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Summary
Nobel laureate and workshop keynote speaker Richard Smalley
believes that energy leads the list of humanity's most important
issues, which include water, food, the environment, poverty, ter-
rorism and war, disease, education, democracy, and population (Richard
Smalley, Rice University, personal communication, 2003~. And although
there is a very predictable and long-term decarbonization of the world's
energy sources from coal, to oil, to natural gas, and eventually to hydro-
gen the United States today, and for the foreseeable future, will remain
dependent on fossil fuels to satisfy on the order of 85 percent of its energy
demand (EIA, 2001a). Because natural gas represents a growing propor-
tion of the global fossil energy mix, accurately projecting natural gas sup-
ply and demand is critical. In this context, according to some workshop
participants, key efforts in achieving the most efficient use of natural gas
resources are (1) creating the proper mix of access and incentives to en-
courage efficient and environmentally sound exploration and production
activities, (2) designing a strategic private-public partnership to foster the
innovative research and technology development that are fundamental to
meet long-term U.S. energy demand, and (3) encouraging the infrastruc-
ture development to create a global natural gas transportation network
that will be required for increased use of natural gas.
The National Research Council, under the auspices of the Committee
on Earth Resources of the Board on Earth Sciences and Resources, was
requested by the U.S. Department of Energy, the Minerals Management
Service, and the U.S. Geological Survey (USGS) to host a workshop to
address projections for the supply of and demand for natural gas over the
1
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U.S. NATURAL GAS DEMAND, SUPPLY, AND TECHNOLOGY
next 10 to 20 years and methods of increasing reserves and production.
The workshop, held on April 21, 2003, in Washington, D.C., addressed
three questions: (1) What projections have been made by government
agencies for the U.S. supply of and demand for natural gas over the next
10 to 20 years? (2) Where are the current natural gas reserves and re-
sources? (3) By what means and by how much can future reserves, re-
sources, and production be increased? The workshop included partici-
pants from academia, industry, federal and state government agencies,
and non-profit organizations.
This workshop summary is not a comprehensive report on natural
gas but rather a synopsis of the presentations and discussions at the work-
shop. There are many important and timely topics related to natural gas
supply and demand that were not discussed at the workshop. These in-
clude but are not limited to (1) factors that influence private-sector invest-
ment in natural gas, (2) natural gas transportation infrastructure and pipe-
line capacity, (3) natural gas storage, (4) significant environmental benefits
of natural gas over other fossil fuel energy sources, (5) the impact of U.S.
policy on perturbing the global trends of decarbonization of energy
sources, (6) the impact on the U.S. and global economies of a transition to
a natural gas economy, (7) carbon sequestration, (8) the national security
effects of a U.S. transition to natural gas, and (9) a review of the EIA mod-
els. This summary does not contain any conclusions and recommenda-
tions.
By design the workshop focused on natural gas demand and factors
that cause uncertainty in demand, North American supply estimates and
variability in those estimates, natural gas resource and reserves, and ways
to meet future U.S. natural gas demand especially through technology
and liquefied natural gas (LNG) transportation. Several additional issues
were brought forward during the workshop, including (1) the impact of
tax incentives and royalties on the natural gas supply, (2) the growing
need for research and technology as the natural gas resource base becomes
increasingly unconventional, (3) the significant decrease in private-sector
research and development funding, (4) the need for new federal-private
research and technology models, and (5) the significant decline in the
number of graduate students enrolled in geosciences and petroleum engi-
neering who will be available to replace retiring workers over the next
decade as the oil and gas industry faces the loss of well over half its tech-
nical workforce.
In terms of U.S. natural gas consumption, some workshop partici-
pants projected an overall increase in the next 5 years, owing largely to an
anticipated rebound in industrial production and continued growth in
new natural gas-fired electric power plants. They also discussed the
longer-term outlook for natural gas, which will depend on its affordability
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SUMMARY
3
by the industrial sector, its competitive position for new power facilities,
the energy conservation and efficiency response to higher gas prices, price
volatility, and the creation of a global transportation and storage network.
In addition, proposed and pending energy policies, such as the Bush
Administration's Clear Skies Initiative, and international pressures for
addressing carbon emissions and global climate change will further influ-
ence the demand for and price of natural gas. Consumption of natural gas
is projected by the Energy Information Administration (EIA, 2003a) to
grow from 22.4 trillion cubic feet (Tcf) in 2002 to 27.1 Tcf in 2010 and to
34.9 Tcf in 2025. This rate equates to an average annual increase in natural
gas consumption of 2 percent per year and is faster than the expected
growth in overall primary energy consumption. The bulk of the increase
is from electricity generation as the share of natural gas in this market,
assuming natural gas is available at moderate prices, is expected to in-
crease from 17 percent in 2001 to 29 percent in 2025 (EIA, 2003a).
