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Fueling the future with natural gas: Part 1

Hydrocarbon Engineering,

According to a new report from IHS titled Fueling the future with natural gas: Bringing it home, low natural gas prices resulting from the development of unconventional gas resources in North America will hold for the long term, creating opportunities to expand the economic benefits and cost savings to consumers through greater direct natural gas use. The report also says that increased use of natural gas has the potential to contribute to energy efficiency and emissions reduction goals.

Saving $$$

Until  2035, the report expects the Henry Hub price of natural gas to remain in the US$ 4 – 5 /million btu range. Approximately 900 trillion ft3 of unconventional gas resources can be produced economically at a Henry Hub price of US$ 4 /thousand m3 or less, which is nearly one third of the total recoverable resource base. This means that the North American natural gas resource base can accommodate significant increases in demand without requiring a significantly higher price to elicit new supply.

Over recent years, price disparity has arisen between natural gas and other energy sources, and this is expected to persist. For the next 20 years, heating oil price in the US are expected to be twice as high as residential natural gas rates and residential electricity rates are expected to remain 3.5 times higher. The sizeable price disparities create opportunities to increase natural gas use by replacing existing electric and oil appliances as well as adding new customers through the expansion of gas distribution systems.

The study has measured the capital and operating costs of space heating, water heating and air conditioning across 11 different US regions, and has found that consumer costs are significantly lower when natural gas is used for space and water heat. The average savings, on a net present value basis over 15 years, for a gas heated home relative to an all electric home across the 11 regions is US$ 5731.

Green benefits

In addition to the potential cost benefits, substituting natural gas consumption for other fuels can achieve significant gains in energy efficiency and reductions in GHG emissions, according to the study. The full fuel cycle efficiency of natural gas is favourable for applications such as space and water heating and for cooking. Natural gas use also provides the lowest proportion of GHG emissions to energy of energy fossil fuel. When generating electricity, natural gas emits as much as 50% less CO2 than coal. Natural gas use results in negligible emissions of sulfur dioxide, nitrous oxides, mercury and particulates compared with other fuels.

It is also observed by IHS that there have already been positive responses to new natural gas supply and price outlooks in the form of accelerated conversion from heating oil to natural gas. New York City is an example of a location currently in the midst of a large scale conversion from fuel oil use to natural gas use. Gas local distribution companies (LDCs) in Maine are expanding their systems to deliver natural gas into sparsely populated areas serving paper mills and using the industrial demand to provide a base level of support for the infrastructure to connect residential and commercial customers along the way.

Challenges facing natural gas

Challenges to greater natural gas use do remain, such as the upfront costs for natural gas conversion and existing regulatory frameworks that can discourage economic natural gas projects. The natural gas advantage is realised over time as lower fuel costs gradually overcome the higher initial costs. Many potential customers do not have the means to finance a conversion from gas and many are reluctant to do so, especially if their appliances do not need immediate replacement. New policies and regulations may be advisable to assure that high upfront costs do not deter consumers from making prudent fuel choices.

The study also observes that many existing regulatory frameworks were developed in the past when natural gas was considered a scarce resource whose use should be discouraged. As a result, economic tests and criteria required for natural gas expansion often pose obstacles to system expansions that are in fact economic. State governments, public utility commissions and gas LDCs should consider adopting policies that take into account full fuel cycle energy efficiency and emissions performance and full life cycle costs.

For more details on the findings in this report please click here

Adapted from a press release by Claira Lloyd.

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