Peak Gas  

TreeHugger has one of their periodic peak energy posts up - this one looking at the peak of natural gas production - it notes the need for massive investment in clean, renewable energy technologies.

Regular readers of Treehugger are probably starting to become familiar with the concept of peak oil. We've written about it quite a bit, but we must not get tunnel vision and think that it is the only fossil fuel that can reach peak production and then decline. Natural gas is actually more probablematic in some ways since, as The Oil Drum mentions today, it depletes even faster than oil. The reason is simple: It is much easier to get a gas out of the ground than a liquid. The EIA point out that in 1970 gas well depletion rates were 20%, and by 1996 had reached 49%.

When one taps an oil reservoir the oil requires a certain amount of differential pressure to push it towards the well, and with the passages it must pass being generally narrow, flow is relatively constricted. Good well management means that, in order to control water and gas problems, the pressure difference between the well and the rock is carefully controlled, and this allows the oil to be effectively recovered at rates which, while worryingly increasing, are still generally considered to be less than 10%..

Natural gas, on the other hand, flows a lot more easily, and normally does not have a lot of the constraints that producing oil has. Thus, if your pipeline can handle the flow, and there is a demand, the gas field can be drained much more rapidly, with a consequent dramatically more rapid conclusion to the flow. As Dr Campbell pointed out fields may last just months, and then "boom" they are gone.

Adding this to the fact that North-America will soon have to import natural gas from other continents in the form of liquefied natural gas (LNG, natural gas liquefies at approximately minus 160 Celcius), that the price of natural gas are high and will certainly keep rising this winter, and the problems keep pilling up.

A sad eventual outcome would be for coal to displace natural gas when it starts to run out; things would only get worse. One more reason - as if we needed more - to invest massively in clean energy technologies such as wind, solar and hydro/wave.

Gas has been much in the news lately, with the Qatar deal to supply gas to the US noted pretty much everywhere, which probably does't augur well for Woodside's recent talk about exporting LNG to the US east coast (Qatar has the world's third largest reserves, trailing Russia and Iran).

Qatar and Washington have launched a joint project to build the world's largest liquefied natural gas (LNG) refinery mostly for export to the United States, in a $14-billion strategic alliance between the two countries.

Qatar Petroleum has a 70% stake in the project and ExxonMobil Ras Laffan III Limited, a subsidiary of the US oil giant ExxonMobil, the remaining 30%. In a first phase, the RasGas-3 plant is to produce 15.6 million tons a year of LNG through two trains, the first of which will be operational from the second half of 2008, according to an official statement.

Under the 25-year accord starting in 2008 - signed on Tuesday during a visit by US Energy Secretary Samuel Bodman - Washington will import 25-30% of its LNG needs from Qatar, Qatari Energy Minister Abdullah bin Hamad al-Attiya told AFP. Qatar's giant North Field, which has proven reserves of more than 25 trillion cubic metres of natural gas, is the third largest in the world.

The tiny Gulf emirate has launched an industrialisation drive to become the world's top exporter of LNG.

Jerome a Paris at Daily Kos has a post up on natural gas depletion which must make scary reading for NZ and UK readers - and the news isn't much better for the US, even with the newer Qatari LNG "pipeline" coming onstream.

The UK will only have enough gas this winter if it's not too cold:

A wholly predictable energy crisis looms

Crisis, what crisis? The Government can hardly be blamed for the weather but it is responsible for the country's energy policy. Having denied for months that we are in danger of running out of gas this winter, there is a sudden sense of panic in the Downing Street air now that the temperature has begun to drop.

New Zealand may lose 25% of its power overnight:

Maui gas production is in free fall. In peak oil terminology we are over the cliff. Within a year, maybe two tops, Maui gas will be gone. We are not the only nation facing natural gas depletion. The great Canadian natural gas fields, which power much of the United States, are on the production plateau. Major blackouts have already plagued the US over the last couple of years caused by peak surges in electricity consumption. As Canadian gas production hits the cliff it is almost certain that the US will experience severe and lasting electricity outages.

The Maui gas field has been responsible for 25% of New Zealand's electricity generation. When it runs out in a year or two, not only will a multibillion dollar infrastructure become essentially obsolete overnight but New Zealand will have lost 25% of it's electricity generation capacity.

The situation in North America is not much better.

...



Today, there are 5 terminals in service in North America, and 4 under construction (essentially those that will receive Qatari LNG). Beyond that, a number of projects are under way, but it's not clear whethere they will be permitted and where they will get they LNG from (most of the projects from the countries listed above Qatar in the above graph are still tentative as of today).

So, if all goes well, some volumes of LNG will get to the US market from 2009 or so - not enough to cover the expected shortages then - nor earlier. Higher Henry Hub (HH) prices will attract "spot" LNG to some extent (i.e. uncommitted volumes that some producers have available) but that it never going to be a significant portion of that business which requires very heavy investments (Qatar will have spent 55 billion dollars to bring its LNG export capacity to 9bcf/d in 2010) - and thus long term contracts for most avialable volumes to underpin these investments. But that spot LNG market will drive prices up.

So far, winter has been pretty mild, and thus Henry Hub prices have not gone up further - they are now back at their post-Katrina levels. But this is unlikely to last if the winter becomes harsher than usual, and some areas may find themselves, like in the UK, with the choice between cutting off residential users or cutting off industrial users. Price mechanisms would likely cut off industrial users, but would create a political backlash as retails prices go through the roof. The other option is rationing. either way, the economic consequences will not be benign.

In recent years, gas-fired power plants have been built in many countries, starting with the USa and the UK, on the basis of plentiful - and cheap (expectations were for 2-4$/mbtu gas prices) natural gas. Suddenly, gas is neither cheap, nor plentiful, and it's going to be a painful experience - call it a grand rehearsal for peak oil...

On a semi-related note, Scrutiny Hooligans note some interesting figures on US electricity prices.

BNN reports "U.S. electricity rates are 46 percent higher than a year ago, an industry group said Friday.

U.S. wholesale day-ahead power prices in early November averaged $81.21 per megawatt hour compared to $55.72 per megawatt hour in early November 2004, said Platts National Daily Power Index.

The year-to-year increase, driven largely by much higher natural gas prices, was even greater before day-ahead wholesale electricity prices fell 21 percent, or $21.06, from early October, when the Platts National Daily Power Index stood at $102.27."

Time to powerdown, learn to live on less, think before acting, shift the balance with out upsetting the cart, umm...or something like that. Most of my reading says this initial downturn in gasoline prices will only be temporary; basically until cold weather kicks in, and then all bets are off, as to affordability. We'll see, I suppose..

And on a short local note, peak oil references are now becoming mainstream, with the SMH including this snippet in the business section:

Peak oil speak

When it comes to the topic of peak oil, there are differing views.

US oil group Chevron readily acknowledges that oil will peak at some point and is running an advertising campaign in the US encouraging talk about conservation, noting that "the era of easy oil is over".

But mention the idea of peak oil to the world's biggest publicly traded company, ExxonMobil, and the response is much more frosty.

At an American Chamber of Commerce lunch in Sydney yesterday, ExxonMobil Australia chairman Mark Nolan held the company line, saying he was comfortable with US Geological Survey projections of world oil supply that an increasing number of industry observers characterise as overly optimistic.

But judging by the share prices, Chevron could be winning the argument.

In the past six months its shares have risen 13 per cent, while ExxonMobil shares have gained only 8 per cent. The biggest local oil and gas play, Woodside Petroleum, has left both in the dust with a 43 per cent rise in the same period.