District Energy - 2008 Third Quarter

Figure 2. U.S. Natural Gas Well Count vs. Domestic Production. Well count has steadily increased while domestic pro-duction is arguably in decline.

Data from Information Administration. Graphics by Woolpert Inc.

an increase in domestic production (see fig. 2). The number of domestic gas wells increased 71 percent from 1989 (262,000) to 2006 (449,000). During the same period, annual production rose only 10. 2 percent – from 17. 31 TCF to 19.08 TCF. In fact, some experts argue that the United States has already achieved peak domestic production and that the production rates from here forward will decline.

gas pipeline appears no more imminent.

Imports Flat

Pipeline imports of natural gas are not increasing fast enough to meet the demand. Pipeline imports have flattened since about 2000 (see fig. 3). (Imports increased just 4 percent between 2006 and 2007, and 2007’s import figures were about the same as 2005.) One can reasonably expect this trend to continue and possibly go into decline. Why? One reason is the consumption of large quantities of energy in the exploitation of Alberta oil sands. The most readily available form of this energy is – you guessed it – natural gas. And it is natural gas that would otherwise likely be imported to the United States. Remember, of the total North American proven reserves of 280 TCF, 210 TCF belong to the United States. How far can Canada be expected to stretch 70 TCF?

In addition to the pressure from oil sands exploitation, new pipeline projects from northwestern Canada are in litigation and it is uncertain if or when they may be constructed. An Alaska natural

Why Liquefied Natural
Gas Isn’t the Answer

Some see our salvation in the importation of liquefied natural gas. However, the liquefaction process is itself energy intensive, as well as expensive, and it requires tremendous heat rejection. Here is a brief overview of the supply chain. Natural gas is piped from the wellhead to a liquefaction facility located near an export shipping terminal. The LNG is liquefied and then loaded aboard specialized transport ships, which sail to import/ regasification terminals. The LNG is

regasified and introduced into the pipeline dis-tribution network. The least expensive component in the LNG supply chain is regasification capacity because regasification can be achieved via heat transfer with seawater. In fact, global regasification capacity goes to the highest bidder.

Today, LNG represents just 3 percent of total consumption in the United States (see fig. 3). The United States’ capacity to import LNG doubled from 3 billion cu ft (BCF) per day to 6 BCF per day from 2004 to 2006. However, actual annual LNG imports decreased from 652 BCF to 584 BCF over the same time frame. The reason is that spot-market LNG is significantly more expensive than natural gas that is domestically produced or imported via pipeline. U.S. regasification capacity is set to more than double again to 14 BCF per day by the end of 2008. Will this new capacity be any better utilized? It's anybody's guess, but just because you build it does not mean they will come.

Meanwhile, natural gas consumption in the Pacific Rim grew by more than 7 percent in 2006. China's annual consumption grew 21 percent each year from 2004 to 2006. In fact, 29 new import terminals are scheduled to be constructed in the Pacific Rim by 2012 at an expenditure of more than $9 billion. How many of those terminals are scheduled for the United States? Not one.