Weekly Recap

Why is Liquefied Natural Gas (LNG) so important?

For starters, LNG is a key ingredient in making natural gas an internationally traded commodity, without this resource in use, the supply and demand for natural gas as a whole would dwindle. Not only that, but new developments have made the transportation of LNG across boarders easier and safer, which makes exporting and importing this resource more attractive.

In order to make LNG and other natural gas resources a globally traded commodity, countries with high reserves need to start exporting the natural gas to those countries with little to no reserves in natural gas.

For example, Russia has the largest number of natural gas reserves in the world; so much in fact that if they decided to export all of their reserves, they could power the entire world for several years alone.

On the other hand the United States has already taken steps towards becoming a net exporter of natural gas. There are plans to create a pipeline from the North Alaskan Coast inland. This project would not only provide many jobs for the unemployed, but also huge revenue for the state of Alaska. 2021 is the target year to have the pipeline fully up and running.

Now that natural gas is becoming a more popular use of energy, it would be a smart investment for countries to export their reserves into the global market. The use of natural gas has come a long way in the past couple years and it is projected to be the energy of the future.

This is from a 3-D animation tutorial of how the natural gas companies (Shell) turn natural gas into a liquid.

Why U.S. natural gas companies should be focusing on Alaska

On April 10^th of this year, Conoco suspended its plans to drill in the Arctic Ocean off the northern coast of Alaska. Conoco blamed “unclear” federal regulations related to Arctic Ocean drilling, the Wall Street Journal reports. Shell is also no closer to drilling, as both of its drilling rigs set to drill in Arctic waters off the coast of Alaska have been damaged. But maybe Conoco and Shell should be taking Exxon Mobil’s example and working with legislators to get an Alaskan pipeline built.

Currently, it is very cost ineffective to transport natural gas from Alaska’s North Slope to the Midwest or even to cities in Canada. The Gas Pipeline Project Office, a governmental sector of the State of Alaska estimates that if everything goes as planned and the right regulations get passed, the project could be completed by 2021. The Alaskan State government is in support of the pipeline because it would be a large revenue generator and provide many Alaskans jobs.

Why is now the perfect time to build this pipeline? Demand is becoming steadier and thus, cash flows are more predictable.  Not long ago, demand was much higher in the winter months than summer months because natural gas was used primarily for heating. But, now natural gas is being used in the summer to produce electricity by many new natural gas fired power plants.

Also, many companies are slowly, but surely, switching their fleets to natural gas powered vehicles to cut variable costs and decrease pollution. Part of the trend is driven by tax incentives offered by the federal government to companies/individuals who purchase alternative powered vehicles.

According to the U.S. Energy Information Administration, the top natural gas producing states are Texas, Louisiana, Wyoming, Oklahoma, and Colorado but Alaska could enter that list once the pipeline is built.

So why is the pipeline not being built yet? There are multiple laws that need to be passed by the U.S. Federal government, and the Alaskan government to allow the construction to proceed. Then the parts of the pipeline that run through Canada have to be approved by the Canadian government. Plans for the pipeline have been drafted, but licenses still have to be granted. What is behind most of these governmental barriers? Environmentally conscious groups are at the forefront. The BP oil spill in 2010 and an oil line rupture in Kalamazoo recently have shed a negative light on oil and gas exploration and transportation. But there are millions of miles of oil and gas pipelines already in existence and according to TransCanada CEO, pipelines are the safest way to transport oil and gas.

Will we see the Alaskan Pipeline project start soon? I sure hope so.

Australia, the new frontier for natural gas?

Australia is the new frontier or exploration in the global natural gas industry.  The endless pursuit for a natural gas producing region resembling the United States has lead many of the worlds largest gas companies to the shores of Australia.  The countries combination of abundant gas, low population density, efficient transport methods, and hungry market are that factors that make any gas company go falling head over heals for a piece of land.

THE STATS

Australia has approximately 390 Trillion cubic feet of natural gas reserves, which equates to about 45% that of the United States reserves, according to Forbes.  However, while this is only 45% of the quantity of natural gas that the U.S has, it needs only to serve 7% of the population that the U.S has.  Thus, Australia will have a plethora of natural gas to export.

