World Energy Outlook 2012 – Part II: Natural Gas

The big news a few weeks ago, as I wrote in this blog, came from the World Energy Outlook 2012 report, which wrote that the US is on a trajectory to surpass Saudi Arabia in oil production by 2020.  The US Department of Energy yesterday completed its study on natural gas exports by an outside consultant.  The report can be summarized was follows:

  • Because of the abundance of natural gas in the U.S., only modest price increases will be seen by domestic consumers;
  • Exports of natural gas are made possible primarily by the increased availability of it; and
  • The expected shift in power generation from coal to natural gas will be slowed by increased exports.

The modest price increases predicted from allowing greater exports of US natural gas are directly related to its increased availability from unconventional sources such as shale.  The World Energy Outlook had forecasted that most of the newly available natural gas would come from three countries: China, Australia, and the United States.  It forecasted that by 2035 natural gas would become the most important fuel in the US, surpassing even oil.

My previous blog entry, “Liquid Natural Gas and US Energy Exports,” pointed out the potential economic impact of allowing increased exports of natural gas in terms of job creation here in the US.  However, the extent of that growth hinges on federal regulatory approvals.  The long-awaited Department of Energy study paves the way for those approvals.  Already, the World Energy Outlook 2012 has forecast that, even with exports, 93% of natural gas produced in the US would be kept here at home for domestic consumption.

Why would 93% remain available for domestic consumption if federal regulations permitted increased exports of natural gas?  There are many reasons, but among them is the growing availability of natural gas outside the US.  The Outlook 2012 report forecasts that, even with potential new climate-related policy restrictions, the production of natural gas in non-OECD countries could grow at a 2.1% compound average annual rate between 2010 and 2035.  This compares with 0.85% over the same period in OECD countries like the US.

The primary reasons for increased domestic consumption are the extent to which the power industry is shifting its fuel source from coal to natural gas, and the expansion in availability of domestic natural gas. The Outlook 2012 report estimates that output in North America would continue to expand from approximately 650 billion cubic meters (bcm) in 2011 to 800 bcm in 2035, nearly a 25% increase in availability of domestic natural gas.

We are now beginning to see the potential that is coming from the growth in the worldwide natural gas supply.  It will result in shifts away from traditional fossil fuels to cleaner natural gas and substantial increases in jobs within the energy industry.  Of course, both will depend upon supportive regulation.  The Department of Energy report should move us toward that supportive regulation.

Liquid Natural Gas and US Energy Exports

The potential for growth in US energy exports was evident in two recent but unrelated reports – one from Honeywell UOP and the other from the US Energy Administration.  Together the two link growing global demand for natural gas to technological advances that will increase US energy exports.

Honeywell UOP just announced a deal with Malaysia’s Petronas to collaborate on natural gas processing.  Natural gas is the fastest growing source of energy, and the US has abundant resources.  This blog has previously pointed out how natural gas resources in the US have the potential to make the US energy independent.  The partnership between Honeywell UOP and Petronas is focused on new technology that will make natural gas more easily shipped in its liquid form, commonly referred to as LNG – liquid natural gas.

The technology that Honeywell UOP and Petronas are working on will remove contaminants such as CO2 and mercury prior to the liquefaction of the natural gas.  The resulting product can be even more compressed in its liquid form, thereby increasing the capacity of a ship to move it to areas of global demand.  And that is where another recent report – this one from the US Energy Administration – makes clear why the Honeywell UOP-Petronas partnership really matters.

Earlier in the month, the US Energy Administration published its current analysis of Chinese energy demand.  China has sought to raise its imports of natural gas via pipeline and LNG.  Although natural gas still accounts for only 4% of China’s energy consumption, the China Offshore Oil Company has substantially increased its investment in natural gas.  The China Report states that the China Offshore Oil Company invested $12 billion of its total 2011 $18 billion investment in natural gas.

While natural gas imports in China represented 12% of the total in 2010, they rose to 22% in 2011.  The Chinese government has established a 2020 goal for natural gas consumption to rise from 4% to 10% of total energy use.  The potential for the US with its huge supplies of natural gas is evident.  And that is the reason the technological advances intended from the Honeywell UOP and Petronas collaboration really matter.  Lowering costs of transport will further the capacity of the US to meet global energy demands such as those in China, thereby increasing US GDP and helping to reverse the long trend of US imports exceeding our exports.