|FAS Public Interest Report
The Journal of the Federation of American Scientists
Volume 56, Number 3
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Meeting Natural Gas Demand: Infrastructure is Important, Technology is KeyBy John Riordan
When the Chairman of the Federal Reserve testified before Congress, we got a realistic assessment of the natural gas dilemma this country faces. Last June's message from Chairman Greenspan on Capitol Hill was loud and clear: the nation has to increase its supplies of natural gas or face the economic consequences.
Let me first point out that, warnings aside, the US is not running out of natural gas. In fact, we have abundant gas reserves. At today's consumption rates, our 1400 trillion cubic feet of technically recoverable reserves would translate into almost 60 years of supply. The problem: We have essentially "cherry-picked" the inexpensive gas and need new ways to affordably meet gas demand.
There are three key ingredients to increasing gas supply. First, we need an expanded infrastructure, specifically to move Alaska's gas to the lower 48 via pipeline, as well as to enable increased imports of liquefied natural gas. Second, we need to re-visit federal policies and Congressional moratoria that have placed much of our potential gas supply off limits to production. Finally-and too often undervalued -we need to promote the research that will help us develop our abundant domestic natural gas reserves.
Technology was not, however, undervalued by Chairman Greenspan. It was, in fact, a key subtext of his testimony. He noted the value of technology to gas supply in observing that "dramatic changes in technology are making existing energy reserves stretch further while keeping long-term energy costs lower than they otherwise would have been." New techniques allow far deeper drilling of promising fields, especially offshore. He went on to highlight some of those technologies, along with their specific natural gas supply impacts. He noted that in the Rocky Mountain region, "technologies are facilitating production of tight sands and coalbed methane. Marketed production in Wyoming, for example, has risen from 3.4 percent of total US output, in 1996 to 7.1 percent last year."
The development of technologies to produce gas from unconventional resources- tight gas sands, coalbed methane, gas shales - was not serendipitous. Rather, it was a result of government and industry collaboration: a focused research effort, combined with critical production incentives, to enable the affordable production of resources that now represent over 20% of our domestic gas supply.
Unfortunately, trends in both government and industry are working against this need. Government funding for gas supply R&D has not exceeded $15 million a year for a decade. Also, federal funding for oil and gas supply research is often viewed as corporate welfare. The problem with this view is that there is nothing in deregulated energy markets that either incentivizes or compels private R&D investment, in spite of the significant public policy ramifications associated with supply shortages and price spikes.
On the industry side, one of the unintended victims of deregulation of the production sector of the natural gas industry has been R&D. Company research budgets, found almost exclusively in the super-majors or in large service companies, have been declining for the last ten years. Also, major integrated oil and gas producers have largely moved offshore or overseas. This has left onshore production increasingly in the hands of small independent producers who lack the resources to conduct R&D.
Finally, collaborative industry research and development funding, paid for through a pipeline surcharge for the last 25 years, is slated for extinction in 2005. This fee funded a significant portion of the research that has enabled us to turn coalbed methane from a safety hazard into over 7% of our domestic production, or tight gas sands from a known but inaccessible resource, into 17% of our supply.
Significant - but expensive - gas reserves are found on federal lands in ultra-deepwater provinces offshore and in unconventional basins onshore. Congress should consider investing a portion of the federal oil and gas royalty monies currently going into the general fund into the research programs necessary to affordably produce these vast reserves. Analysis conducted by the Bureau of Economic Geology at the University of Texas, indicates that such an investment would result in substantial new gas supply, as well as a significant overall increase in revenues to the Treasury in the form of royalties on new, technology-enabled production.
Chairman Greenspan is correct in noting that, in addition to technology, we need additional infrastructure. We need responsible access to public lands currently open for production. But the political will may not be there to exploit these options. Infrastructure additions always encounter local resistance. Opening up offshore California, Florida or East Coast may -- or may not -- ever materialize. Also, the imports of natural gas in the form of LNG raise serious geopolitical issues, similar to those we currently have with oil.
Investing in developing the technologies we need to affordably produce our domestic gas resources in environmentally sound ways is critical, it is possible, and has been proven effective time and time again. We should heed Chairman Greenspan's entreaty on the need for gas supply and invest in the technologies we need to respond to this wake-up call.
Author's Note: John Riordan is President and CEO of the Gas Technology Institute.