Natural Gas Producers Seek Larger Share of Energy Market

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<ul><li><p>TECHNOLOGY </p><p>Natural Gas Producers Seek Larger Share of Energy Market </p><p>Future use of gas for power generation will depend on price and availability, but technical problems of storage and transporting remain </p><p>Joseph Haggin, C&amp;EN Chicago </p><p>The fortunes of natural gas have become decoupled from those of pe t ro leum. This disjoining has prompted some reorganization of exploratory drilling businesses. In addition, it has produced planning and financing reverberations in as-sociated industries. </p><p>A year ago this month, an analyt-ical task force of the International Institute for Applied Systems Anal-ysis (IIASA) met in Sopron, Hungary, to consider the new status of natu-ral gas in the world. Dubbing the program with the somewhat lofty title, "The Methane Age / ' IIASA considered the prospect that natu-ral gas may become a much greater factor in world energy production, presumably at the expense of petro-leum and coal and possibly making some incursions into the market share of nuclear energy. </p><p>As "pro-gas" as the IIASA task force appeared to be, its principal geographical interest focused on the regions of Algeria, Australia, and the Near and Middle East. Although other countries were not ruled out of consideration, the natural gas po-tential of North America, Asia, and the Pacific Basin were touched on only lightly. </p><p>Any oversight with respect to the U.S. was corrected last month at the annual meeting of Gas Research In-stitute (GRI) in Chicago. The natu-ral gas industry has left no doubt that it plans to seek a greater share </p><p>of the primary energy market and is looking, specifically, to acquire as much of the electric power gen-eration market as possible. </p><p>The IIASA task force projected that gas would acquire a signifi-cantly increased market share of pri-mary energy consumption well into the next century, despite technical problems associated mostly with gas transport. That optimistic projection arises from the recognition that nat-ural gas, having become virtually decoupled from petroleum, has its own markets. </p><p>The peculiarities of natural gas regulation were one consideration in the projections. The task force believes that even where there is strict regulation, as in the U.S., there are still great market opportunities for natural gas. </p><p>One result of the natural gas/ petroleum decoupling has been the corresponding growth in autonomy of gas exploration, at least outside the U.S. In most areas, that means that deep deposits and unconven-</p><p>Capacity for electricity generation may fail short Gigawatts </p><p>1000 1 </p><p>800 </p><p>600 </p><p>400 </p><p>200 </p><p>Total required capacity </p><p>^^mm New/ ~~ </p><p>-initiatives-</p><p>Existing capacity plus currently planned additions minus retirements </p><p>J - I I </p><p>1985 1990 1995 2000 2005 2010 </p><p>Source: Electric Power Research Institute </p><p>tional sources are now more promi-nent in plans for drilling gas wells. Thus, some believe, gas exploration will become a bit more productive. </p><p>Nonetheless, natural gas presents some unique problems. For instance, it is not so easily stored as is petro-leum, and its energy density is less than that of oil. Thus the favored scenario at Sopron was for regional development where transport costs would be minimal and competition with oil and electricity most attrac-tive. But other scenarios, depending on the particular national axe being ground and the analyst's perspec-tives, were also presented. Most points of dispute were over the na-ture and longevity of the surplus that currently dominates the for-tunes of natural gas. An eventual shortage of gas could cause abrupt changes in gas prices and thereby induce still more instability in the natural gas business. </p><p>Attendees at the Sopron meeting agreed that technology will be the key to the methane age. There will be new techniques for exploration, expanded uses for natural gas, and new conversion processes. Of par-ticular interest is gas for combined-cycle turbine systems using some of the new higher-efficiency tur-bines now ready for commercializa-tion. </p><p>At the Chicago meeting, GRI's vice president for strategic analysis and energy forecasting Daniel A. Dreyfus said he believes the present competition between natural gas and electricity will continue, with ben-efits resulting for the consumer. This competition usually occurs at the point of end use, and for some end-use marketssuch as lighting, com-puter systems, communications, con-trol systems, and lasersnatural gas never will be able to compete. Dreyfus also notes that electrical ser-</p><p>22 May 18, 1987 C&amp;EN </p></li><li><p>vice is today nearly universal. As good as gas service may be, it is still not available everywhere. And in some cases where it is, it is avail-able sometimes only in restricted quantities. </p><p>To Dreyfus these factors lead to an expectation that electricity will increase its share of national ener-gy consumption. However , this apparently gloomy competitive out-look for gas may be reversed