Natural Gas a Player in Alternative Landscape
The nation's largest natural gas producer discusses the 'ocean' of untapped product available in North America.
Last summer's spike in gasoline prices set the stage for an interesting debate. Texas oilman T. Boone Pickens emerged as a spokesman for the renewable power of wind and set forth a rather revolutionary plan to produce 20 percent of the nation's electrical demand with wind power, moving natural gas from its traditional role as an electrical generator to use as a vehicle fuel. The nation's largest natural gas provider, Chesapeake Energy, jumped on the bandwagon with its own plan to mobilize citizens to call for vehicles powered by compressed natural gas.
Although many supporters of renewable energy heralded Pickens' idea of expanding the nation's wind energy source, they were skeptical of the use of natural gas as a vehicle fuel. Some, such as Jonathan Dorn of the Earth Policy Institute, contend electric vehicles can provide transportation for up to 70 percent of the nation's needs and natural gas is best kept as a fuel for combined cycle power plants.
Chesapeake counters that there is enough natural gas for both CNG-fueled cars and power plants. It is relying, in part, on supply numbers from a 2008 study by Navigant Consulting, an international firm that focuses on providing services to industries undergoing substantial regulatory or structural change. The report was prepared for the American Clean Skies Foundation.
Miller-McCune.com interviewed Tom Price, Jr., Chesapeake Energy's senior vice president of corporate development and one of the company's original employees. He is a director of the Oklahoma Independent Petroleum Association, the Texas Oil and Gas Association, and the New Mexico Oil and Gas Association and was recently named to the board of the Natural Gas Vehicles Association.
Miller-McCune.com: We've been looking at the various plans that are being presented to wean our country off foreign oil. You fall among the supporters of T. Boone Pickens' plan. Can you tell me briefly why you think this is the best way to fuel America's vehicle fleet?
Tom Price Jr.: The keystone of the Pickens Plan is to install enormous arrays of wind turbines to manufacture electricity instead of using natural gas to generate those megawatts. Then, the natural gas saved would be used instead to fuel transportation.
We don't believe it is realistic for natural gas to completely replace other fuels and technologies, but we do believe it makes sense to make a dent in our demand for imported oil by more fully utilizing this abundant, clean and North American energy source.
Some may see the issue of helping to free our country from the economic and environmental grip of imported oil as some sort of a "battle," or an all-or-nothing competition among plans. Nothing could be further from reality. At Chesapeake, we are all for solar, wind, hybrids, plug-ins and conservation and believe that no solution to America's energy crisis is mutually exclusive as long as it reduces our reliance on foreign sources of oil and improves the environment and the U.S. economy.
M-M: You say you don't believe it is realistic that natural gas replace other fuels and technologies, yet it seems the Pickens Plan does that in taking natural gas away from electrical generation to fuel automobiles. Are we missing something here?
TP: As we understand the plan, large-scale wind generation would create sufficient electricity to free up the natural gas that would have been required to generate these new megawatts – not divert gas from is traditional role. There are sufficient natural gas reserves for this fuel to serve its traditional role in power generation while also fueling a percentage of our transportation needs.
M-M: A possible stumbling block to the plan is that estimates put forth of proven reserves of natural gas by the U.S. Energy Information Administration indicate we could end up importing a substantial amount of natural gas within a decade. How can we be sure there will be adequate supplies?
TP: Concerns about adequate supply may have been true five years ago, but it is contrary to today's reality. Government reporting of energy reserve information often lags with the real-time information that is available to the industry.
For instance, less than a year ago, our industry discovered the Haynesville Shale in northwest Louisiana. This natural gas field alone could produce 250 trillion cubic feet — enough to supply the entire U.S. for 10 years at current demand. In the Northeast, the Marcellus Shale, while much newer in its development, could be even larger. These are only two of more than 20 potential gas shale areas in North America.
M-M: So we're talking largely here about gas shale production?
TP: Yes. New technology and better science have rejuvenated millions of acres of North American land that had previous been thought to be fallow or uneconomic for natural gas production. This has all happened in the past few years.
As a result, after 25 years, the U.S. Securities and Exchange Commission is adopting new rules that will recognize advancements in technology and the growing abundance of shale gas, allowing public energy companies to book enormously higher reserves in the very near future. Of all the possible reasons to be against the use of natural gas, the notion of scarcity is the most specious.
In 2008, the U.S. natural gas industry increased production by 11 percent while demand grew by 3.4 percent, which in part led to the current price collapse of natural gas. Significant over-supply that persists today is due in large part to the industry's success in finding new reserves, and we believe the likelihood of America needing to import natural gas from anywhere but Canada is remote for the foreseeable future.
M-M: Is that assuming that natural gas is no longer used to power electrical generating plants?