THE FACTS

One of the largest appeals of natural gas exploration in Australia is the geographic location of its gas reserves.  The vast majority of Australian reserves lay on vacant or sparsely populated land, meaning that there will be much less resistance from environmentalists about the fraccing method used to extract the natural gas from the deposits below.  Less resistance is very appealing to all natural gas companies because it means time saved, money saved, and public image saved by staying out of the papers.

Offshore exploration is another significant upside about natural gas in Australia.  There are many medium-large sized reserves located just off of the coast but they have long been considered useless due to the fact that drilling machinery could not reach the depths at which the reserves lay.  In addition, it would be a monumental task to install the piping needed to get the extracted natural gas to the shore.  However, with the recent discovery of super chilled natural gas and an increased capacity to drill deeper water, these open sea reserves are all of a sudden quite easily trappable.  By super chilling the extracted gas, the volume of the material is condensed to 600 times smaller than what it is in its natural state, making for easy offloads to tankers which can then deliver the gas to the global markets.

As pointed out before, Australia’s natural gas reserves far outnumber what the local market demands for consumption, thus it will have a surplus of natural gas to export and profit from.  With Australia’s relatively close proximity to energy hungry Asian markets such as China and Japan, the demand for Australia’s easily accessible natural gas will be very high.

THE BELIEVERS

Many of the world’s gas giants agree that Australia is the next big place for natural gas exploration and they are showing it through their recent investments into Australian projects.  For instance, Shell has dished out an approximate U.S $12 billion for their FLNG plant off of the northwest coast of Australia.  Exxon was quick to follow and just recently applied for permits to build a similar and slightly larger FLNG vessel also off of the western coast of Australia, Forbes.  Another gas giant, Chevron, made proactive moves in Australia by acquiring two permits to mine 810,000 acres of Australian land, costing the company an estimated U.S $349 million, Forbes.

Australia has the key components to make it the new frontier in the ever increasingly competitive of natural gas exploration and extraction market.

Weekly Recap

On April 1, 2013 five students from the University of Colorado were given the opportunity to start this thenaturalgas ALTERNATIVE blog  to inform our readers about natural gas as an alternative source of energy and to emphasize its driving force behind a more sustainable future.

Throughout the course of this blog we will be discussing the concerns about natural gas based on the principles of its exploration, development, scientific background and environmental impacts, which will all be our main focus points. A few other areas of emphasis may include natural gas as a bridging technology and its transportation networks, natural gas as an automotive fuel, its impact on economic growth and a whole bunch more.

This week, we touched briefly on some major US natural gas companies who have contributed copious amounts to the health care systems, with Cabot Oil and Gas leading the way and many others following in their footsteps. Their contributions provide a positive image for natural gas and are having major impacts on health care.

Another topic discussed this week was about the breakthrough in the development of floating liquefied natural gas and how Shell is leading the charge. Shell has set forth what is known as the Prelude Project, in which shell is poised to be the first company in the world to create a vessel which can extract remote deposits of floating liquefied natural gas.

This post goes hand in hand with the discussion on US exports of natural gas controversies. Both give a nice contrast to the other and provide the readers with both positive examples within natural gas production and the road bumps companies face in this market.

We hope you enjoyed reading the discussions this week and we look forward to providing you with more discussions in the future.

Liquefied Natural Gas (LNG) Export Controversies in the US

For the past 20 years, the US has been an importer of natural gas with an average of 15.7 percent of its annual consumption coming from Canada. However, the production of this resource in the US has risen over 25 percent since 2005, which comes primarily from the previously inaccessible shale deposits deep in the earth, and is expected to continue growing in the future.

Presently, the production of natural gas in the US is greater than its national consumption and is causing quite the controversy on whether or not the US should export the resource in the global market. A few years ago, liquefied natural gas (LNG) import terminals were constructed across North America in response to the country’s diminishing natural gas supplies. Today, due to the rise of production, major natural gas companies in the US are trying to convert these terminals into export terminals which will transport LNG overseas.

Cheniere Energy Inc., a natural gas company based out of Houston, TX, is the only company in the US with an approved LNG terminal. It was in January of 2012 when Cheniere Energy was given approval by the Department of Energy to export LNG through its Sabine Pass Liquefaction terminal in Cameron Parish, LA, which has the potential to ship up to 2 billion cubic feet of gas per day by the year 2015. The company also intends to open a new export terminal in Corpus Christi, TX by 2017 but will only see production if Cheniere gets the approval.

