(This is a guest article from Bill Sepmeier at www.mrsunny.org)
Long relegated to special-interest Peak Oil web sites, more data indicating that the end of oil’s reign as the world’s energy source is at hand hits the media each day now.
The US Energy Information Administration (EIA), predicts that “global natural gas consumption will treble by 2030, when gas will become the primary energy source for industrial and public needs.” Given oil’s present rate of decline, it will be the only fossil energy source left for these applications. According to the Dow Jones Newswire, “Companies such as Exxon Mobil Corp.,Royal Dutch Shell PLC and ConocoPhillips are making the transition from dealing mostly in oil, a commodity that’s increasingly scarce and difficult to produce, to natural gas, a fuel that’s suddenly become ubiquitous. Their profits, which can reach unfathomably high levels during good times, are likely to go down accordingly, executives and analysts say. So will the companies’ adventurous ventures in the deep waters and in dangerous regions of the globe. The industry now needs to learn the shale gas business, which has played a major role in spurring the transition and which can only be profitable if it runs like an assembly line. “It’s a manufacturing industry, and it’s not at all what we’re doing at Total, ” said Patrick Pouyanne, senior vice president for strategy business development at Total S.A., which recently entered into a shale gas joint venture in the U.S. and is acquiring shale positions in France, Denmark, Argentina and North Africa.”
The observation by Total that natural gas “can only be profitable if it runs like an assembly line,” makes note to the fact new shale gas wells must be drilled constantly, since while their production is prolific at first, it is brief (80% declines in the first year are common, with 30% declines in the second year from that lower level). Gushing industry statements about “100 to 300 year supplies” are not based on these observed declines, since the technology of horizontal drilling and hydraulic fracturing is simply too new to provide actual knowledge of actual long term average “frac” well production capability. There are also potentially serious issues with groundwater pollution that may be caused by these new hydraulic shale fracturing processes which have yet to be investigated due to rules passed during the Bush administration which basically exempted shale gas drilling from EPA regulation. No matter – given declining supplies of oil and geographically-limited coal reserves, it appears the decision has been made to make natural gas into the replacement for oil and coal in ground transportation and baseload electric generating plant energy.
Due to the cost of new gas well drilling and the fracturing processes involved and the fact that this process must remain ongoing (the “assembly line” technique), to continue to free trapped shale gas deposits, the wholesale cost of natural gas must be above $6 per million BTU for any profits to permit further exploitation. Presently, the perceived abundance of shale gas and the recession have lowered prices to under $4 MMBTU and drilling has declined dramatically over the past year. Since the IEA announcement doubling its estimate of global gas reserves, gas price futures have continued to fall.
Natural gas profits are far lower than oil profits. The funds needed to cover the costs of converting the nation’s automotive and trucking fleet and its national refueling infrastructure from a well-established, room-temperature, atmospheric-pressure-stable liquid fuel to LNG, liquefied natural gas, which requires high pressure (2400psi) transport and storage from source to end use in transportation, will have to be paid by someone. These multi-billion dollar new infrastructure requirements will increase the cost everything, from vehicles themselves to their fuel. Transportation costs will increase significantly over the coming years regardless of the oil or LNG mix. Until a large demand for liquefied natural gas is established, the low wholesale cost for gas will make tapping these estimated reserves possible only with large subsidies. Since the price for the world’s remaining oil will climb ever higher as its production declines, the transnational oil firms now becoming heavily involved with gas development should be able to afford this re-investment, though you can expect them to be asking for and receiving ever more government handouts and tax breaks to offset their costs of production.
Due to it’s lower energy density, natural gas has little present application in powering global ship transport, nor can it be used in the aviation industry. LNG, burned optimally at sea level, delivers 75,000 BTU/gallon, while jet fuel and bunker oil offer 128,000 -140,000 BTU/gallon . LNG delivers a bit more than half of the energy per gallon of conventional fuel. On top of this, oil products are transported and stored without special processing; they’re liquid and stable at room temperature and pressure. Each gallon of LNG must be compressed to and maintained at 2400 psi. The amount of embedded energy required to simply compress natural gas at the scales required to replace oil is not insignificant.
