emissions in direct use of natural gas.conditions and regional energy markets. Theprimary energy mix of the regional generation Compressed natural gas (CNG) offers a signifi-mix fundamentally affects “site versus source” cant opportunity in U.S. heavy-duty vehiclesenergy and emissions comparisons. And the used for short-range operation (buses, garbagelocal climate has a major influence on the best trucks, delivery trucks), where payback timeschoice of heating and cooling systems, particu- are around three years or less and infrastructurelarly the appropriate use of modern space issues do not impede development. However,conditioning technologies such as heat pumps. for light passenger vehicles, even at 2010Consumer information currently available to oil-natural gas price differentials, high incre-consumers does not facilitate well-informed mental costs of CNG vehicles lead to longdecision making. payback times for the average driver, so signifi- cant penetration of CNG into the passengerExpanded use of combined heat and power fleet is unlikely in the short term. Payback(CHP) has considerable potential in the Indus- periods could be reduced significantly if thetrial and large Commercial sectors. However, cost of conversion from gasoline to CNG couldcost, complexity and the inherent difficulty of be reduced to the levels experienced in otherbalancing heat and power loads at a very small parts of the world such as Europe.scale make residential CHP a much moredifficult proposition. LNG has been considered as a transport fuel, particularly in the long-haul trucking sector.M A J O R R E CO M M E N D AT I O N S However, as a result of operational and infra-Improved energy efficiency metrics, which structure considerations as well as high incre- mental costs and an adverse impact on resaleallow consumers to accurately compare value, LNG does not appear to be an attractivedirect fuel and electricity end uses on a full option for general use. There may be anfuel cycle basis, should be developed. opportunity for LNG in the rapidly expandingOver time, these metrics should be tailored segment of hub-to-hub trucking operations, where infrastructure and operational challengesto account for geographical variations in the can be overcome.sources of electric power supply and localclimate conditions. Chapter 1: Overview and Conclusions 11
  19. 19. Energy density, ease of use and infrastructure U.S. production profiles, with supplies generally considerations make liquid fuels that are stable shifting from offshore Gulf of Mexico back to at room temperature a compelling choice in the onshore; shifts in U.S. population, generally Transportation sector. The chemical conversion from the Northeast and Midwest to the South of natural gas to liquid fuels could provide an and West and growth in global LNG markets, attractive alternative to CNG. Several pathways driven by price differences between regional are possible, with different options yielding markets. different outcomes in terms of total system CO2 emissions and cost. Conversion of natural gas The system generally responds well to market to methanol, as widely practiced in the chemi- signals. Changing patterns of supply and cals industry, could provide a cost-effective demand have led to a significant increase in route to manufacturing an alternative, or infrastructure development over the past few supplement, to gasoline, while keeping CO2 years with West to East expansions dominating emissions at roughly the same level. Gasoline pipeline capacity additions. Infrastructure engines can be modified to run on methanol limitations can temporarily constrain produc- at modest cost. tion in emerging production areas such as the Marcellus shale — but infrastructure capacity M A J O R R E CO M M E N D AT I O N S expansions are planned or underway. Demand The U.S. government should consider increases and shifts in consumption and production are expected to require around revision to its policies related to CNG $210 billion in infrastructure investment over vehicles, including how aftermarket CNG the next 20 years. conversions are certified, with a view to reducing up-front costs and facilitating Much of the U.S. pipeline infrastructure is CNG-gasoline capacity. old — around 25% of U.S. natural gas pipelines are 50 years old or older — and recent incidents The U.S. government should implement an demonstrate that pipeline safety issues are a open fuel standard that requires automobile cause for concern. The Department of Trans- manufacturers to provide tri-flex fuel portation (DOT) regulates natural gas pipeline (gasoline, ethanol and methanol) operation safety and has required integrity management in light-duty vehicles. Support for methanol programs for transmission and distribution fueling infrastructure should also be pipelines. The DOT also supports a small pipeline safety research program, which seems considered. inadequate given the size and age of the pipe- line infrastructure. Infrastructure Increased use of natural gas for power genera- tion has important implications for both The continental U.S. has a vast, mature and natural gas and electric infrastructures, includ- robust natural gas infrastructure, which ing natural gas storage. Historically, injections includes: over 300,000 miles of transmission and withdrawals from natural gas storage have lines; numerous natural gas-gathering systems; been seasonal. Increased use of natural gas for storage sites; processing plants; distribution power generation may require new high- pipelines and LNG import terminals. deliverability natural gas storage to meet more variable needs associated with power generation. Several trends are having an impact on natural gas infrastructure. These include changes in12 MIT STUDY ON THE FUTURE OF NATURAL GAS
