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Page added on May 31, 2016

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On Track for a Golden Age of Gas?

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  • The global energy industry must overcome significant new challenges if natural gas development is to achieve the vision of a Golden Age of Gas.
  • Low energy prices and reduced investment are only half the battle as regulations complexify and organized opposition grows.

Five years ago the International Energy Agency (IEA) issued a report entitled, “Are We Entering a Golden Age of Gas?” Gas development was booming, from both conventional resources and US shale deposits, and gas was widely seen as a vital tool for reducing greenhouse gas emissions. Much has happened since then, including a collapse in global oil prices, the signing of a new climate agreement in Paris, and a broadening of the anti-fossil-fuel focus of climate activists. If we’re still on the path to a golden age of gas, the ride will be bumpy.

This is probably most evident across the pond, where Nick Butler, the Financial Times’ respected energy analyst, observed this week, “Unless something changes radically, Europe has passed the point of peak gas consumption.” He cited Germany’s ongoing “Energiewende” (energy transition) which in order to maximize wind and solar and minimize nuclear power, ends up squeezing gas out between renewables and much higher-emitting coal.

Earlier this month France’s Energy Minister announced she was pursuing a ban on imports of US shale gas–effectively any gas from the US–since France already bans domestic fracking. That strikes me as a textbook example of having to keep making bad decisions to be consistent with the first one, but it’s their sovereign choice.

As the IEA defined it at the time, this Golden Age would entail faster growth in gas demand in every major sector, compared to the agency’s main “New Policies” scenario in its then-current annual World Energy Outlook (WEO). They anticipated compound average growth of 1.8% per year, much faster than oil or coal, with gas consumption ending up 13% higher than the WEO’s projection for 2035. That’s like adding an extra Russia or Middle East to world gas demand within 20 years.

One gauge of whether that still seems realistic can be found in the US Energy Information Administration’s (EIA) just-released 2016 International Energy Outlook. The EIA’s long-term forecast actually has gas consumption growing slightly faster than IEA’s Golden Age track in the developed countries of the OECD between now and 2035, but with a slower ramp-up to essentially the same end-point in the non-OECD countries.

Of course one forecast can’t really validate another, so let’s consider how some of the big uncertainties that the IEA identified in the 2011 report have shifted, starting with energy pricing. After oil’s recent rebound, oil and gas have fallen by around half their 2011 US prices. That makes investments in oil and gas exploration and production considerably less attractive. Nearly $400 billion of projects have been canceled or deferred, globally, setting up slower growth in production from both gas fields and oil fields with associated gas in the near-to-medium term. This deceleration is evident in EIA’s latest monthly Drilling Productivity Report for US shale.

With the contract price of liquefied natural gas (LNG) often tied to oil prices or competing with pipeline gas that has also fallen in price, large gas infrastructure projects like LNG plants look less attractive, too. We’ve already seen cancellations of new facilities in Australia and Canada. Fewer LNG export facilities are likely to be built in the US than previously planned. All this means less new gas reaching markets where it can be used.

Cheaper oil also reduces the attractiveness of gas as a transportation fuel. Although increasingly popular as a cleaner fuel for buses, natural gas hasn’t made much headway in US passenger cars. However, this application has been growing in places like Italy and Iran, for different reasons.

Viewed in isolation, these price-related responses seem likelier to delay, rather than derail the expectations the IEA set out in 2011. The bigger challenges come from a set of issues the IEA identified a year later, in a follow-up report called “Golden Rules for a Golden Age of Gas.” As Dr. Birol, now the Executive Director of IEA, indicated then, these boil down to the industry’s “social license to operate.”

Transparency, water consumption, emissions including methane leaks–all on IEA’s list–are some of the key issues over which companies, regulators, NGOs and activists are sparring today. The UK is a prime example. Conventional energy production is declining rapidly and a large shale gas potential has been identified by the British Geological Survey, but every attempt to drill exploratory wells has encountered strong opposition.

A new factor the IEA did not anticipate is the emergence of political movements focused on fossil fuel divestiture and a “keep it in the ground” mantra. These may be based on unrealistic expectations of how quickly the world can transition to a zero-emission economy, but they illustrate the scale of a stakeholder engagement challenge the global oil and gas industry has so far failed to meet adequately.

Just as social media are transforming politics, they are also altering the balance of power between organizations and their critics. The gaps that must be bridged if new gas development is to remain broadly acceptable to the public are growing in ways that will demand new approaches and new strategies to address.

Considering the shifts in the global energy mix that will be necessary to reduce global emissions in line with the goals of last year’s Paris Agreement, gas ought to have a future every bit as bright as the Golden Age the IEA described five years ago. Achieving that now likely depends less on the price of energy and the scale of available resource than on convincing regulators and the public that the trade-offs involved in obtaining its benefits are still reasonable.

Energy Outlook



10 Comments on "On Track for a Golden Age of Gas?"

  1. Plantagenet on Tue, 31st May 2016 7:06 pm 

    Contrary to the Paris Accords, natural gas does not reduce global emissions. It only results in a shift in emissions from CO2 to CH4—which is 50 times worse then CO2 in terms of climate impact. The Obama administration efforts to close US coal-fired power plants and shift electrical generation to NG has been disastrous, as it has resulted in jump in US methane emissions and even more global warming.

