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1 Introduction Energy leads the list of humanity's top 10 problems of the next 50 years. Recognized as an important component of the standard of living, energy is required in order to meet other important chal- lenges: water, food, environment, poverty, terrorism and war, disease, education, democracy, and population (Richard Smalley, Rice University, personal communication, 2003~. Fossil fuels account for 84 percent of global and U.S. energy consump- tion (VIA, 2001a). According to EIA (2001b), the past 20 years have seen a steady and predictable decrease in the percentage of global energy con- sumption satisfied by oil (from 46 percent to 40 percent) and coal (from 26 percent to 22 percent), and an associated increase in the percentage of global energy consumption satisfied by a combination of natural gas, nuclear, and other renewables (from 28 percent to 38 percent) (see Figure 1.1~. During the same period, total global energy consumption increased by nearly 35 percent (from 282 quadrillion British thermal units [Btu] [quads] to 379 quads), and U.S. total energy consumption increased 23 percent (from 78 to 97 quads); (EIA,2001b). In contrast to global consump- tion, which shows a trend away from coal and oil to more efficient, abun- dant, and environmentally sound natural gas, nuclear, and renewables, the U.S. energy consumption mix has remained unchanged for two de- cades and is at a point today where it is nearly identical to the global energy mix (coal, 22 percent; oil, 39 percent; natural gas, 23 percent [EIA, 2000a]~. Accurately projecting natural gas supply and demand is important for the United States. Historically, world energy consumption has re- 6

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INTRODUCTION 50% - 45% 0 40% Q en o 35% 30% 25% ~ Q X{R X{R ado :0~ ~ Ma ~ ~ It Bass ;8 1980 1985 1990 1995 Year U.S. Coal World Coal U.S. Oil U.S. Gas, Nuclear, Hydra, Renewables -------- World Gas, Nuclear, Hydra, Renewables World Oil FIGURE 1.1 U.S. and world energy consumption by fuel type. SOURCE: Scott Tinker, University of Texas at Austin, personal communication, 2003. Data are from EIA (2000a, 2001b). fleeted a series of carbon-based resource periods, with the predominance of coal and oil in the 20th century evolving to a projected dominance of natural gas in the 21st century (see Figure 1.2~. Most workshop partici- pants believe that the longer-term global trend to natural gas is real, al- though actual U.S. energy consumption data for the mid-1970s to the present show a flattening in coal, oil, and natural gas compared to the curves fit in these 1994 projections. The progression in technology to a methane economy (Fisher, 2002) will result in a cleaner-burning, lower- carbon-emitting (see Figure 1.3), more efficient energy source. However, this will increase demand and put pressure on existing reserves and ex- ploration and production technology.

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8 U.S. NATURAL GAS DEMAND, SUPPLY, AND TECHNOLOGY `~ 80- Solids 60- \ \ Liquids . 0 \ \ `~ 40- ~ ~ Natural Gas / \' `~ 20- O ,~' 1850 1900 1950 2000 2050 2100 ........ .................................. ..................................................................................... ...... ....... ..... : r_ ~` ,,,,,,,,,~,,.,.,.,,.,.' \,,,,Nucl,e,ar & a_ :: Renewables Year FIGURE 1.2 World primary energy substitution showing evolving resource pe- riods. Dashed lines represent forecast concept of Marchetti and Nakicenovic (1974~. Solid lines represent smoothed curves fit to actual data from EIA (2001b). SOURCE: Scott Tinker, University of Texas at Austin, personal communication, 2003. Data are from Marchetti and Nakicenovic (1974~. With a growing population, increased demand for electricity, and improved cost and efficiency of advanced gas combined-cycle generation, the consumption of natural gas by electric generators is expected to more than double over the next two decades (EIA, 2003a). Electricity generation fueled by natural gas and coal is projected to increase through 2020 to meet growing demands for electricity and to offset the projected retire- ment of existing nuclear units (Ausubel, 1996~. The demand for electricity generation is expected to triple between 1999 and 2020. As a result, the overall demand for natural gas in the United States is projected to grow by an average 1.8 percent per year from 22.7 trillion cubic feet (Tcf) in 2001 to 34.9 Tcf in 2025. While these consumption levels are expected to materialize only if prices do not rise appreciably, concerns have been raised about the ability of the industry to supply the necessary gas at moderate prices. Annually, U.S. natural gas consumption has exceeded domestic pro- duction since the mid-1980s, and by 2025 the differential is anticipated to be 8 Tcf, roughly 23 percent of total demand (Mary Hutzler, EIA, personal communication, 2003~. According to the EIA (2001b), in order to meet pro- jected demands and to counter price increases and volatility for natural gas, the United States will need technological advances, increased explo- ration and developmental drilling, increased capacity for natural gas im- ports, and conservation. Projections through 2025 consistently predict suf- ficient supply to meet U.S. demand, but delivering on a reserve estimate