  20. 20. M A J O R R E CO M M E N D AT I O N S M A J O R R E CO M M E N D AT I O N SAnalysis of the infrastructure demands The EPA and the U.S. Department of Energyassociated with potential shift from coal to (DOE) should co-lead a new effort to review,gas-fired power should be undertaken. and update as appropriate, the methane emission factors associated with naturalPipeline safety technologies should be gas production, transmission, storageincluded in natural gas RD&D programs. and distribution. The review should have broad-based stakeholder involvement andEND USE EMISSIONS VERSUS should seek to reach a consensus on theSYSTEM-WIDE EMISSIONS appropriate methodology for estimating methane emissions rates. The analysisWhen comparing GHG emissions for different should, to the extent possible: (a) reflectenergy sources, attention should be paid to the actual emissions measurements; (b) addressentire system. In particular, the potential forleakage of small amounts of methane in the fugitive emissions for coal and oil as well asproduction, treatment and distribution of coal, natural gas; and (c) reflect the potential foroil and natural gas has an effect on the total cost-effective actions to prevent fugitiveGHG impact of each fuel type. The modeling emissions and venting of methane.analysis in Chapter 3 addresses the system-wideimpact, incorporating methane leakage fromcoal, oil and natural gas production, processing MARKETS AND GEOPOLITICSand transmission. In Chapter 5 we do notattempt to present detailed full-system account- The physical characteristics of natural gas,ing of CO2 (equivalent) emissions for various which create a strong dependence on pipelineend uses, although we do refer to its potential transportation systems, have led to localimpact in specific instances. markets for natural gas – in contrast to the global markets for oil.The CO2 equivalence of methane is conven-tionally based on a Global Warming Potential There are three distinct regional gas markets:(GWP)3 intended to capture the fact that each North America, Europe and Asia, with moreGHG has different radiative effects on climate localized markets elsewhere. The U.S. gasand different lifetimes in the atmosphere. market is mature and sophisticated, andIn our considerations, we follow the standard functions well, with a robust spot market.Intergovernmental Panel on Climate Change Within the U.S. market, the price of oil, (which(IPCC) and EPA definition that has been widely is set globally) compared to the price of naturalemployed for 20 years. Several recently published gas (which is set regionally) is very importantlife cycle emissions analyses do not appear to be in determining market share when there is thecomprehensive, use common assumptions or opportunity for substitution. Over the lastrecognize the progress made by producers to decade or so, when oil prices have been high,reduce methane emissions, often to economic the ratio of the benchmark West Texas Inter-benefit. We believe that a lot more work is mediate oil price to the Henry Hub natural gasrequired in this area before a common under- price has been consistently higher than any ofstanding can be reached. Further discussion the standard rules of thumb.can be found in Appendix 1A. Chapter 1: Overview and Conclusions 13
  21. 21. International natural gas markets are in the early stages of integration, with many impedi- pipelines and pipeline routes is intense in ments to further development. While increased key regions. LNG trade has started to connect these mar- kets, they remain largely distinct with respect to supply patterns, pricing and contract struc- ability of the natural gas infrastructure. tures, and market regulation. If a more inte- grated market evolves, with nations pursuing M A J O R R E CO M M E N D AT I O N S gas production and trade on an economic basis, The U.S. should pursue policies that there will be rising trade among the current encourage the development of an efficient regional markets and the U.S. could become and integrated global gas market with a substantial net importer of LNG in future decades. transparency and diversity of supply. Natural gas issues should be fully integrated Greater international market liquidity would into the U.S. energy and security agenda, be beneficial to U.S. interests. U.S. prices for and a number of domestic and foreign natural gas would be lower than under current regional markets, leading to more gas use in the policy measure should be taken, including: U.S. Greater market liquidity would also contribute to security by enhancing diversity conduct of U.S. foreign policy, which will of global supply and resilience to supply require multiagency coordination with disruptions for the U.S. and its allies. These factors ameliorate security concerns about leadership from the Executive Office of import dependence. the President; As a result of the significant concentration of Energy Agency (IEA) to place more atten- conventional gas resources globally, policy and geopolitics play a major role in the develop- tion on natural gas and to incorporate the ment of global supply and market structures. large emerging markets (such as China, Consequently, since natural gas is likely to play India and Brazil) into the IEA process as a greater role around the world, natural gas integral participants; issues will appear more frequently on the U.S. energy and security agenda. Some of the specific security concerns are: expansion of unconventional resources; and of allies, could constrain U.S. foreign policy options, especially in light of the unique cyber-security as the global gas delivery American international security system becomes more extended and responsibilities. interconnected. impediments to the development of transparent markets.14 MIT STUDY ON THE FUTURE OF NATURAL GAS
