Is there enough natural gas for everyone for everything?

[ Is there enough natural gas for products, utilities, AND transportation?  Alice Friedemann  www.energyskeptic.com]

Senate 113-1. February 12, 2013. Natural gas resources S. Hrg. 113-1. U.S. Senate.

ANDREW N. LIVERIS, CHAIRMAN & CEO, DOW CHEMICAL COMPANY. Dow is a major user of natural gas and natural gas liquids (NGL), both as an energy source and as feedstock for production of our products to drive the chemical reactions necessary to make useful products.

Dow’s global hydrocarbon and energy use amounts to the oil equivalent of 850,000 barrels per day, the daily energy use of Australia.

Natural gas is an essential component in thousands of everyday consumer products such as cars, appliances, paper, steel, plastic products, pharmaceuticals, and fertilizer for our farms. Natural gas provides heat, hot water, cooking and electric power to tens of millions of residential consumers.

The ingredients of natural gas are what we call feedstocks, natural gas liquids. The bounty of shale gas is, thanks to our great oil and gas sisters and brothers, they—the bounty, the geology, is that the gas is very wet, so-called NGO rich. A God-given gift. This is very unusual. The gas fields around the world are not as rich as U.S. gas fields. Therefore there’s a new unintended consequence, which is all the ingredients for everything from laptops to smart phones to pharmaceuticals to paints and varnishes to carpets to cosmetics, all the vital ingredients, 95% of them come from fossil fuels. The best and lightest fossil fuel is natural gas, so natural gas liquids should not be shipped overseas and be burnt in Japanese cooking ovens. It should be kept home so we can add value at 8 times by building these facilities. There’s $4 billion in Louisiana and Texas alone by Dow Chemical, $20 billion by Sasol, $15 billion by Shell to value-add. This is a big bet that we’re going to get responsible supply.

Energy is the lifeblood of an economy in all of its forms.

Opposition to export of LNG: You can’t move factories overnight, to state the obvious. Why put at risk the 5 million jobs, the $96 billion worth of investment that are on the books today? Over 60 companies, why put that at risk by doing either or? Why transfer the risk? So be cautious, do what the public interest demands and the DOE application process. I agree, financing will be difficult. I agree, prices will be volatile. But why take the risk and let the speculators set the gas price like they did 10 years ago, and we all remember the Enron’s and what the efficient market did for us 10 years ago. It was hardly efficient. OK. It was very inefficient.

Gas, as already noted, has to be liquefied and shipped at billions and billions of dollars. That is not an open market, that’s a point to point contract. There’s probably 30 of these contracts around the world from nation states to nation states.

The ingredients of natural gas are what we call feedstocks, natural gas liquids. The bounty of shale gas is, thanks to our great oil and gas sisters and brothers, they—the bounty, the geology, is that the gas is very wet, so-called NGO rich. A God-given gift. This is very unusual. The gas fields around the world are not as rich as U.S. gas fields. Therefore there’s a new unintended consequence, which is all the ingredients for everything from laptops to smart phones to pharmaceuticals to paints and varnishes to carpets to cosmetics, all the vital ingredients, 95% of them come from fossil fuels. The best and lightest fossil fuel is natural gas, so natural gas liquids should not be shipped overseas and be burnt in Japanese cooking ovens. It should be kept home so we can add value at 8 times by building these facilities. There’s $4 billion in Louisiana and Texas alone by Dow Chemical, $20 billion by Sasol, $15 billion by Shell to value-add. This is a big bet that we’re going to get responsible supply.

Energy is the lifeblood of an economy in all of its forms.

We’re in the 4th or 5th year of trying to understand what this bounty is. Can we produce it responsibly across the country? There are regions that differ already. We know that. The geology is different. We don’t know how much supply we have. Let’s be careful testing our country on when a market gets to maturity on liquidity risk. Why should we take the liquidity risk as a country in a totality while someone overseas benefits from our bounty.

MARY L. LANDRIEU, U.S. SENATOR FROM LOUISIANA. The wealth of natural gas is extraordinary, with estimates indicating America currently has 317 trillion cubic feet of proven, accessible reserves, and a further 2,000 tcf in total resource base estimates. This is enough to fulfill our current demand, a little over 24 bcf per day, for over 100 years.

Louisiana, Methanex Corporation, which moved its last U.S. plant overseas in 1999, is now spending over $1 billion to move a methanol plant from Chile to Ascension parish, near Baton Rouge. This plant will produce the raw materials for everything from windshield washer fluid to paints and sealants, even wrinkle free shirts. Williams, a petrochemical company based in Tulsa, is planning a new $400 ethylene plant also in Ascension parish, where they will supply our plastics manufacturers. Finally, CF Industries, one of the world’s largest producers of nitrogen fertilizer, is looking to spend $2.1 billion to build a new fertilizer plant in Ascension. That’s over $3.5 billion being invested in one parish in Louisiana, all thanks to our new abundance of domestic natural gas. Of course, that isn’t the whole story; nationwide, these same petrochemical, plastics, steel and fertilizer industries are planning to invest upwards of $80 billion in new plants and new capabilities.

ROSS EISENBERG, VP, ENERGY & RESOURCES POLICY, National Assoc of Manufacturers

The NAM is the nation’s largest industrial trade association, representing nearly 12,000 small, medium and large manufacturers in every industrial sector and in all 50 states. Manufacturers are major energy consumers, using one-third of the energy consumed in the United States.

The natural gas boom has provided major opportunities for manufacturers across the supply chain. Upstream, manufacturers design and construct drilling facilities; supply machinery and materials, such as cement and steel for hydraulic fracturing and well completion; and perform a wide range of support activities and services for the natural gas extraction process. Midstream, manufacturers provide needed infrastructure, such as pipelines, compressor stations, storage facilities and processing facilities. And downstream, the possibilities-from chemicals to windows to toys to electricity-are truly endless.

