With the spread of horizontal drilling and hydraulic fracturing, global gas production has reached the highest levels ever. Who is producing all this gas? And where is it being consumed? It’s time to consult an expert.
Transcript
Gas Production and Consumption – Jim Ladlee – Penn State
Global gas production. It’s not widely known by Americans that the U.S. is a world leader in natural gas production, followed closely by Russia. We bounce back and forth as leaders from time to time. Iran, who’s number three actually shares access with Qatar to the largest known gas field in the world, but they aren’t producing a lot of that right now.
The top ten gas producers are a more diverse group of nations than the top ten oil producers. There is representation in this group from Asia, the Middle East, Northern Africa, Europe and North America.
All of these leading gas-producing countries are producing more than they need so they compete in the gas export market – to some extent – so once again it’s evident that all of our economies are interconnected in a global web.
So who’s using all this gas that’s being produced?
Here again, the U.S. is the world’s largest consumer. From an economic perspective, we probably want to keep on eye on China. They’ve been climbing the charts lately.
And what are we using this gas for? In the United States, the bulk of natural gas is used in four sectors: electrical power generation, residential and commercial heating and cooking, the broad category of industry and mass transit.
About 35 percent of natural gas is used for electrical generation, which generally means it’s firing steam turbines in large centralized power plants. Industry is using 30 percent of the supply in their efforts to produce things like steel, plastic, glass and all kinds of other things. On the residential end, there are over 60 million natural gas customers in the United States. These are individual households using it to heat their homes and water and dry their clothes and cook with gas stoves. When it comes to mass transit, there are over 130,000 city buses and other fleet vehicles in the U.S. running on natural gas now.
Lately, all of these sectors have been moving toward natural gas. Buses have been switching from diesel and gasoline. Power plants have been switching from coal (for a number of reasons). Even those individual households I mentioned have been converting furnaces from home heating oil to natural gas.
Why the switch? Availability, price and policy. Like with almost everything, price is a huge influence, of course, but public policy related to carbon pollution has nudged many, especially those involved in power generation, to make the switch. There is also a move afoot by some individuals and businesses to take strides to reduce their carbon footprints.
Whatever the cause, all of this fuel-switching has reversed a trend of gradually falling natural gas use in the United States.
The Energy Information Administration, which tracks and forecasts these trends, projects that natural gas is going to continue to play a very important role in all of these sectors for years to come.
Let’s take a closer look at some examples of natural gas production and consumption from around the globe. The United States is the largest consumer of gas; the country also produces all of the natural gas it consumes. Significant production from the shale revolution in states like Texas and Pennsylvania, as well as production from Oklahoma, Louisiana and Ohio, contribute to this scenario.
Europe is also a large consumer of natural gas, however, their dependency rate is greater than 50%. This dependency rate reflects the extent to which a country relies on imports to meet its energy consumption needs. In 2018, almost three quarters of the EU’s imports of natural gas came from Russia (40%), Norway (18%) and Algeria (11 %).1Eurostat, the statistical office of the European Union. 2020, Shedding light on energy in the EU – A guided tour of energy statistics, http://ec.europa.eu/eurostat/cache/infographs/energy/(accessed: 8/19/2020). These statistics are compatible with the graph where you can see that Russia, Norway and Africa have a surplus of natural gas production to export.
Interestingly, Iran has some of the world’s largest reserves of natural gas, but nuclear sanctions have resulted in a lack of investment in Iran’s natural gas over the years. Iran uses its natural gas as a primary source for electricity generation. Canada relies economically on exports of some of its natural gas production, but with exports to the United States declining over the years, Canada is now looking to eastern markets such as Japan and southeast Asia to buy their product. Potential future exports to these countries have created interest in constructing liquefied natural gas (LNG) export terminals along Canada’s west coast.2Canadian Association of Petroleum Producers. 2020, Markets, https://www.capp.ca/energy/markets/ (accessed: 8/19/2020).
You’ll notice from the graph that Australia produces almost three times the natural gas that it consumes. In 2019, Australia became the largest LNG exporter in the world.3The Canberra Times. 2020, Australia becomes the largest liquefied natural gas exporter in the world, https://www.canberratimes.com.au/story/6568957/australia-now-the-worlds-largest-natural-gas-exporter/?cs=14231 (accessed: 8/19/2020). Most of Australia’s LNG is exported to Japan, China, and South Korea.4U.S. Energy Information Administration. 2019, Australia is on track to become world’s largest LNG exporter, https://www.eia.gov/todayinenergy/detail.php?id=40853# (accessed: 8/19/2020). And you can see that although India is a rising energy consumer, it produces and consumes very little natural gas. Recently, India has researched the potential of methane hydrates in its offshore areas as a future source of natural gas. This form of methane, enclosed in frozen water, is found in shallow sediments off continental margins, such as India. Significant technological advances are needed to fully develop these methane hydrate resources around the world.
Natural Gas Pricing and LNG Development
Because oil is relatively easy to transport by train and ship as well as to deliver to refineries by pipeline, oil prices are determined by the global market. If prices are high in one place, they are likely to be high worldwide.
In contrast to oil, natural gas is mainly transported through pipelines. It can be especially challenging to move gas across national borders due to political and economic conditions, and transoceanic pipelines don’t currently exist. Because of these influences, prices are largely based on supply and demand within local markets rather than on global supply and demand. The localized nature of natural gas pricing plays a major role in the current United States gas boom. For example, it is cheaper in many places in the United States to buy natural gas locally rather than import it from Canada.
The high cost and logistics of transporting natural gas have hindered natural gas trade in the past and helped to keep regional markets isolated. However, rising global demand for natural gas has led to an increase in shipping LNG exports. Once converted to LNG, natural gas can be shipped by specially designed cryogenic tankers at a temperature of −265°F (−160°C). The volume of gas shrinks by a factor of approximately 600 and facilitates economic transportation over long distances.5PetroWiki. 2018, Liquified natural gas (LNG), https://petrowiki.org/Liquified_natural_gas_(LNG) (accessed: 8/19/2020). The rise of LNG development explains the natural gas trends we see for Australia, and the interest previously mentioned in developing a robust LNG export business in Canada to serve countries in Asia.
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Images: “Fire” by photo-nomad via iStock