    Cheers!

  2. makati1 on Tue, 31st May 2016 7:08 pm 

    Heat is heat no matter where it come from and excess heat is the thing that is killing us. We are in the hottest year yet and all we want to do is turn it up. Insanity.

    Lip service to “reduce admissions” while subsidizing the purchase of heaters (oil/NG/coal). Insanity.

    Isn’t real life more interesting than anything on TV or the internet? LMAO

  3. Go Speed Racer on Tue, 31st May 2016 8:07 pm 

    This global warming thing doesn’t seem so bad. My heat bills are way down. I have a sun tan. And I don’t own waterfront. Let’s bulldoze more forests, put in a freeway, plug it up with cars.

  4. rockman on Wed, 1st Jun 2016 5:59 am 

    And they still put out the same bullsh*t propaganda implying that there may be fewer LNG export terminals built in the US to export our “excess” NG to markets where it can be used. Perhaps not by very much but the US is still a net NG importer. In fact 5 years ago when they made up the “Golden Age of NG” theme the US was a much larger net importer. Thanks to the Marcellus that changed. But now low prices have killed that trend and we are seeing the first hint of the future decline of the Marcellus such as a significantly reduced rig count.

    As pointed out before the Rockman spent $230 million about 6 years ago drilling for conventional NG in south La. But then prices fell below $4/mcf: in the last 3 years the Rockman has not spent $1 drilling for NG.

  5. coffeeguyzz on Wed, 1st Jun 2016 12:33 pm 

    Rockman

    I don’t know how much you check out the goings on in the Appalachian Basin (Utica/Marcellus), but it has had – and will continue to have – a big impact on the gas industry, especially you folks operating in LA.
    The present spot price at the Dominion South and Leidy transfer points is in the $1.50/mmbtu range.
    With the exception of production and drilling for HPB purposes, and to fulfill pipeline delivery commitments, virtually no activity is occurring.
    However, the continuing reversing of pipeline flow from south to north (and west) will increasingly affect the gas industry.
    The recent Utica well – the Sweden Valley by JKLM – is the first in Potter county, PA. It has flowed near one Bcf its first 84 days online and currently is flowing 11 MMcfd.
    This is a significant expansion of the productive footprint of the Utica.

    The economics of the natgas industry are being greatly impacted by the current, and likely future, supply status of this region.

  6. rockman on Wed, 1st Jun 2016 7:56 pm 

    Guy – I guess I’m missing you point because you seem to have expanded on my point. The article is hyping NG in the face of domestic prices lower then they have been for many, many years, international LNG prices about half of what they were not that long ago, falling rig counts and stalled or decreasing production from the unconventional reservoirs.

    And not only does one great Utica well NOT make a great play even many of dozens of such wells make a great play. According to the EIA last month the Utica represented only 8% of the unconventional NG production. And its latest stats show production has gone flat. Given the Utica rig count has dropped from its all time high of 47 to 13 the future does not look very promising at this time.

  7. coffeeguyzz on Wed, 1st Jun 2016 10:21 pm 

    Rockman

    Point I was trying to make relates to the size/amount of hydrocarbons coming out of the Appalachian Basin.
    This, like everywhere, is being greatly restricted by the low price.
    The above referenced Sweden Valley well is not so noteworthy for its output (Ohio had 31 wells produce over 1 Bcf during the last quarter of 2015), so much as its location – a couple of hundred miles east of the Ohio wells in Belmont and Monroe counties.
    Shell has a dozen Utica wells farther to the east in Tioga county that have produced between 1 and 4 Bcf in just the past couple of years/months online.
    Farther east yet, targeting the Marcellus in Susquehanna county, Cabot has produced over 2 Tcf of gas from less than 500 wells in 6 years time.

    These amounts of gas will be increasingly brought to market as prices rise, but they will compete, and seemingly in an effective way, with all other gas sources in this country.

  8. Kenz300 on Thu, 2nd Jun 2016 7:38 am 

    The world needs to stop building any more coal or fossil fuel power plants….

    They use lots of water to generate electricity (adding to drought problems)…

    they also add Climate Change gases to the atmosphere………………..

    Wind and solar require little or no water to produce electricity (conserving water)………

    Wind and solar also reduce emissions and do not add to Climate Changing gases in the atmosphere..

    Climate Change is real………….we will all be impacted by it……………..

  9. rockman on Thu, 2nd Jun 2016 4:02 pm 

    guy – Understand now. Yes: the Marcellus boom is alomst entirely responsuble for the increase in US NG production in recent years…and responsible for current low prices. Yes: transport continues to be a problem especially for the Utica. But those days are gone now and won’t return until prices increase significantly.

    So yes: Cabot has done great in the past…especially when NG was selling for 5X the current price. LOL.

  10. Boat on Thu, 2nd Jun 2016 4:45 pm 

    The Plantagenet administration forgets the improvement in lead, cadmium, trace amounts of uranium, arsenic and other bad stuff that used to kill at a higher rate. Babies, easter baby chicks, baby rabbits, puppies and kittens. Bow to Obama, the baby savior. The unicorns are so happy they now eat monsanto corn in a show of support for biofuel. The air is getting so clean another color of the rainbow can be seen when they fart.

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