The Future of Natural Gas: Supply and Impact

“In all, with our current level of gas reserves, researchers have estimated that we have 60- 70 years until we start running in to trouble”

By Saif Qureshi, Online Editor

Natural gas should be familiar to most homeowners—it’s one of the more common sources of energy (and bills!). But have you ever wondered where this resource comes from, what it’s used for and how long we’ll be able to use it before it runs out? This article will describe natural gas, its present and future in the global marketplace and how it will affect us Canadians.

Natural gas is one of the cleanest, safest and most useful fossil fuels out there and, luckily for us, it has many uses and is found in vast quantities all over the world. Most reserves of gas can be found with other fossil fuels, such as in oil fields or coal beds. These reserves are then processed and delivered to our homes through an extensive network of pipes, which are operated by local gas companies.

We use this pure form of natural gas in various sectors, such as residential, industry, commercial and electricity generation. Some of the common uses for gas include cooking, heating (also cooling but this is less common), fuelling automobiles and for generating electricity. In fact due to new technology, more electricity is expected to be produced from natural gas in the future—in 2009 alone, over 50% of the new electricity generation in the U.S. came from natural gas. Moreover, while coal is the cheaper source of energy, it’s also the most environmentally damaging, and as a result of the environmental regulations duly placed upon coal, the electricity industry views natural gas as the cleaner alternative.

Currently reserves are still high but, unfortunately for us, natural gas (like other fossil fuels) is a non-renewable resource and its formation usually takes millions of years. So unless scientists figure out a way to speed this process or one don’t mind waiting, it becomes important for us to try and figure out how long we have until this resource runs out.

The Score:

Several companies, geologists and environmental groups have created estimates for gas reserves, but none are precise since no one actually knows how much gas there is until it’s extracted. Accordingly, a lot of estimation or “guesstimation” is done. Yet overall, the consensus is that as of January 1, 2009, total world proven reserves (these are likely to be recovered) of gas are estimated to be around 6,254 Tcf (trillions of cubic feet), with 41% in the Middle East, 32% in Eurasia and 4.5% in North America.

Accompanying this estimate, is that most forecasts predict that the demand for natural gas will steadily increase in the future due to the expected general economic and population growth. In fact, from 1975 to 2005, gas consumption has almost doubled.

Some short-term factors that affect demand for natural gas are: (1) the weather, as people require heating in the winter; and (2) the economic climate: since industries require less electricity and heating during a recession.

In the long run though, demand is expected to grow for several reasons. First, electricity generation is likely to increase not only because the population is growing, but also because the electricity consumed per person is increasing as we use more consumer goods, such as electronics. Second, the demand for natural gas will grow if any climate change legislation is passed that promotes natural gas, as it’s a low emissions fuel. (Also, it is more efficient during electricity generation, meaning that more electricity is produced per unit of electricity.) Next, advancements in natural gas technologies will increase demand (i.e. the future may see new natural gas appliances enter the market). Also, several industries require onsite electricity generation because they cannot afford to have a loss of power and it is likely that this trend of distributed generation will grow.

Finally, the automobile sector currently uses very little natural gas, but in the future, demand for gas powered vehicles could increase if some form of government climate change legislation is introduced. That said, there remain many barriers to the widespread use of natural gas in automobiles, which makes it difficult to speculate on the future of this sector.

Forecasts:

As the demand for natural gas increases, the gas industry will have to increase its production in order to meet this demand. In 2000, total world production of gas was 2422.3 billion cubic metres and grew by 4.3%.

Demand for natural gas will always exist unless we find an energy source with better qualities, but eventually gas reserves will start running low and companies will not be able to produce enough. The concept of peak gas refers to the period where natural gas will reach its peak production level and from then on will continuously decline until there is possible none remaining. In case you are starting to panic, the good news is that current reserves are high and “estimates” of these reserves continue to grow because of improvements in exploration and technology.

In the past decades the revised additions of reserves have exceeded the production of gas due to major discoveries in Russia, Middle East, Netherlands and Indonesia. However, the number of new gas discoveries is in a decreasing trend, which means that future production could grow at a slower rate (see 100 Year Gas Demand Graph). Also, these discoveries are being made in deeper levels of land, in greater depths in the ocean or are further away from where markets are located (meaning that in order for these sources to remain profitable, the private or government sector will have to continue enhancing its technology).

In all, with our current level of gas reserves, researchers have estimated that we have 60- 70 years until we start running in to trouble. On another note, although this article is not meant to provide financial advice, investing for the long term on natural gas might not be a bad idea since increasing demand and decreasing supply will lead to higher prices.

Impact:

Now that you have understood the importance of copper, it’s time to understand the real market and how we will be affected. Unlike some other commodities, natural gas exists within regional marketplaces instead of the global marketplace. This is because it is difficult and currently not cost effective to transport natural gas all over the world and thus trade is limited.

Some ways in which natural gas can be transported is pipelines or tankers of LNG (liquefied natural gas), but both of these have their problems. For example, with pipelines there are various legal and logistical problems that come into play because the projects span wide areas of land. These problems have resulted in very little international trade in natural gas and any trade that is done is usually within regions (e.g. in North America, all of Canada’s natural gas exports goes to the U.S).

The importance of this characteristic of the market is that countries without enough gas reserves will be impacted sooner and more severely from gas shortages. So how will this affect Canada?

According to some estimates, peak production of gas has already occurred as producers are struggling to keep output high. However, according to another study, the North American peak in production is expected to be around 2013, after which production will fall.

The substitute for production is to import gas, but with the technology that we have today, importing liquefied natural gas is too difficult and requires new infrastructure which is very capital extensive. The other option is through pipeline, but it is unlikely that the U.S. will export its own gas to us because of its own requirements.

Not to scare anyone, but the question now remains how we will survive the cold Canadian winters when resources such as natural gas start to run out. This question could become very important for many of us students later on in our lives if we do actually experience energy shortages, such as natural gas. Unfortunately, natural gas is yet another fossil fuel that we have come to depend on. And so as a society, it is important for us to attempt to find the answers of how our future energy needs will be met and to change our mindsets so that we can limit our current consumption.

ARB Team
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