Chevron’s Gorgon project in Australia.

Other US natural gas companies, who are unable to export domestically, have turned to alternative plans by building exporting facilities on foreign soil (where there are little to no restrictions on natural gas production). For example, Chevron Corporation is one of the leading suppliers of LNG exports with its Wheatstone and Gorgon projects in Australia. The Gorgon Project is Australia’s largest single-resource project, with a 15 million-metric ton per-year LNG facility.

KBR Inc., another US company, is a leading LNG production facility developer, with already having constructed over 40% of LNG facilities around the world.

What is causing all the controversy over exporting LNG?

Industrial consumers of natural gas are worried the exportation of natural gas will increase oil and natural gas prices as well as their production costs.

Alliances are starting to form together and fight against the approval given by the Department of Energy for exporting natural gas. The alliances include utilities dependent on natural gas to fuel electricity generation, chemical companies that use it as a feedstock for making myriad industrial chemicals, and heavy industrial users such Alcoa and Nucor who use natural gas to fire their metal-making operations.

America’s Energy Advantage, a group backed by six large industrial companies including Dow Chemical, Huntsman, and Alcoa, believe tens of billions of dollars for potential investment in US industry are at risk if the government allows for the substantial increase in exported LNG. The group also argues an increase in exporting LNG will hurt the US economy by eliminating domestic jobs and increase natural gas prices.

Today the US price of natural gas is $3.27 per thousand cubic feet, compare this  price to those in the world market, you will see the Europeans pay upwards of $12 per thousand cubic feet and the Japanese pay more than $17. If the US were to start exporting, domestic natural gas prices will increase significantly.

It looks like right now the controversies surrounding natural gas production and exportation in the US will only get resolved if there can be an agreement on some sort of compromise otherwise the issue will never go away.

thenaturalgas ALTERNATIVES

Shell Floating LNG Plant

The most recent big development in the area of natural gas exploration is the movement towards FLNG or floating liquefied natural gas, and Shell is leading the charge.  With the development of their Prelude project, Shell is poised to be the first company in the world to create a vessel or platform which can extract remote deposits of LNG according to Bloomberg.  The ability to tap additional reserves of LNG means not only advancement in the movement towards natural gas energy but further economic development for Australia and less environmental impacts.

The $10.8-12.6 billion project means constructing the largest vessel on Earth at a weight of 600,000 tonnes and a length nearly equal to that of the Empire State Building.  The construction of the hull began at Samsung Heavy Industries in South Korea in 2009 and the project is set to begin operation over the Prelude LNG reserve in 2015.  The vessel will be towed to the Prelude reserve after completion and moored at said location for 25 years.

Extracting LNG from remote deposits at sea has always been a sought after goal for natural gas companies but was never economical because locations were either too remote or the costs were astronomical with the amount of pipeline and energy it would take to get the LNG to coastal plants.  Thanks to groundbreaking technology however, scientists have found that by chilling the extracted LNG to -162 degrees Celsius, the volume of LNG can be shrunk by 600 times what it is in its natural state.  Thus allowing for enormous amounts of LNG to be shipped to mainland rather than pumped through pipelines.

The benefits for northwest Australia and Australia as a whole will be immense both environmentally and economically.  The permits to build LNG plants on land in Australia have become few and far between recently and with seven plants currently under construction, they will be even more rare to acquire.  In a sense, the LNG industry is capped at the moment in Australia with nowhere to expand to.  However with the arrival of FLNG plants, the gates are again open for companies to explore and tap previously inaccessible LNG reserves, meaning many more jobs for Australian workers and more money for Australia to tax.

Not only is the development of FLNG good for the Australian economy, it is also a more environmentally responsible means of natural gas extraction.  Thanks to the ability to condense the extracted LNG for transportation, pipelines are virtually eliminated in this segment of the market meaning that there is more LNG production with no more pipelines taking up land.  LNG plants are also more environmentally friendly because it again adds to LNG production while not needing land to be developed for roads, laydown areas, and accommodation facilities.

FLNG plants are becoming a significant part of LNG exploration. With their potential to provide more LNG, stimulate the Australian economy, and do so in a more environmentally responsible manor, this will likely become a much more popular form of exploration and extraction for companies around the world.

thenaturalgas ALTERNATIVE