Energy experts predict that natural gas will surpass coal and become the second most widely used fossil fuel on Earth by 2030, but said challenges remain for the industry to make that a reality.
Steve Kirchhoff, a vice president for ExxonMobil Gas & Power Marketing, told the North America Gas Summit in Washington, DC that the company expects natural gas to be the fastest growing major fuel through 2030, with global demand increasing more than 60% from 2005. He said developing countries such as India and China could post higher increases.
"You have to stop and ask the question, 'Is it even possible to meet that kind of demand?'" Kirchhoff said Monday. "To be candid, to really meet these significant growing needs the world is going to have to pursue all economically viable sources of energy. At the same time it's going to need to learn how to use energy more efficiently and more wisely or the numbers will just never add up."
Kirchhoff said the increased global use of natural gas for power generation would be the main contributor for it becoming the second-highest fossil fuel by 2030, trailing only oil.
"Under any scenario, ExxonMobil believes natural gas is a particularly attractive fuel choice for power generation," Kirchhoff said. "It's abundant and it produces up to 16% less CO2 [carbon dioxide] emissions than coal. Natural gas power generation plants are based on proven technology, can be built quickly and are already cost effective. With today's improved turbine technology, they can provide a significant source of flexibility and reliability to a power grid that has to respond to rapid changes, either on the supply or the demand side."
Kirchhoff added that estimates of global natural gas supplies had also changed dramatically from 10 years ago, when the figure stood at 60 year's worth, almost all conventional. He said the figure today stands at 250 years, based on current production levels. In the U.S., Kirchhoff said the natural gas resource base had grown more than 70% from 10 years earlier -- and would provide more than 100 years of supply -- thanks primarily to unconventional sources.
"The public has not really picked up on 100 years of supply as being a big deal," Kirchhoff said. "As an industry we have to look for ways to make this real. It's been a game changer."
But when pressed by two conference attendees to explain what the industry was doing to generate new customers -- not just steal them from other fossil fuels such as coal -- Kirchhoff conceded that while the natural gas industry has been bullish on shale for the past two or three years, the power industry hadn't kept pace.
"The power utility industry, maybe rightfully so, has been a little more skeptical about the belief in just exactly how abundant North American supplies are," Kirchhoff said. "It isn't really a matter of our advertising our way into this discussion, although you are seeing more of those ads and I think you will continue to see more. We've had to start a pretty basic dialogue with the utility industry. We're making good progress. As you listen to the speeches of major utility industry heads today, more and more of them are saying they believe in the abundance of natural gas and understand that it's a very viable choice going forward."
Kirchhoff's comments echoed the findings of ExxonMobil's "Outlook for Energy: A View to 2030," which was released in January (see Daily GPI, Jan. 28). Oil, natural gas and coal will continue to meet most of the world's needs over the next 20 years "because no other energy sources can match their availability, versatility, affordability and scale," according to ExxonMobil's analysis.
Robert Hefner, owner and founder of GHK Co., said transparency and public education were essential if the industry hoped to use hydraulic fracturing (fracking).
"There's no question [fracking] can be done well and it can be done safely," Hefner said. "Unfortunately some patent issues got in the way at one point and some of the [fracking] fluids were withheld from the public. All of the facts need to be on the table. It all needs to be transparent."
Hefner said the states have so far done an excellent job of regulating fracking.
"There's some controversy about whether the federal government should get into it," Hefner said. "The problem is the geology is different in every state, so it probably would be more productive for America to let the states regulate natural gas."
Hefner added that he believes independent producers would be reluctant to support any proposed regulations by the U.S. Environmental Protection Agency (EPA).
"The independent sector has so often been pummeled by the EPA," Hefner said. "Look at the environmental regulations across all the industries and take a look at what coal can get away with every day. The EPA doesn't seem to do a thing about it. The natural gas industry, in particular the production sector, has been disproportionately targeted by the EPA and there's a reluctance to trust them. Maybe that can be overcome. We're going to have to because those rules and regulations would be a benefit to natural gas."
Hefner added that he believed the Obama administration would back off any EPA regulations affecting the coal industry because he needs its support to win reelection in 2012.
"It's kind of a secret because he's supposed to be supporting the environmental movement," Hefner said. "But at the same time he's struggling and he's being told that if he wants their support, he better back off on pushing forward the EPA regulations."
Linda Capuano, vice president of technology for Marathon Oil Corp., cautioned that rapid technology deployment in the natural gas industry is leading to claims of efficiency gains based on short production histories. She said those claims were coinciding with increased competition among operators for supplies and services.
"We are learning to shoot long and pull back," Capuano said. "In other words, once a technology is proven to be safe and reliable, we install it immediately. Then after production data is available, if the improvement does not warrant the expense, we remove it from future production."
Capuano said increased demand for technology and process improvements were being driven by the desire of companies to see increased recovery factors.
"With these opportunities, shareholders are rewarding the rapid resource development that results from high initial production rates," Capuano said. "[The shareholders] have made the link between initial production rates and aggressive technology development, and they are tracking technology adoption in company reports. The risk is getting left behind. The risk from unconventional wells are not producing cost-competitive production volumes.
"We all know that the large natural gas resource is a positive opportunity in North America, but it is also driving rapid technology development in the oil and gas industry. It's early and only history will provide clarity on the future recovery factor."