by considering that electricity is a big consumer of primary energy. At present, electrical power generation consumes 35% of the nation's pri-mary energy, and the amount is expected to rise to 40% by 2010. This is where gas producers are hop-ing to make some inroads. </p><p>The present surplus electrical gen-erating capacity in the U.S. is pro-jected by Dreyfus to disappear in the near future. Slumping demand in the 1970s, deferrals and cancella-tions of nuclear generating projects, and planned retirement of both nu-clear and conventional generating stations add up to an expected short-fall of about 40 gigawatts by the end of the century. </p><p>A familiar reason for the pessi-mistic outlook for generating capac-ity is the long lead time necessary for new construction and the early commitments that must be made by power companies. Now is the time to commit resources for plants that would come on stream around the end of the century, Dreyfus notes. Obviously, nobody can predict fuel prices that far in advance, so utili-ties are stalling on making deci-sions as long as possible. The net result is that short lead-time op-tions are very valuable to planners, and it is here that many natural gas producers expect to reap a harvest. </p><p>In the past, natural gas provided 20% of the primary energy for elec-tricity generation. By 1986, gas's share had dropped to 9%. And it's expected to decline some more as nuclear and conventional power plants now on order are brought on line. </p><p>However, the gas industry is attempting to recover as much of this lost market as possible. An in-creasing portion of the new electri-cal capacity will come from cogen-eration. Because of environmental </p><p>Use of natural gas in generating electricity could increase Quadrillion (1015)Btu 10 </p><p>Impact of possible acid rain regulations of coal </p><p>Central station generation </p><p>- L 1970 1980 </p><p>Source: Electric Power Research Institute </p><p>1990 2000 2010 </p><p>advantages, and minimal on-site hardware, natural gas offers a rath-er large competitive advantage over coal and oil. Gas-powered plants also can be built quickly, usually in about three years, and have a very flexi-ble response to power demand. Also, the growing problem of acid rain is not related to gas-fired plants. </p><p>But if the gas industry is ready and willing to provide a greater share of electric power generation, the electric power industry, for all the reasons that were cited at Sopron by the IIASA task force, may be less ready to acquire long-term gas commitments. </p><p>Floyd L. Culler Jr., president of Electric Power Research Institute (EPRI), provides the electric power industry's viewpoint. He notes that electric utilities currently consume about 3 trillion cu ft per year of natural gas for power generation. Most of this is for peak-power de-mand and for cycling gas boilers. No new baseload generators using natural gas have been built since 1978. However, beginning last year, electric utilities began to re-empha-size the addition of simple and combined-cycle combustion turbines through the rest of the century. Some utilities also have planned to switch back to gas from coal and oil in some installations for purely eco-nomic reasons. The electric power industry is definitely considering the greater use of natural gas. </p><p>EPRI's economic analyses show </p><p>that the use of integrated coal-gasification / combined-cycle plants with the initial stages using natural gas is clearly a cost effective alter-native in the short run. It also pro-vides the flexibility to convert the plant to coal in the future if that were to become advantageous. </p><p>Of greatest concern to electric util-ities is the character of long-term supply contracts. In particular, there is the problem of cost escalation clauses, and at present, assurances cannot be given for natural gas. The electric utility industry must posi-tion itself, Culler says, for the day when natural gas may not be the preferred fuel. </p><p>Cofiring with natural gas also may present problems. The greatest hur-dle probably would be that of ensuring that each cofiring site has an adequate gas pipeline available to it. That could be expensive. </p><p>Culler sums up the electric utili-ties' viewpoint by saying that the industry has plans to use natural gas when and if it provides elec-tricity at least cost to consumers. </p><p>How much gas will be used in the electric utilities industry is, then, clearly a matter of future gas price and availability. A feel for the size and character of the potential gas market was provided at the GRI meeting by Ralbern H. Murray, vice chairman of Consolidated Natural Gas Co. He claims that, contrary to most perceptions, natural gas will be available at competitive prices </p><p>May 18, 1987C&amp;EN 23 </p><p>Nonutility consumption for cogeneration </p></li><li><p>Technology </p><p>for facilities employing cogenera-tion, cofiring, and fuel cell power plants. </p><p>Murray's rationale is that since 1970, electricity has increased about 60% in price. Increased fuel cost accounts for some of that, but the greatest increases were due to the cost of the large nuclear plants. In