Leaping Off the Natural Gas Cliff
(and a Word Concerning the Foolishness of
by Dale Allen Pfeiffer,
FTW Contributing Editor for Energy
[Copyright 2002, From The
Wilderness Publications, www.copvcia.com. All Rights Reserved.
May be copied, redistributed for non-profit purposes only.
May not be posted on any Internet web site without express
written permission. Contact [email protected]]
June 21, 2002 (FTW) -- Natural
Gas (NG) must be considered separately from oil because
its existence in the gas state
at normal ambient temperature leads to different properties
both in the Earth's crust and at the Earth's surface.
flows more freely through pore spaces than does oil. Therefore,
once a gas well is drilled, there is no Hubbert curve
It costs no more -- either in energy or in money -- to
pump the last cubic foot of natural gas than it does to
the first. The typical profile for natural gas production
rises from zero, plateaus for some length of time, and
dives in a sharp cliff. The rise and plateau are a function
of the size of the field and the number of wells drilled.
The cliff arrives with hardly a warning and dives at a
rate far in excess of a comparable oil production decline.
NG has not been as exploited worldwide
as has oil. Demand has only begun to increase with the development
of gas-fired electrical generation plants in response to
environmental regulations. NG is cleaner than oil or coal.
In North America, at least 275 gas-fired plants are planned
for construction by 2006. These plants will increase gas
consumption by more than 8.5 trillion cubic feet (tcf),
according to http://dieoff.com/synopsis.htm
In 2001, Simmons & Company International
estimated that U.S. NG demand for electricity was approximately
16 billion cubic feet (bcf) per day. They predict that demand
will increase by two bcf per day for the next two years,
wrote Kramer & Dietert in a Feb. 15 report titled "Dynamics
of Electricity-Driven Natural Gas Demand."
Many analysts point to vast unexploited
reserves of NG throughout the world and state we will have
plenty of NG for many decades to come. However, these analysts
do not take into account the difficulty of transporting
NG. It can only be efficiently and economically transported
by pipeline. To ship NG overseas, it must first be liquefied,
then transported in specially designed refrigerated ships.
Finally, it must be unloaded at specially equipped ports
and reliquified. All of this results in an estimated 15-
to 30 percent energy loss -- not to mention the capital
For this reason, North American NG demand
will have to be met by North American production.
NORTH AMERICAN PRODUCTION
Mexican gas production has been in decline
since 1999. U.S. NG imports from Mexico diminished to nothing
in 2000. Mexico currently exports no NG and is struggling
to meet its domestic demand.
U.S. gas production has been in plateau
for some time. "North American natural gas has no excess
capacity. It disappeared several years ago. What we do have
is extremely aggressive decline rates in almost every key
production basin making it harder each season to keep current
production flat," wrote Matt Simmons in a presentation
titled "Energy in the New Economy: The Limits to Growth.
The U.S. Energy Information Administration
and the National Petroleum Council have projected U.S. demand
for NG could rise to 30 tcf per year by 2010. The lion's
share of future U.S. production growth is expected to come
from the Gulf of Mexico. However, the U.S. Minerals Management
Service forecasts production will start to decline in 2005
from a plateau peak of 6.1 tcf per year, according to an
April 26, 2000 report from Reuters.
Presently, the U.S. makes up for its shortfall
in NG production by drawing from Canadian resources. Canada
currently makes up about 13 percent of the U.S. gas supply.
Unfortunately, the large Canadian fields which currently
supply most of their production have plateaued and are expected
to go into decline within the next few years. The Oil &
Gas Journal reported most of Canada's gas additions will
come from smaller fields. And Canada's quoted resources
of 233 tcf will never be fully tapped, because portions
of this reserve are contained in small, nonproductive fields.
Only by opening up currently restricted
areas of Alaska, the Canadian Arctic, the U.S. Rocky Mountains,
and deep ocean can we hope to meet future NG demand. All
of this would require a large investment in drilling apparatus
and gas pipelines, ultimately costing an estimated $120
billion in infrastructure, the Oil & Gas Journal reported.