Committee members and participants noted that workshop assess-
ments of the future supply of natural gas in North America sent some-
what mixed signals. Some workshop participants believe (1) that the
United States will continue to require increasing amounts of imported
natural gas to meet projected demand; (2) that Canada will increase its
domestic consumption, with little excess export capacity beyond that of
the present day; and (3) that Mexico will most likely remain a net im-
porter of natural gas. LNG imports and perhaps natural gas hydrates in
the longer term will most likely be required to augment the North
American natural gas supply. Participants also thought the accuracy of
the supply assessment is limited by (1) perception and understanding of
the origin and occurrence of the resource, (2) the quality and distribution
of available data with which to conduct the estimates, and (3) the meth-
ods used in the assessment. Owing to these variables, a range of assess-
ment values as opposed to a single number could be expected.
Total assessed gas resources for the United States have been increas-
ing over the past 20 years owing to (1) an improved understanding of the
phenomenon of reserve appreciation or reserve growth whereby gas (and
oil) fields ultimately produce three to nine times the amounts initially
estimated by standard engineering techniques; (2) an understanding of
the potential for new "plays"; and (3) an evaluation of the role of current
and advanced technologies in gas exploration and production (Thomas
Ahlbrandt, USGS, personal communication, 2003~. A total of 1,289 Tcf of
*A play is a group of prospects and any related fields having common oil or gas sources,
migration relationships, reservoir formations, seals, and trap types. The prospects thus share
any common elements of geological risks (White, 1992~.
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U.S. NATURAL GAS DEMAND, SUPPLY, AND TECHNOLOGY
technically recoverable resources has been reported for the United States
by the Energy Information Administration, using predominantly USGS
and Minerals Management Service data, with proven reserves accounting
for 14 percent of the remaining U.S. resource (Mary Hutzler, EIA, per-
sonal communication, 2003~. Unconventional natural gas comprising
tight (low-permeability) sands and carbonates, fractured shale gas, and
coalbed gas accounts for 34 percent of remaining U.S. resources (Mary
Hutzler, EIA, personal communication, 2003~. Controversy exists, how-
ever, as to the size and geological nature of the tight sands gas resource in
the U.S. Rocky Mountains region, where the bulk of the assessed uncon-
ventional gas is thought to reside (Ben Law, Pangea Hydrocarbon Explo-
ration, personal communication, 2003; Keith Shanley, Stone Energy, per-
sonal communication, 2003~. The remaining potential global supply of
natural gas is more than 13,000 Tcf according to USGS (2000) assessments.
Undiscovered natural gas is concentrated in the former Soviet Union, the
Middle East, and North Africa. Known reserves account for 35 percent of
the remaining potential supply.
Workshop discussion focused on ways to meet projected demands
and to counter natural gas price increases and volatility in the United
States, including the need for an educated and trained workforce; access
to off-limits lands; increased natural gas storage capacity; a global trans-
portation infrastructure, especially for offshore production and imports;
more efficient and competitive fiscal and regulatory regimes; and rapid
technological improvements with emphasis on the development of un-
conventional reservoirs and conventional deepwater and frontier re-
sources. Rapid technological improvements which in the past two de-
cades have served to create unconventional gas reserves such as tight gas,
shale gas, and coalbed gas have historically relied on large private-sec-
tor investment. In terms of future unconventional natural gas resources,
workshop participants also discussed the need for investment in research
and development, including a greater proportion of federal investment
than in the past.
Until pipeline and LNG transportation projects are put in place and
natural gas storage solutions are found, the interplay between factors such
as wellhead price, weather, imports, domestic gas rig activity, deliver-
ability of new wells, and availability and cost of external supplies (i.e.,
pipelines) will continue to result in price and storage volume volatility.
New sources of natural gas from Canada via pipelines and globally via
LNG appear to be competitive in a sustained $3.25 per thousand cubic
feet (Mcf) or greater price environment.
The workshop was designed to address projections for the supply of
and demand for natural gas over the next 10 to 20 years and methods of
increasing reserves and production. As noted at the workshop, it seems
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SUMMARY
5
relevant to recognize that in order to meet global demand all sources of
energy will be critical over the next 50 to 100 years as the world transi-
tions out of a fossil fuel energy-dominated economy, including continued
(1) production and consumption of coal with positive impacts from ad-
vances in "clean coal" technology, (2) renewable and nuclear energy pro-
duction and associated research, (3) oil consumption and enhanced oil
recovery research, and (4) natural gas consumption and associated re-
search and technology development across the upstream-to-downstream
natural gas spectrum. According to some workshop participants, because
long-term global trends are toward a natural gas economy and away from
coal and oil, the issue of meeting natural gas technology needs in the face
of decreased private and federal spending on oil and gas research and
technology, decreased geoscience and engineering enrollments in gradu-
ate schools, and an aging energy company workforce provides a frame-
work for future U.S. policy directions.
Representative terms from entire chapter:
gas supply