The natural gas manufacturing supply chain extends even further. All of this new activity will require roads and bridges, which, in turn, requires concrete, brick, gravel and steel. Drilling sites will need vehicles, fuel and significant water supplies- which will need to be supplied, transported and treated. Site employees will need uniforms, and those uniforms will need to be cleaned and maintained. The list goes on and on.

Chemical manufacturers had been the largest beneficiaries of this new abundance of natural gas, owing primarily to less expensive ethane, a natural gas liquid derived from shale gas. PwC identified Bayer Corporation, Chevron Phillips Chemical Company, Formosa Plastics Corporation and Westlake Chemical Corporation as companies taking early advantage of the shale gas boom.

PwC found that the benefits of shale gas for manufacturers were not limited to the major natural gas users; the benefits extended throughout the supply chain. According to PwC, companies that sell goods, such as metal tubular products and drilling and power equipment, were likely to experience near-term growth in sales as domestic natural gas production rates increased. PwC identified projects by U.S. Steel and Vallourec Ohio intended to supply steel pipe and related materials for shale gas extraction activities. These higher production levels would also yield benefits higher in the value chain, such as manufacturers of components used in drilling equipment. Overall, PwC found that 17 chemical, metal and industrial manufacturers commented in SEC filings in 2011 that shale gas development drove demands for their products, compared to none in 2008.

In the 13 months that have passed since PwC released its study, the impact of new supplies of natural gas on manufacturing has become even more pronounced. Nucor embarked on plans to develop a $750 million iron facility in Louisiana and announced a $3 billion joint venture with Canadian oil and gas producer Encana for 20 years of access to its natural gas wells.3 Mitsubishi announced plans to build an acrylic-resin processing plant adjacent to a newly constructed ethylene plant.4 Fertilizer manufacturer CF Industries announced that it will spend $2.1 billion to expand its fertilizer manufacturing operations.5 Formosa Plastics Corporation increased the size of its Texas ethylene plant included in the 2011 PwC6 report. Even foreign manufacturers are now seeking to build operations in the United States. Austrian steel manufacturer Voestalpine AG announced in late 2012 it plans to build a $661 million steel factory in the United States.7 South African energy company Sasol announced plans to construct America’s first commercial gas-to-liquids plant in Louisiana, an $11 billion-$14 billion venture.8 Egyptian fertilizer manufacturer Orascom Construction Industries plans to build a $1.4 billion nitrogen fertilizer production plant in Wever, Iowa.9 Canadian methanol producer Methanex announced in 2012 that it will dismantle a methanol plant in Chile and move it to Ascension Parish, Louisiana.10 BlueScope Steel Limited, an Australian company, is building a steel factory in Ohio in partnership with U.S. manufacturer Cargill.11 And Indian manufacturer Essar Global Limited is planning a steel facility for Minnesota.12

Last June, a report by independent global energy research firm IHS CERA predicted that the share of U.S. natural gas produced from unconventional sources will reach 67 percent by 2015 and 79 percent by 2035. (source: Fullenbaum, Richard, and John Larson, The Economic and Employment contributions of Unconventional Gas Development in State Economies, June 2012 http:// www.anga.us/media/content/F7D4500D-DD3A-1073-DA3480BE3CA41595/files/ statelunconvlgasleconomiclcontribution.pdf

This would lead to $3.2 trillion in investments to develop the resource.

Natural gas liquefaction is a manufacturing process. To convert natural gas to LNG, the gas is purified by removing any condensates, such as water, oil and mud, as well as other gases, such as carbon dioxide and hydrogen sulfide and trace amounts of mercury. The gas is then supercooled in several stages until it is liquefied and ready for shipping.

NATURAL GAS AND MANUFACTURING Industry relies on natural gas for much of its energy needs and as a raw material.

KENNETH B. MEDLOCK, III, JAMES A. BAKER, III, AND SUSAN G. BAKER, FELLOW IN ENERGY AND RESOURCE ECONOMICS, AND SENIOR DI- RECTOR, CENTER FOR ENERGY STUDIES, JAMES A. BAKER III INSTITUTE FOR PUBLIC POLICY RICE UNIVERSITY, HOUSTON, TX

Methanex has moved forward with plans to relocate its Chilean facility to Geismar, Louisiana, and Sasol has announced intent to move forward with a GTL project in Southwest Louisiana. In short, if price does stay low and relatively stable, it is possible that industrial demand could rise to levels not seen since the mid-1990s. This would represent an over 18% increase in industrial gas demand from its current levels. It is important to point out that the long term trend seen in the industrial demand sector bears resemblance to a cycle. Indeed, even the recent growth in industrial demand has been modest in comparison to power generation use. Nevertheless, the past few years have seen a renewal of industrial demand for natural gas. Moreover, the planned capital expenditures by gas-intensive industrial players are quite large.

US. POWER GENERATION DEMAND FOR NATURAL GAS. Natural gas demand in the power generation sector has substantial growth opportunity through fuel substitution, and it can occur in a relatively short time frame. In 2012 we saw a dramatic increase in the use of natural gas in power generation through substitution with coal. In fact, the natural gas share of power generation in 2012 rose to over 30%, which was up from an annual average of 17.9% just 10 years ago. This is in stark contrast to coal, which has seen its market share deteriorate from 50.8% to 36% in the same time frame. In fact, much of the drop in coal’s share in power generation is directly attributable to grid-level switching to natural gas. The rise of gas use at the expense of coal was primarily the result of relatively low natural gas prices, and the fact that there is sufficient natural gas generating capability to allow for large scale, grid-level fuel switching.

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