  22. 22. RD&D While natural gas can provide a cost-effective bridge to a low carbon future, it is vital thatThere are numerous RD&D opportunities to efforts continue to improve the cost andaddress key objectives for natural gas supply, efficiency of low or zero carbon technologiesdelivery and end use: for the longer term. This will require sustained RD&D and subsidies of limited duration to encourage early deployment. development as an important contributor to the public good; M A J O R R E CO M M E N D AT I O N S The Administration and Congress should support RD&D focused on environmentally natural gas production, delivery and use; responsible domestic natural gas supply. This should entail both a renewed applications for public policy purposes, such DOE program, weighted towards basic as emissions reductions and diminished oil research, and a complementary industry- dependence; led program, weighted towards applied research, development and demonstration, that is funded through an assured funding infrastructure; stream tied to energy production, delivery - and use. The scope of the program should sion and end-use so as to use the resource be broad, from supply to end-use. most effectively. Support should be provided through RD&D, and targeted subsidies of limited duration,Historically, RD&D funding in the natural gasindustry has come from a variety of sources, for low-emission technologies that have theincluding private industry, the DOE, and prospect of competing in the long run. Thisprivate/public partnerships. In tandem with would include renewables, carbon capturelimited tax credits, this combination of support and sequestration for both coal and gasplayed a major role in development of uncon- generation, and nuclear power.ventional gas. It has also contributed to moreefficient end-use, for example in the develop-ment of high-efficiency gas turbines.Today government funded RD&D for naturalgas is at very low levels. The elimination ofrate-payer funded RD&D has not been com-pensated by increased DOE appropriationsor by a commensurate new revenue streamoutside the appropriations process. The totalpublic and public-private funding for naturalgas research is down substantially from its peakand is more limited in scope, even as naturalgas takes a more prominent role in a carbon-constrained world. Chapter 1: Overview and Conclusions 15
  23. 23. CONCLUSION Over the past few years, the U.S. has developed an important new natural gas resource that fundamentally enhances the nation’s long-term gas supply outlook. Given an appropriate regulatory environment, which seeks to place all lower carbon energy sources on a level competitive playing field, domestic supplies of natural gas can play a very significant role in reducing U.S. CO2 emissions, particularly in the electric power sector. This lowest cost strategy of CO2 reduction allows time for the continued development of more cost-effective low or zero carbon energy technology for the longer term, when gas itself is no longer sufficiently low carbon to meet more stringent CO2 reduction targets. The newly realized abundance of low cost gas provides an enor- mous potential benefit to the nation, providing a cost effective bridge to a secure and low carbon future. It is critical that the additional time created by this new resource is spent wisely, in creating lower cost technology options for the longer term, and thereby ensuring that the natural gas bridge has a safe landing place in a low carbon future. NOTES EIA 2009 Annual Energy Review, Figure 45. 2 Global-warming potential (GWP) is a relative 3 1 One quadrillion Btu (or “quad”) is 1015 or measure of how much heat a given greenhouse gas 1,000,000,000,000,000 British thermal units. Since traps in the atmosphere. one standard cubic foot of gas is approximately 1,000 Btu, then 1 quad is approximately 1 Tcf of gas.16 MIT STUDY ON THE FUTURE OF NATURAL GAS