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INTRODUCTION 1o2 H / C 1o1 10 10-1 9 I , , , , I , , , , I j, , , I , , , , I , , , , I , . . . : ~ Hyd rogen - Economy~- ~ Nonfoss~l t ~ Hydrogen - Methane: H/C = 4 - ~ Methane Economy Oil: H/C = 2 ~ . ~,~ - Coal: H/C = 1 ~= _ ~,, _ - D ~ 1935 (midpoint of process) ,~ At = 300 years (length of process) Wood: H/C = 0.1 _ _ 10-2 ,,,,1,,,,1,,,,1,,,,1,,,,1,,,,1,,, 1 800 1850 1900 1950 2000 2050 2100 Year H H + C o.so 0.80 0.67 0.50 0.09 FIGURE 1.3 Decarbonization of primary energy. World primary energy sources have collectively declined in carbon intensity since coal began to compete with wood and hay about 200 years ago. The evolution is seen in the ratio of hydrogen to carbon in the world fuel mix, graphed on a logarithmic scale, analyzed as a logistic growth process, and plotted in the linear transform of the logistic (S) curve. Progression of the ratio above natural gas (methane) requires production of large amounts of hydrogen fuel with nonfossil energy. SOURCE: Ausubel (1996~. Illus- tration by Aaron Cox, American Scientist. Reprinted by permission of American Scientist, magazine of Sigma Xi, The Scientific Research Society. is dependent on more than future markets. Key assumptions include tech- nology to improve exploration and production success, an educated and trained workforce, access, and infrastructure, especially for offshore pro- duction and imports (Mary Hutzler, EIA, personal communication, 2003~. The committee and workshop participants discussed how current trends appear to challenge these assumptions. While liquefied natural gas (LNG) transport and conversion facilities are common internationally, domestic facilities essential for offshore imports are limited (Colleen Sen, Gas Technology Institute, personal communication, 2003~. Furthermore, pipelines for both imports and interstate transport are yet to be built. A1- though industry research facilities formed the core of oil and gas technol- ogy development in the past, private-sector research and development funding plummeted in the l990s. Within the U.S. Department of Energy,

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0 a, 5- . _ a_ ~ In IL ~ - 0 c' a:) ~ ~ ~ - .> 4- 2- U.S. NATURAL GAS DEMAND, SUPPLY, AND TECHNOLOGY - Note Scale Difference ~ ~ - Fuel Cells and Gas Turbines Removed from \ 1996-1999 for Comparison 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1992 1994 1996 1998 2000 2002 2004 Year -120 it' -1 00 AL In -80 ` -60 `~ <40 O -20 O a_ In o o = . _ FIGURE 1.4 U.S. natural gas production from unconventional sources, includ- ing coalbed methane, shale gas, and tight gas and results from new exploration concepts and new technology. Significantly decreased private and federal fund- ing for oil and natural gas research could negatively impact the future supply of natural gas, particularly unconventionals. SOURCE: Scott Tinker, University of Texas at Austin, personal communication, 2003. Private-sector data are from Ross and Trewhella (2001~. the $40 million proposed for oil and gas research marks a sharp decline in federal funding (see Figure 1.4~. University enrollments for geoscience graduates and petroleum engineers the future educated workforce- have declined by more than 50 percent since 1985, with steeper declines for engineers (see Figure 1.5~. Some workshop participants expressed con- cern about meeting the demand for natural gas and other fossil fuels given decreasing graduate student enrollments. Committee members and work- shop participants discussed ways to meet increasing demand for natural gas and technological requirements at a time when oil and gas research and development funding, university science and petroleum engineering enrollments, and industry employment are all declining. STUDY AND REPORT 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 to host a workshop 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. The work- shop and resulting summary, without conclusions and recommendations, were specifically focused on addressing the following questions:

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INTRODUCTION 20,000 - ~n in u' Q A 1 0,000 O - 1955 1960 1965 1970 1975 1980 Year 11 Geoscience Graduate Enrollments 1985 1990 1995 2000 FIGURE 1.5 University geoscience enrollments for the period 1955 to 2000. Pe- troleum engineering enrollments show similar trends. SOURCE: AGI (2001~. 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? What methods were used? On what assumptions are the projections based? What external factors could impact the projections? 2. Where are the current natural gas reserves and resources? How much is technically available? How much is economically available? How much is in conventional versus nonconventional supplies? How much is offshore? How much is in Canada and Mexico? 3. By what means and by how much can future reserves, resources, and production be increased? Technology Imports (from Canada and Mexico) Tax incentives/royalties Access Demand To address this charge the National Research Council established the Committee on U.S. Natural Gas Demand and Supply. The committee con- sists of five experts from academia, state government, and industry with

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2 U.S. NATURAL GAS DEMAND, SUPPLY, AND TECHNOLOGY expertise in reservoir characterization, resource assessment, gas recovery technologies, oil and gas exploration and development, energy econom- ics and modeling, environmental health, and safety. Brief biographies of the committee members appear in Appendix A. The committee held a workshop on April 21, 2003, in Washington, D.C. The workshop included participants from academia, industry, federal and state government agen- cies, and nonprofit organizations. An agenda for the workshop is given in Appendix B. This workshop summary is not a comprehensive report on natural gas but rather a synopsis of the presentations and discussions at the workshop. There are many important and timely topics related to natural gas supply and demand that were not discussed at the workshop. These include but are not limited to (1) factors that influence private-sector investment in natu- ral gas; (2) natural gas transportation infrastructure and pipeline 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 per- turbing the global trends of decarbonization of energy sources; (6) the im- pact on 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 models. 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 LNG transportation. Several additional issues were brought forward during the workshop, including (1) the impact of tax incentives and royal- ties on the natural gas supply, (2) the growing need for research and technology as the natural gas resource base becomes increasingly uncon- ventional, (3) the significant decrease in private-sector research and devel- opment funding, (4) the need for new federal-private research and tech- nology models, and (5) the significant decline in the number of graduate students enrolled in geosciences and petroleum engineering 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 technical workforce. This summary does not contain any conclusions or recommendations. It is intended for multiple audiences, including the federal sponsors, other federal agencies, policymakers, consultants, scientists, and engineers. Chapter 2 examines the outlook for U.S. natural gas demand. Chapter 3 examines the North American natural gas supply. Chapter 4 considers options for meeting the U.S. natural gas demand, and Chapter 5 provides a workshop summary and highlights overarching issues discussed dur- ing the workshop.