With increased natural gas drilling just not getting the job done any more in North America, the energy industry will have to rely on increased liquefied natural gas (LNG) imports along with renewable sources of energy in order to close the ever-widening supply/demand gap, according to Ken Snodgrass, senior vice president of Shell Trading Gas and Power/Coral Energy.

Speaking at GasMart 2007 in Chicago on Thursday, Snodgrass emphasized that the world's energy demand -- sparked by the need for increased power generation -- is expected to grow exponentially. "The next 50 years can not be like the past 50 years," he said, alluding to the way that North America has addressed its energy supply. "By 2050, [the world] is expected to have double the demand for energy," he added. As for the U.S., Snodgrass said power generation is expected to account for one-third of the country's natural gas demand by 2015.

Looking out through 2015, Snodgrass said North American gas production is expected to remain flat, which means gas supply growth will have to come from elsewhere. He said that historically when drilling increases, production does as well. However, that trend has recently reversed as well productivity has decreased. "We are drilling a lot of oil and gas wells right now, but they are not producing," he told the audience. "In North America we are at the point where we need another solution besides drilling more oil and gas wells."

He added that demand reduction through conservation and other means, while a valiant effort, will not be able to bridge the North American supply/demand gap. With that gap expected to increase, Snodgrass said LNG is a "key element" of the conventional solution, while coal gasification and an increased focus on renewable energy are important unconventional solutions.

"We feel that up to 2015, the only solution that makes sense right now is LNG," he said. "It can fill that gap in the near term."

He expects LNG imports in North America to grow from 1.8 Bcf/d in 2005 to 8.3 Bcf/d in 2010 and to 11.4 Bcf/d by 2015. However, to achieve that growth, LNG must clear a number of hurdles, including global competition for the resource, North America quality issues of LNG imports and the not in my back yard (NIMBY) mentality when it comes to import terminal siting. "The NIMBY syndrome is prevalent primarily on the East Coast where people don't want LNG facilities to come in," he said. "There is a tension that grows because of that. They look at it as a [safety issue] and as 'why do I have to have this,' but at the same time, they are wondering 'why are my prices going up?'" Shell currently is involved in numerous LNG activities around the globe and has four LNG regasification facilities in North America.

With the expected increase in LNG imports, Snodgrass said he foresees LNG impacting the price for natural gas in the United States. "LNG gets driven to the highest price market. Right now, there is not a lot of LNG coming in, so it does not have a major effect, except regionally," he said. "Over time, it will have a supply-demand effect on, let's say, the Henry Hub price as we get up into higher and higher [LNG import] percentages. When it comes in it will drive down the price, and when it pulls back it will drive up the price."

As for unconventional solutions, Shell said integrated gasification combined-cycle (IGCC) technology efficiently removes the impurities of coal and reduces heavy metals, which helps lower greenhouse emissions. Snodgrass said Shell is currently licensing the technology and building plants across the globe. However, the technology currently accounts for less than 1% of North American power generation.

On the renewable front, Snodgrass said wind, solar and biofuels show promise in keeping the supply/demand gap from widening, but hurdles remain. He noted that wind and solar, which currently account for 2.4% of North America's power generation, often involve longer payback periods, while biofuels such as ethanol, which currently supplies 200 MMcf/d, are expensive to produce and offer no decrease in carbon dioxide. He added that while renewables help, they offer "limited" impact in filling the gap. Shell said it has invested $1 billion in wind and solar and has recently made investments in second generation biofuel technology using waste products rather than corn. The new technology produces less carbon dioxide.

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