The United States is re-assessing its natural gas reserves. The reason for this is an improvement in production technology that makes it more easy to recover ‘shale gas’, gas trapped inside formations of shale rock. Such shale gas seems to be abundant. The Committee that is treating the re-assessment believes that shale rock formations could hold two thirds of the US’s recoverable natural gas reserves, which could supply the US with natural gas for another 90 years, read here. Moreover, neighboring Canada also has large shale gas reserves. All this means a drastic change from the US gas situation assessment of recent years, when analysts and policymakers feared that the US would enter into the decline phase and become dependent on imports of overseas LNG (Liquified Natural Gas).
This extension of US home-made gas reserves is an important event for the world’s natural gas economy. If the US can remain self-sufficient for its gas production, this would mean that more such LNG capacities are available for European and Asian gas consumers. In the past years we have observed the first signs of a world market for natural gas. We saw gas prices on European Hubs such as NBP, Zeebrugge or TTF climb when demand for gas and hence spot prices were high in the US. The reason for that was that LNG ships would sail across the Atlantic instead of bringing extra gas to the Northern European market. If shale gas becomes an important reality in the US, I could imagine that investment in LNG import facilities in the US would stall. The LNG market would then be focused on Europe and Asia.
Another important impact of more recoverable gas reserves would be its effect on the choice of power plants. Natural gas for power production has some great advantages:
- It is relatively clean, carbon dioxide emissions from gas-fired power plants are much lower than emissions from coal-fired plants.
- Technology of gas-fired power plants is well developed, new plants have excellent efficiency performance.
- Gas-fired power plants have a relatively low investment cost and they can be rapidly planned and built. Reducing the investment cycles and burden is an advantage in times of increasing uncertainty over prices for both fuel and power.
- Gas-fired power plants also have the advantage that they can be rapidly scaled up and down. As such they are the perfect match for renewable energy sources such as wind or solar that produce power in a discontinuous fashion. We see that the first hybrid solar / gas-fired power plants are being planned, plants that would produce power from solar heat during the day and from steam from a gas turbine during the night.
If gas would be abundant due to the increase in recoverable reserves and you take into account all these advantages, it is hard to see why power producers would invest in carbon capture and storage from coal-fired power plants. Building combinations of windmills or thermal solar plants with gas-fired plants for peak power, simply looks like a much easier solution.
Natural gas could even change the face of transportation. When I drive around in Germany, I see more and more bumper stickers that claim that the car in front of me is filled with natural gas. Could gas as a car fuel have the future? If worldwide gas would be abundant and supply – demand tightness continues in the oil market, gas would be a natural choice (pun unintended). How would this affect the development of other clean car fuel technologies such as electric cars or – even more importantly – fuel cell cars that run on hydrogen? Maybe the future car could be a plug-in hybrid car running on natural gas. It has a battery with a good autonomy that is uploaded during the night in my garage. During the day, it receives some extra power from the solar cells that are integrated in the roof-top metal. And if this electricity is not sufficient, my natural gas-fired motor kicks in. The hybridization of all these technologies would produce the best results.
And with cars we have arrived at a possible growing discrepancy between gas and oil availability and prices. This would of course affect the difference between Hub prices and oil-indexed gas prices. It would become increasingly difficult for continental European gas suppliers and for traditional producers such as Russia or Norway to sell gas at higher prices because oil has become more scarce when there is no supply problem in the gas market.
It is of course early day to presume that we are indeed heading for a future of abundant gas worldwide. With growing energy needs in emerging economies, we have to be careful that demand doesn’t outstrip the increase in supply. Building gas-fired power plants will be an attractive investment for countries such as China, India and Brazil as well, especially when they are to commit to curbing carbon dioxide emissions. But it is clear that developments in the US natural gas market will have an important influence on the development of worldwide energy markets and technology choices in the next years. We are there to observe them carefully for you.
