Natural Gas Industry: Natural Gas Industry:

a dynamic industry and a bridgehead a dynamic industry and a bridgehead to sustainable energy supplyto sustainable energy supply

Auke LontAuke Lont

1. INTRODUCTION1. INTRODUCTION

What is Natural Gas?What is Natural Gas?

‘‘relatively clean fuel with very low density’relatively clean fuel with very low density’

1 m3 = 11 kWh = 1 litre LFO1 m3 = 11 kWh = 1 litre LFO

CH4CH4Typical useTypical use Not usedNot used

HomeheatingHomeheating Transportation Transportation

Power generationPower generation (liquid at – 160C)(liquid at – 160C)

Petrochemical feedstockPetrochemical feedstock

2. some “ OLD TRUTHS”2. some “ OLD TRUTHS”

19751975 Natural gas shall not be used Natural gas shall not be used for power generationfor power generation

19831983 UK natural gas resource base UK natural gas resource base rapidly declining after 1995 rapidly declining after 1995

19841984 USA Natural gas bubble will USA Natural gas bubble will soon burstsoon burst

19851985 Norwegian gas production will Norwegian gas production will stabilize at 40 BCM/YR stabilize at 40 BCM/YR

1975-951975-95 Dutch Groningen Field will be Dutch Groningen Field will be depleted in 25 years depleted in 25 years

2. “ OLD TRUTHS” cont.2. “ OLD TRUTHS” cont.

EU DIRECTIVE 13.2.1975EU DIRECTIVE 13.2.1975“restriction of use of natural gas in power stations”“restriction of use of natural gas in power stations”

Whereas:Whereas:

Natural gas quantities available are Natural gas quantities available are limited limited

Natural gas should be reserved for Natural gas should be reserved for “premium” application “premium” application

EU DIRECTIVE 13.2.1975EU DIRECTIVE 13.2.1975“restriction of use of natural gas in power stations”“restriction of use of natural gas in power stations”

Now therefore:Now therefore:

“ “ ... new contracts.., and construction of ... new contracts.., and construction of new power stations using natural gas must new power stations using natural gas must be subject to prior authorization...be subject to prior authorization...

... member states shall encourage ... member states shall encourage cancellation of existing contracts for cancellation of existing contracts for supply to power plants...”supply to power plants...”

3. Some FACTS3. Some FACTS

EU DIRECTIVE 18.3.1991EU DIRECTIVE 18.3.1991

““.. whereas natural gas has .. whereas natural gas has specific advantagesspecific advantages for the production of electricity in terms of for the production of electricity in terms of limiting emissions of pollutantslimiting emissions of pollutants

.. whereas .. whereas technological advantagestechnological advantages have have enabled natural gas to be used for electricity enabled natural gas to be used for electricity generation having advantages both of lower generation having advantages both of lower capital and operating costs and greater capital and operating costs and greater efficiency compared with units using other efficiency compared with units using other fuels..fuels..

.. in view of the .. in view of the current developmentscurrent developments on the gas on the gas market the restriction should not be retained..”market the restriction should not be retained..”

GRONINGEN GAS FIELDGRONINGEN GAS FIELD(Netherlands)(Netherlands)

remaining reserves

cumulative production

Source: Ministry of Economic Affairs, Netherlands

0

500

1000

1500

2000

2500

3000

74 76 78 80 82 84 86 88 90 92 94

1974 2000

POWER GENERATION IN UKPOWER GENERATION IN UK - natural gas- - natural gas-

BCM/YR

0

5

10

15

20

25

1990 1992 1994 1996 1998 20001990 2000

0

25

WORLD ENERGY RESERVESWORLD ENERGY RESERVES - natural gas vs oil - - natural gas vs oil -

oil

natural gas

Source: BP, World Energy Review 2004

0

20

40

60

80

100

120

140

69 71 73 75 77 79 81 83 85 87 89 91 93

WORLD REMAINING GAS WORLD REMAINING GAS RESERVESRESERVES

Remaining years of production

Source: BP, World Energy Review 2004

0

10

20

30

40

50

60

70

68 70 72 74 76 78 80 82 84 86 88 90 92 94

70

1970 2003

R/P oil = 40 years

4. WHY ARE WE OFTEN WRONG?4. WHY ARE WE OFTEN WRONG?

“ “Right forces, wrong model”Right forces, wrong model”

EnvironmentEnvironment

Economic Economic growthgrowth

MarketMarket

Reserve baseReserve base

TechnologyTechnology

Regulatory Regulatory frameworkframework

Natural gas Natural gas industryindustry

UNDERESTIMATEUNDERESTIMATE

1)1) Power of technologyPower of technology

2)2) Power of the marketPower of the market

3)3) Power of the environmentPower of the environment

4)4) Dynamics when forces meetDynamics when forces meet

THE POWER OF TECHNOLOGYTHE POWER OF TECHNOLOGY- drilling of wells-- drilling of wells-

3,5 5 7,50

10

20

30

40

50

60

Cost pr. m.1000 $.

1985

19901995

Horizontal length km

Cost pr m

Horizontal lengthkm

1985

1995

10

THE POWER OF TECHNOLOGYTHE POWER OF TECHNOLOGY - gas turbine - - gas turbine -

1965

19802000

Efficiency%0 20 30 40 50

Source: GE

Cost per kW

50

UK gas industryUK gas industry– new suppliesnew supplies

=> new dynamics=> new dynamics– new productsnew products

UK electricity industry: natural gas substitutes coalUK electricity industry: natural gas substitutes coal

TelecomTelecom

Airline industryAirline industry

Interaction between markets and technology can reshape industriesInteraction between markets and technology can reshape industries

THE POWER OF THE MARKETTHE POWER OF THE MARKETderegulationderegulation

THE POWER OF ENVIRONMENTTHE POWER OF ENVIRONMENTCO2-emissions in electricity generationCO2-emissions in electricity generation

kg/MWh

0

200

400

600

800

Coal

gas

coal

5. THE ENVIRONMENTAL 5. THE ENVIRONMENTAL CHALLENGECHALLENGE

“ “ How to combine the natural gas How to combine the natural gas potential with global warming potential with global warming

challenges?”challenges?”

November 26, 2007

Econ PowerPoint presentation template

WORLD CO2-EMISSIONS1000mt

0

10

20

29

1994 2010

22

29

27

oil

gas

coal

Source: IEASource: IEA

coal

gas

oil

1994 2010

22

29

KYOTO AGREEMENTKYOTO AGREEMENT

1. CO2-emission has a cost

2. Cost effective solutions

ENERGY CONSUMPTION ENERGY CONSUMPTION VS ELECTRICITY CONSUMPTION VS ELECTRICITY CONSUMPTION

- OECD -- OECD -

ElectricityElectricity

EnergyEnergy

Index

1971 20020

0,5

1

1,5

2

oilnatural gas

coal

hydro nuclear1. Stabilize/reduce energy consumption1. Stabilize/reduce energy consumption2. Increase natural gas market share2. Increase natural gas market share3. Long term solutions for power generation3. Long term solutions for power generation

-gas-gas-nuclear-nuclear-carbon capture and storage for coal-carbon capture and storage for coal

THE ENVIRONMENTAL CHALLENGETHE ENVIRONMENTAL CHALLENGE