Natural Gas Producers Seek Larger Share of Energy Market
Future use of gas for power generation will depend on price and availability, but technical problems of storage and transporting remain
Joseph Haggin, C&EN Chicago
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.
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.
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.
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
of the primary energy market and is looking, specifically, to acquire as much of the electric power gen-eration market as possible.
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.
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.
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-
Capacity for electricity generation may fail short Gigawatts
Total required capacity
^^mm New/ ~~
Existing capacity plus currently planned additions minus retirements
J - I I
1985 1990 1995 2000 2005 2010
Source: Electric Power Research Institute
tional sources are now more promi-nent in plans for drilling gas wells. Thus, some believe, gas exploration will become a bit more productive.
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.
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.
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-
22 May 18, 1987 C&EN
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.
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.
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.
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.
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.
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
Use of natural gas in generating electricity could increase Quadrillion (1015)Btu 10
Impact of possible acid rain regulations of coal
Central station generation
- L 1970 1980
Source: Electric Power Research Institute
1990 2000 2010
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.
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.
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.
EPRI's economic analyses show
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.
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.
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.
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.
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
May 18, 1987C&EN 23
Nonutility consumption for cogeneration