Natural Gas Outlook Uncertain As Supply/Demand Balances Vary

Natural gas might be clear and odorless gas but its future is as cloudy as a London fog!

At the turn of the century, natural gas was hailed as the “bridge fuel” of the future. With crude oil the No. 1 source of U.S. energy and gas sometimes No.2 or 3 - depending on how coal was doing - natural gas use was estimated in the 1999 National Petroleum Council (NPC) Report to jump from around 22 Tcf to 29 Tcf per year by 2010. Estimated consumption by the Energy Information Administration (EIA) for 2009 will be 22.7 Tcf, a far cry from the 2010 forecast!

There are sufficient reasons in the energy business environment to speculate why natural gas has failed to meet expectations. But, more important for this critical U.S. fuel, is what the future may hold. Many of the qualities natural gas had at the turn of the century remain but a changing world with varying demands and a new political correctness is having an effect. Natural gas is still the bridge fuel to the future but the future is hazy and is undergoing a metamorphosis!

Natural gas has superior qualities as a fuel for many applications. It is one of the cleanest burning fuels; in commercial quantities it is essentially only carbon and hydrogen giving off relatively pure combustion products. It is the easiest fuel to make commercially available as the production from the ground, the preparation to make it a commercial product, and transportation are relatively clean and simple. Coming from wells in various producing regions of the country, there are more than 530 processing plants to make the gas commercially useful if cleanup is needed. There are 300,000 miles of intra and interstate pipelines to deliver the gas to consuming regions.

With a few exceptions, natural gas is a relatively inexpensive fuel. Not as cheap per energy unit as coal but when transportation, storage, and combustion product clean-up are considered, its overall costs make it one of the cheapest fuels for electric generation, its second-largest market.

Supply is abundant – even in 2000 gas was sufficient to meet demand. With new sources from shale deposits such as the Barnett and others in various parts of the country, supply is even more secure. Adding even more confidence to sufficient supply is the number of foreign liquefied natural gas (LNG) sources available.

So what killed the goose that laid the golden egg? Why no 30 Tcf by 2010? And what do these reasons offer as prognosticators of the future? There are many reasons for the missed target but two stand out: the major market for expansion - electric generation - did not materialize for gas as much as expected and the volatility of gas prices along with the economic crisis cut into demand.

The biggest use for natural gas is in the industrial sector - either for feedstock or fuel. Next is gas for electric generation and then residential and commercial follow with a small amount for transportation. Industrial consumption peaked in 1997 at 9.7 Tcf while electric use in 2000 was 5.2 Tcf. Other than a potential of normal growth in the other sectors, these two were going to carry natural gas to 30 Tcf by 2010 with electric generation offering the most potential growth.