TP: No. We expect the role of natural gas in power generation to grow as greater restrictions are placed on carbon-heavy fuels. As I said, the industry has already demonstrated it can deliver increases in supply that are several times the demand growth. This is not a theoretical statement. We did it in 2008.
Converting 10 (million) to 15 million, plus or minus 5 percent, of America's 250 million vehicles to natural gas would increase demand by only 4 percent, well within the industry's demonstrated capability to deliver supply.
M-M: Most critics of your approach say unconventional sources are too costly to get at and also come with high environmental costs. Are you aware of New York's Department of Environment Protection going on record against drilling for natural gas in the Marcellus Shale formation, saying there could be a threat of contamination to New York's main source of drinking water? Aren't there significant costs associated with getting to these unconventional supplies?
TP: There is no scientific evidence that drinking water contamination ever has happened, or is likely to happen, due to drilling for natural gas in deep shale formations, and we are working with regulators in New York to give them confidence that exploration for natural gas is relatively benign to the environment.
There has been some recent erroneous reporting by agenda-driven, Web-based media involving an EPA study related to natural gas extracted from shallow coal seam beds, which is a completely different process than exploring for natural gas in layers of shale rock miles beneath the earth's surface.
There are significant costs in developing any form of energy, but natural gas has been and continues to be very cost-competitive when "all in" costs are fairly calculated. For instance, most people don't know that every gallon of crop ethanol requires more than a gallon of energy to produce. There are many more examples.
M-M: It would seem that your company would gain from an economy where natural gas is as central to our national economy as oil as been. What do you say to people who claim your plan is mainly based on your company's bottom line?
TP: What industry does not seek to create demand for its product, especially if it is superior to competing products? Using natural gas also is good for America. It's clean, it's abundant, it's affordable and it's American, and it is the only immediately available alternative to foreign oil. Increased use of natural gas would be good for our industry, sure, but it would also be very good for America.
As America's largest producer of natural gas and its most active explorer, we happen to be much more familiar than most about the plentiful supply of this affordable American fuel. We also know of its environmental benefits. And, it has the shortest time to scale up to respond to our nation's needs for a lower CO2 emitting fuel while also keeping our dollars at home rather than exporting them to unreliable, and sometimes unfriendly, countries. We think both producers and consumers will be winners. That's why we are proud to be in this industry and proud to produce the fuel we do.
M-M: Have you done an analysis of what it would cost to retrofit gas stations in the U.S. to provide for CNG distribution?
TP: Since we are not a retail company, this question would be better answered by a company called Clean Energy. However, 70 percent of America already is served by natural gas pipelines, so in most instances the cost, with appropriate tax incentives, would be manageable.
There has been too much focus in this discussion on passenger vehicles. Heavy fleet vehicles that park at their home bases at night — such as delivery trucks, buses, taxis, mail vans — where they could be refueled at night from a single point — would be the ideal place to start.
We think plug-in vehicles are great, but batteries alone cannot deliver the heavy-hauling transportation capability to power the U.S. economy.
M-M: Some figures show the cost to charge an electric vehicle and drive it for 30 miles is about 73 cents, compared to the cost of about $2.51 for natural gas (July estimates). Why would we want to retool our vehicle fleet with natural gas when we could use it to create electricity and run our cars with a cleaner source of energy?
TP: A true comparison should calculate the all-in cost of producing fuel, whether it's electric power, gasoline, diesel or natural gas.
There is a calculation for energy production for transportation called "well to wheels," which provides an apples-to-apples comparison for the cost of delivering one British thermal unit of energy for transportation. Along the spectrum, natural gas is the least expensive and electricity is the most expensive for transportation.
Whether you use natural gas directly through CNG vehicles or indirectly by providing natural gas for the generation of electricity — the cleanest fuel source that could scale up quickly — for plug-in hybrids, you will find U.S. natural gas will be the lowest CO2 emitter and most affordable fuel.
M-M: Some are saying the best, most efficient use for natural gas is in a combined cycle power plant, not in an automobile. How do you respond to those arguments?
TP: Using natural gas in a combined-cycle power plant is very efficient and, as I just mentioned, using it as a transportation fuel is very efficient as well.
M-M: The Navigant study shows natural gas availability, drawing from unconventional sources, mainly gas shale, for 88 years or more. What is the rate of use associated with that figure?
TP: The Navigant study assumes the anticipated rate of consumption over the period and the current mix of demand. Natural gas currently generates just under 25 percent or our electricity, and we think demand in this area will grow as more strict carbon regulations are enacted.
Newer industry information suggests current reserves are more like 120 years, and that assumes (wrongly we believe) that our industry will not make any other improvements in technology that we have seen over the past five years — improvements which have resulted in our industry finding an ocean of recoverable natural gas reserves, all onshore and all in North America.
This increase in natural gas reserve potential is so large, and the news of it is so new, few people have come to grips with the fact that we are sitting on an ocean of it.
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