And from the time construction would begin on this infrastructure
it will take approximately 5 to 7 years before any of the
gas begins to flow.
So what do we do in the meantime?
The U.S. vs. Canada
NAFTA and other free trade agreements drawn
up between the U.S. and Canada starting from the mid-1980s
ceded away Canadian control over their NG resources. This
writer expects that these agreements will cause increasing
friction between the U.S. and Canada in the years to come.
Under these agreements, the Canadian National
Energy Board was stripped of its powers, and Canada gave
up its requirement to maintain a 25-year surplus of natural
gas. There is no legal way for Canada to ensure that it
will have adequate supplies of NG in the future. However,
the U.S. still retains the right to store vast supplies
of hydrocarbons for emergencies.
The all-Canadian gas distribution system
was abandoned, and exporters are no longer required to file
an export impact assessment. Furthermore, U.S. customers
have gained a price advantage over Canadian consumers, as
they do not have to pay taxes on the gas exports.
The trade agreements established a system
of "proportional sharing" which guarantee U.S.
imports from Canada in perpetuity. The government of Canada
relinquished the right to refuse to issue a license or revoke
or change a license for the exportation to the United States
of energy goods. U.S. distribution companies were able to
sign long-term contracts at rock-bottom prices.
During the late-1990s when NG prices began
to rise, the U.S. dipped into its emergency reserves and
brought down the price of gas for U.S. customers, reported
the Canadian newspaper the Globe and Mail. As a final irony,
under NAFTA's proportional-sharing provision, Canada must
replenish even the U.S. reserve supply -- by law and in
Natural Gas Production Declining at
A recent Oil & Gas Journal article
contains distressing news. NG production is going into sequential
declines, which should gain momentum as the year progresses.
"We continue to believe that U.S. natural gas production
could be down by as much as 5-6 percent this summer on a
What the journal does not say is this production
decline signals U.S. NG production is about to fall over
the cliff. Subsequent decline will likely have a disastrous
effect on the economy, and on pocketbooks of summer air
conditioning users and winter gas furnace users. As the
U.S. leans increasingly on Canada to meet its NG shortfall,
Canadians could find it difficult to heat their homes through
the cold northern winter.
A Few Brief Words about Ethanol
There has been a lot of talk about ethanol
recently. Many are touting ethanol as a clean energy alternative,
others hold it up as a way to augment and extend oil supplies.
Congress is debating laws requiring ethanol to be mixed
with gasoline for automobile consumption. Those who extol
ethanol fail to look at the energy costs of production,
what certain energy analysts call the EROEI (Energy Return
on Energy Invested).
Simply put, it takes more energy to produce
ethanol than is produced by the combustion of ethanol. According
to Cornell professor David Pimentel, an acre of corn ultimately
yields 328 gallons of ethanol. This quantity of corn requires
1,000 gallons of fossil fuels to plant, grow and harvest,
and costs $347 per acre. This means the corn feedstock costs
$1.05 per gallon of ethanol before it is even converted
into ethanol. Additional energy costs accrue in distilling
the ethanol. Adding it all up, 131,000 BTUs are needed to
make 1 gallon of ethanol, with an energy value of only 77,000
BTUs. This results in an EROEI of roughly 59 percent. That
is a 41 percent loss of energy, according the UniSci science
daily news website.
If all of the automobiles in the U.S. ran
on 100 percent ethanol, 97 percent of continental U.S. land
would be required to grow the feedstock. Forget about feeding
people, let alone housing them.
Increased ethanol production can only be
maintained through increased tax dollar subsidies. And the
competition for ethanol feedstock will inflate the price
of corn. Any possible benefits in air quality will be more
than offset by the petroleum required to grow and process
the corn. Likewise, the added petroleum demand for producing
ethanol will contribute to rising oil imports and further
diminish world oil supplies. Finally, as the price of oil
goes up, the subsidy for ethanol must go up as a multiple.
Ultimately, the only ones who benefit
from ethanol production are the agribusiness industries.
This is foolishness in the extreme.