TCS Daily

The Natural Gas Fallacy

By Ed Reid - August 6, 2003 12:00 AM

The fundamental intent of strategic planning is the pursuit of intelligent, rational, steady progress toward a defined goal; in other words, the avoidance of "crises." The U.S. (the Department of Energy and Congress in particular) seems to prefer crisis management to strategic planning. We lurch from fiasco to fiasco, doing triage and hoping for the best.


The concept of fueling all new electric generation with natural gas, combined with the equally questionable concept of replacing gasoline as an automotive fuel with hydrogen produced by reforming natural gas, leads inexorably to extremely high natural gas demand.  That is clearly unsustainable, especially since approximately 40 percent of the total U.S. natural gas resource base is currently off limits to exploration and production activity.


I don't believe that "all new electric power generation will be gas-fired," or that the new "hydrogen economy" will be based on natural gas conversion. Here's why.


Energy Flow, 2001

(Quadrillion Btu)




The numbers that explain what's going on are a little complicated, but they're worth examining in detail. Current U.S. natural gas consumption is ~23 trillion cubic feet per year (tcfy) (~23 quads). The natural gas industry, such as it is, dreams of 32 tcfy in the future. Approximately five tcfy is currently used for electric generation, in a variety of types of generators including peaking combustion turbines (CTs), combined cycle turbines (CCTs) and gas-fueled steam turbine power plants. This consumption represents ~15 percent of total energy consumption for electric power generation. Of the primary energy produced for electric generation, ~27 percent is actually delivered to customer meters. Most of the balance is lost at the generating plants, which operate at an average efficiency of ~33 percent. The remainder is lost upstream of the power plant (in extraction, processing and transportation of the power plant fuel) and downstream (in transmission and distribution losses).


The Energy Information Administration (EIA) at the Department of Energy projects that overall U.S. energy consumption will grow at ~1.5 percent per year and that electric consumption will grow at ~2 percent per year. The 2 percent electric growth rate would result in a doubling of electric consumption in ~35 years, which is roughly equivalent to the expected useful life of a new electric power plant. The primary driver for the growth in energy consumption is population growth (including both legal and illegal immigration), which is projected to continue throughout this period. Therefore, it is not unreasonable to assume that this trend will also continue throughout the period.


If all of this new electric consumption were fueled by natural gas, at current power plant efficiencies, annual natural gas consumption would increase by ~33 tcfy. If all of this new electric consumption were served by CCTs, at a generating efficiency of ~50 percent (HHV), consumption would increase by ~22 tcfy over the period. This would result in annual natural gas consumption of ~45 - 56 tcfy, assuming no growth in direct natural gas consumption by other natural gas consumers.


Growth in direct natural gas consumption, as projected by EIA, would increase total annual gas consumption by ~15 tcfy over the period, to between 60 - 71 tcfy. Conversion or replacement of all existing fossil fueled electric power generation with natural gas would further increase natural gas consumption by 14 - 21 tcfy, to a total of 74 - 92 tcfy.


Use of natural gas as the feedstock for hydrogen production intended to replace gasoline and diesel fuel for transportation applications (at an assumed conversion efficiency of 100 percent) would add an additional ~27 tcfy at current consumption levels; or, as much as ~40 tcfy assuming 1.5 percent per year growth in transportation energy consumption over the period and no change in vehicle efficiency. This would result in a total natural gas consumption of ~101 - 132 tcfy.


On the other hand, using natural gas as the fuel source for electric power plants used to produce hydrogen by electrolysis would add ~108 tcfy at current consumption levels, or ~160 tcfy with growth over the period. (The consumption is dramatically higher in this case because of the combined inefficiencies of the electric generation and hydrogen production processes.) This would result in a total natural gas consumption of ~182 - 252 tcfy.


By this point, some may be questioning my sanity. Potential annual gas consumption of ~ 8 times the industry's wildest dreams! Actually, you should be questioning the sanity of those who are willing to assume that all new electric generation will be natural gas fueled; or, that conversion to hydrogen as a vehicle fuel will be based on the reformation of natural gas to hydrogen, no less the conversion (at ~66 percent efficiency) of natural gas to methanol, for later in-vehicle reformation to hydrogen; or, that natural gas would fuel electric generation to produce electrolytic hydrogen.


All this looks even less reasonable in the face of a federal government which is taking many high potential natural gas production horizons "off the table," as has been the case off the east and west coasts, off the west coast of Florida, and in a growing number of national parks and wildlife refuges.


I am always very cautious about using the words "impossible" and "never." However, I am very confident in saying that any future annual U.S. natural gas consumption rate of more than 50 tcfy is implausible. I'm not convinced 30 tcfy is plausible, although the "industry" seems to believe it is achievable. This is particularly true if the best prospects for future development cannot be pursued because of federal or state restrictions.


I am of the opinion that there is really no "natural gas industry," in the sense that the companies in the industry work together as an industry to accomplish common goals. The recent run-up in the wellhead price of natural gas and the projected short to medium-term natural gas supply shortages would tend to confirm this analysis.


I am very concerned that what passes for planning regarding energy in the U.S. is neither strategic nor serious. Arguably, it could be referred to as "stragedic" planning (strategic planning for a tragedy). The discussions of the CAEM Infrastructure Forum ( indicate that private investment in the U.S. energy industry is going to be very difficult to achieve, especially for electric generation and transmission (even assuming that the new generators will be relatively low cost CCT plants, rather than higher cost Integrated Gasifier Combined Cycle, or IGCC, coal-fueled plants or nukes). Investment in major expansion of the natural gas transmission infrastructure to serve low margin, interruptible electric generation customers will also be hard to fund.


Far too much of the discussion regarding the energy future of the U.S. is focused on "silver bullet" solutions to our energy problems. Our future energy supply portfolio must include more than a single source of energy, or we will be at far greater risk of energy shortages than is the case today.


The author is president of Fire to Ice, Inc.


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