fact, utilities have been canceling more plants than they have been building, and the long-term prospects for having an adequate number of central generating plants are rather poor. Some utilities already have passed the point where they can meet future needs from their baseload plants. </p><p>A review cited by Murray concludes that by the mid-1990s, generating capacity margins will be at a minimum. At that time, a good bit of in-place capacity will be more than 30 years old. </p><p>As did Dreyfus, Murray argues that filling a growing gap in primary power supply represents a golden opportunity for natural gas. For example, new gas turbines, from those available now or those under development that could be commercialized quickly, could make capacity additions available at lower cost, in smaller increments, and with shorter lead times. Repowering existing plants with turbines is an alternative. Efficient turbines can be retrofitted in about one fourth the time required for a new coal plant at about 60% of the cost of the coal plant. </p><p>Murray fears that much of this emerging technology is being threatened by legislation being pushed by the electricity lobby, and he calls for counteraction. At stake is the present 700 billion cu-ft-per-year natural gas market in power generation and a potential market of 1.7 trillion cu ft per year by the end of the century. </p><p>Every speaker who addressed the problems of the natural gas industry at the GRI meeting alluded to the somewhat fractionated character of the industry. The strongest call for coordination came from retiring GRI president Henry R. Linden. To build long-term confidence, he called for a certain amount of bullet-biting by all segments of the industry in the interests of unity. </p><p>One of the first steps recommended by Linden is reaching a consensus on acquisition costs for increments of new supplies that include adequate rates of return. After determining what the potential markets may be, it then will be necessary to compete as strongly as possible for these markets. </p><p>Additionally, it will be necessary to cut margins and to hold prices better than they are being held now. </p><p>Linden says the key to successful competition by the natural gas industry is joint action by the pipe-liners, producers, and distribution companies. </p><p>Equally important is investment </p><p>Scientists at a small Canadian biotechnology firm have isolated two new enzymes that exhibit high thermostability and high productivity of cyclodextrins (CDs) from starch. Hiroyuki Aoki, Dennis Yao, Ernest Yu, and Masanaru Misawa of Allelix Inc., Mississauga, Ont., have recovered from soil bacteria found in Ontario two cyclodextrin glycosyl-transferases (CGTases)one yielding mostly -CD, the other mainly 0-CD. </p><p>Cyclodextrins are cyclic oligosaccharides, composed of six (a), seven (), or eight (7) glucose residues bound through an a-1,4 linkage. -CDs are the least expensive and the most used commercial ly at present. -CDs cost about 10 times as much, and 7-CDs 100 times as much. CDs are currently prepared by action of bacterial CGTases on gelatinized starch. </p><p>The torus configuration of CDs provides a hydrophobic cavity, enabling CDs to form inclusion compounds with a wide variety of materials. Commercial interest is growing in using CDs for separations and extractions, drug delivery, stabilizing agents, and other encapsulation applications in the food, pharmaceutical, and agrochemical industries. Allelix projects $50 million annual CD sales in the U.S. within a couple of years, with at least twice that if food uses are approved by the Food &amp; Drug Ad-</p><p>in new technology to upgrade the use of natural gas and, above all, the rebuilding of public confidence in adequate cost-competitive supplies for at least 25 years into the future. </p><p>The essence of all the opinions expressed at the GRI meeting is that natural gas can provide breathing space for the hard-pressed electric power industry in the U.S. However, it will have to have some legislative help. And it will require coordination among the various parts of the gas industry, and some significant new technology in gas exploration, gas fuel use, and new uses in me thane conversion to chemicals. D </p><p>ministration. (Japan and several European nations already permit use in food.) </p><p>Allelix was founded in 1983 by Canadian Development Corp., a government corporation, which has supplied half the firm's funding. The province of Ontario has given 30%, and Canada's Labatt Brewing Co. 20%. Aoki described the group's work at the American Chemical Society's national meeting in Denver last month. </p><p>One of the two CGTases isolated by the Allelix scientists produces primarily -CD from starch, with high efficiency, and with high thermostability without adding calcium ions. The firm has not yet applied for patent protection on this enzyme and is keeping information about it proprietary for now. </p><p>The firm has just filed for patent protection in the U.S. on the other new CGTase. This enzyme produces mainly -CD from potato or corn starch, with a beta-to-...</p></li></ul>


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