  24. 24. Chapter 2: SupplyINTRODUCTION AND CONTEXT Thermogenic1 natural gas, which is formed by the application, over geological time, of enormousIn this chapter, we discuss various aspects of heat and pressure to buried organic matter,natural gas supply: how much natural gas exists exists under pressure in porous rock formationsin the world; at what rate can it be produced thousands of feet below the surface of the earth.and what it will cost to develop. Following the It exists in two primary forms: “associated gas” isintroduction and definitions, we look at produc- formed in conjunction with oil, and is generallytion history, resource volumes and supply costs released from the oil as it is recovered from thefor natural gas — first from a global perspective, reservoir to the surface — as a general rule theand then focusing in more detail on the U.S., gas is treated as a by-product of the oil produc-paying particular attention to the prospects for tion process; in contrast, “non-associated gas” isshale gas. We then discuss the science and found in reservoirs that do not contain oil, and istechnology of unconventional gas, the environ- developed as the primary product. While associ-mental impacts of shale gas development and ated gas is an important source, the majority offinally the prospects for methane hydrates. gas production is non-associated; 89% of the gas produced in the U.S. is non-associated.NATURAL GAS AND THERECOVERY PROCESS Non-associated gas is recovered from the forma- tion by an expansion process. Wells drilled intoThe primary chemical component of natural gas the gas reservoir allow the highly compressedis methane, the simplest and lightest hydrocar- gas to expand through the wells in a controlledbon molecule, comprised of four hydrogen (H) manner, to be captured, treated and transportedatoms bound to a single carbon (C) atom. In at the surface. This expansion process generallychemical notation, this is expressed as CH4 leads to high recovery factors from conventional,(the symbol for methane). Natural gas may good-quality gas reservoirs. If, for example, thealso contain small proportions of heavier average pressure in a gas reservoir is reducedhydrocarbons: ethane (C2H6); propane (C3H8) from an initial 5,000 pounds per square inchand butane (C4H10); these heavier components (psi) to 1,000 psi over the lifetime of the field,are often extracted from the producing stream then approximately 80% of the Gas Initially Inand marketed separately as natural gas liquids Place (GIIP) will be recovered. This is in contrast(NGL). In the gas industry, the term “wet gas” to oil, where recovery factors of 30% to 40% areis used to refer to natural gas in its raw unpro- more typical.cessed state, while “dry gas” refers to natural gasfrom which the heavier components have been Gas is found in a variety of subsurface locations,extracted. with a gradation of quality as illustrated in the resource triangle in Figure 2.1. Chapter 2: Supply 17
  25. 25. Figure 2.1 GIIP as a Pyramid in Volume and Quality. Conventional reservoirs are at the top of the pyramid. They are of higher quality because they have high permeability and require less technology for development and production. The unconventional reservoirs lie below the conventional reservoirs in this pyramid. They are more abundant in terms of GIIP but are currently assessed as recoverable resources — and commercially developed — primarily in North America. They have lower permeability, require advanced technology for production and typically yield lower recovery factors than conventional reservoirs. Increasing Technology/Decreasing Recovery Factor Conventional Resources High-Quality Reservoirs Low-Quality Reservoirs Unconventional Resources Tight Gas Sands Coal Bed Methane Shale Gas Methane Hydrates Volume Adapted from Holditch 2006 Conventional resources exist in discrete, sandstone formations, coal beds (coal bed well-defined subsurface accumulations (reser- methane or CBM) and shale formations. voirs), with permeability2 values greater than Unconventional resource accumulations tend a specified lower limit. Such conventional to be distributed over a larger area than con- gas resources can usually be developed using ventional accumulations and usually require vertical wells, and generally yield the high advanced technology such as horizontal wells recovery factors described above. or artificial stimulation in order to be economi- cally productive; recovery factors are much By contrast, unconventional resources are lower — typically of the order of 15% to 30% found in accumulations where permeability is of GIIP. The various resource types are shown low. Such accumulations include “tight” schematically in Figure 2.2.18 MIT STUDY ON THE FUTURE OF NATURAL GAS
  26. 26. Figure 2.2 Illustration of Various Types of Gas Resource Schematic geology of natural gas resource Land surface Conventional non-associated Coal bed methane gas Conventional associated gas Seal Oil Sandstone Tight sand gas Gas-rich shale Source: U.S. Energy Information AdministrationRESOURCE DEFINITIONS Gas resources are an economic concept — a function of many variables, in particular the cost of exploration,The complex cross-dependencies betweengeology, technology and economics mean that production and transportation relative to the pricethe use of unambiguous terminology is critical of sale to users.when discussing natural gas supply. In thisstudy, the term “resource” will refer to the sum Figure 2.3 illustrates how proved reserves,of all gas volumes expected to be recoverable in reserve growth and undiscovered resourcesthe future, given specific technological and combine to form the “technically recoverableeconomic conditions. The resource can be resource,” that is, the total volume of naturaldisaggregated into a number of sub-categories; gas that could be recovered in the future,specifically, “proved reserves,” “reserve growth” using today’s technology, ignoring economic(via further development of known fields) and constraints.“undiscovered resources,” which represent gasvolumes that are expected to be discovered inthe future via the exploration process. Chapter 2: Supply 19