Here’s the deal: If natural gas is burned to make electricity at a baseload utility generation plant, electricity which is used to compress natural gas into LNG, only about 30% of the energy of the natural gas burned at the utility electric power plant will be converted into electricity (it’s that damned 2nd Law of Thermodynamics again). The rest of the energy is lost as waste heat, little of which is used in modern utility plants, since they’re located far from central cities which could use the heat in a “steam district.” Of the electricity actually generated, about 18% is lost in transmission lines and transformers, again as heat, before it gets to the LNG compressor. The compressor motor loses another 20% of the energy it consumes since electric motors are only about 80% efficient. The final LNG product, while delivering 75,000 BTU/gallon, is in reality a much less efficient actual energy delivery system than the oil-based system it has been deemed to replace, since the embedded energy losses involved in making it are huge, and we’ve not included the further losses in transportation and delivery of LNG, nor the energy required to convert the world’s transportation system from oil to the high-pressure reality LNG requires.
Globally, the world’s largest reserves of natural gas are in … wait for it … Iran. According to Canada’s Global Research, “Within the Middle East, Iran is the undisputed top holder of gas reserves. Its South Pars gas field is the world’s largest. If converted to barrel-of-oil equivalents, Iran’s South Pars would dwarf the reserves of Saudi Arabia’s giant Ghawar oilfield. The latter is the world’s largest oilfield and since it came into operation in 1948, Ghawar has effectively been the world’s beating heart for raw energy supply. In the soon-to-come era of natural gas dominance over oil, Iran will oust Saudi Arabia as the world’s beating heart for energy. The scheduled start of drilling this month by China National Petroleum Company (CNPC) in Iran’s South Pars gas field could be both a harbinger and explanation of much wider geopolitical developments. The $5 billion project – signed last year after years of foot dragging by western energy giants Total and Shell under the shadow of US-led sanctions – reveals the main arterial system for future world energy supply and demand.”
“Critics have long suspected that the real reason for US and other western military involvement in Iraq and Afghanistan is to control the Central Asian energy corridor. So far, the focus seems to be mainly on oil. But the CNPC-Iranian partnership shows is that natural gas is the bigger prize that will be pivotal to the world economy, and specifically the dual flow of this fuel westwards and eastwards from Central Asia to Europe and China.”
The only things really known for certain are: Gas, while “cleaner-burning” than oil (and coal) due to its lower number of hydrogen-carbon bonds, which serve up not only less energy but less carbon dioxide, still increases carbon levels in the atmosphere. To obtain the same amount of transportation energy, more gas or LNG must be burned by volume than oil (~58% more, to equal a gallon of gasoline’s energy) and a lot of energy will be required to compress and process the gas into LNG, further lowering the overall efficiency of gas as an oil replacement. “Clean burning gas” offers some advantage to oil environmentally, but on a mass scale, atmospheric carbon levels will continue to rise, since the world’s transportation system will continue mining and burning stuff that has been sequestered in the earth for a hundred million years, releasing its carbon content into the air.
Sadly, the massive push behind natural gas development worldwide will likely again slow down the further development and mass deployment of carbon-free renewable energy technology. Every delay in the deployment of real renewable energy technology pushes this deployment further into a more energy starved future, lowering the probability that enough renewable energy technology can and will be deployed to provide continuation of modern civilization on a mass scale. Renewable energy sources in the modern sense all require a lot of embedded fossil energy in their own development, manufacture, transport to market and deployment – as these fossil sources grow more expensive and unreliable in availability, the window to deploy them in renewable energy manufacturing grows smaller, since competition for these ancient BTU will only increase.
All things considered, the accepted paradigm of easy, fossil energy powered exponential economic growth, and the corresponding exponential population growth this energy made possible, still appears to be ending rapidly since, on the scale needed to replace oil, natural gas and its processing and infrastructure requirements as a transport fuel won’t come cheap enough, nor be widespread enough, to offset the collapse in both cheap, reliable oil production and the mass civilization that has grown up around cheap, reliably-available oil.
(c) 2010 Bill Sepmeier