June 18, 2009

Back in Nas!

Natural gas is coming back! Nat-gas or Nas died out in the late '70s and now, as coal and oil prices increase, natural gas has attained a fair amount of attention for its cheapness and abundance. The commodity is also more efficient than coal. Sounds like a good deal, but is it really? Make up your mind for yourself, the below article provides some great info on Nas.

Calgary Herald
Natural gas to regain favour?
Peter Tertzakian
June 15, 2009

North America’s energy diet is ripe for a shift to a more secure, affordable and "lower carb" diet. As our society navigates through this energy health craze there is a unique opportunity for natural gas to regain its share of our energy appetite that it lost in the 1970s and ‘80s.

In 1971, natural gas held a 32% share of North America’s primary energy market. That was the glory year for gas, when its fraction of our energy appetite was at its peak. Then a big newcomer called nuclear started entering our power-hungry diet in a meaningful way and began whittling down the influence of natural gas in making electricity. In less than a decade natural gas lost seven percentage points of share. Then the oil price shocks in the 1970s curbed natural gas’ fortunes further when the Fuel Use Act of 1978 – president Jimmy Carter’s energy security legislation to conserve domestic U.S. oil and gas supplies – preferentially allowed coal and nukes to further bully gas out of the market, reducing its share to the low 20% range by 1985. Today, unchanged after 25 years, America’s energy diet still only contains 22% natural gas.

Let’s consider the US, which is the elephant consumer in the North American market. America’s total energy diet consists of the six primary groups: oil (37.3%), natural gas (24.0%), coal (22.8%), nuclear (8.5%), hydroelectric (2.5%), and a side dish of renewables (4.9%). Notably, the share of each source has been fairly constant since 1985.

There are two reasons that North America’s energy diet has been stable for almost three decades. For one thing, multi-trillions of dollars of infrastructure makes it very difficult to alter the supply patterns of an already-industrialized country. More simplistically, over the past three decades there hasn’t been a compelling need to change things up. But now the need for renewal is in the air. High on political agendas is the need to ensure future prosperity, promote environmental sustainability and maintain energy security. All three of these energy-rooted issues are exposed at the moment, so nations around the world, especially the United States, are busy re-evaluating their energy diets.

The energy source that has the most potential to gain meaningful market share in North America is natural gas. It’s scalable, proving itself to be abundant and affordable, and is by far the cleanest of the fossil fuels.

So, how much new demand is implied if natural gas can start taking market share away from our Ã’meat and potatoesÓ diet of oil and coal? First, recognize that stealing share away from coal in the power generation market is not a proportional dynamic; in other words, it’s not a straight one-for-one BTU swap at the source. That’s because generating electricity using a modern combined cycle gas-fired power plant is almost twice as efficient as the average coal plant. Put another way, on an energy basis you only need half as much natural gas as coal to generate the same amount of electricity. Accounting for differences in efficiency, and recognizing that the US consumes about 23 quadrillion BTUs of coal every year, the sensitivity of gas substitution is 1.4 Bcf/d for each 1% of market share taken away from coal. So regaining the 7% share gas lost in the 1970s and 80s would kindle 9.5 Bcf/d in new gas demand (or about 15% growth on today’s demand).

Natural gas is one-third the price of oil in today’s market is making people think about the possibilities. Recent policy moves are reminiscent of the 1970s when there was a serious desire to change things up. For example, the Louisiana House of Representatives recently passed a bill to give tax incentives to businesses and consumers to buy natural gas vehicles, or convert their gasoline engines over. On the infrastructure side there are incentives for fueling stations too. Other states, including South Carolina are coming on board too, and there is serious bipartisan movement afoot at the federal level with a bill called the NAT GAS Act (HR 1835), which is expected to be introduced to the US Senate soon.

North America’s energy diet is going to change over the next decade and natural gas has never looked more appealing on the menu.

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