What a Shale Gas Boom Means for our Future

Shale gas may be the key to providing a lower-cost, cleaner alternative to coal and petroleum. In fact, some proponents believe that such natural gas could be ideal for companies operating motor fleets.

In its recently released preliminary 2012 version of the Annual Energy Outlook, the United States Energy Information Administration (EIA) projects that U.S. natural gas consumption will remain at 25 percent of total energy consumption through 2035 (as illustrated below). Shale gas, however, will take up an increasing share of total natural gas production, growing from 23 percent in 2010 to 49 percent in 2035. During that period, the total volume of shale gas is forecast to grow from 5 trillion cubic feet to 13.6 trillion cubic feet.

Indeed, as time goes on, shale gas in particular promises to increase in importance for the U.S. energy market. Under its baseline scenario, the EIA says that new technologies associated with shale gas production, such as horizontal drilling and hydraulic fracturing, will help keep natural gas prices low, estimated at below $5 per thousand cubic feet through 2023, in 2010 dollars. As the industry begins to tap less-productive marginal resources after 2023, prices are estimated to rise to $6.52 per thousand cubic feet by 2035.

The recent decline in natural gas prices will result in a reduction in the cost of electrical generation in EIA's projections. Those costs drop from 9.8¢ per kilowatt hour (kWh) in 2010 to as low as 9.2¢ per kWh in 2019.

During the 2010-2035 period, the global energy outlook is similar to that of the U.S., within a few percentage points. The world as a whole will rely slightly more on coal than the U.S. and slightly less on natural gas and nuclear power. Over the aforementioned period, world natural gas consumption is expected to remain between 22 percent and 23 percent of total energy usage under the International Energy Agency's (IEA) baseline scenario. In what the IEA calls the "Golden Age of Gas" scenario, that percentage could climb to 25 percent.

As in the U.S., the new technologies for extracting shale gas, as well as other unconventional gas, are expected to keep gas prices low and very competitive on the world scene. The IEA forecasts prices could range from $3 to $7 per million Btu (MBtu) globally over the next two decades.

The following table shows the EIA's projections for world energy consumption by sector in 2020. These data compare the ways in which the chief energy-consuming sectors rely on fuel sources.

2020 World Energy Consumption by Sector (Quadrillion Btus)

(Data Source: U.S. Energy Information Agency)

Sector Liquids Natural Gas Coal Electricity Renewables Nuclear
Residential

9.1

(15.3%)

23.3

(39.2%)

4.6

(8.7%)

22.0

(37.0%)

0.4

(.7%)

Commercial

4.2

(12.1%)

9.6

(27.7%)

1.3

(3.8%)

19.3

(55.8%)

0.1

(.3%)

Industrial

59.2

(25.6%)

54.3

(23.5%)

64.5

(27.9%)

36.3

(15.7%)

17.2

(7.6%)

Transportation

114.6

(95.6%)

3.8

(3.2%)

0.1

(.1%)

1.2

(1.0%)

0.0

(0%)

Electric Power

8.6

(3.4%)

47.0

(18.6%)

94.0

(37.2%)

64.5

(25.5%)

38.9

(15.4%)

The next table shows how natural gas is used by the chief sectors in the U.S. The pie chart that follows then shows how this usage breaks down by percentage.

U.S. Natural Gas Consumption by Sector, 2020, Trillion cubit feet

(Data source: EIA)

Sector Natural Gas Consumption
Residential

4.82

Commercial

3.40

Industrial

7.23

Electric Power

7.89

Transportation

0.08

Total

23.42

In this sector breakdown, natural gas is used principally in the industrial and electric power sectors, each consuming about one-third of the total. The rest goes almost wholly into residential and commercial uses. Transportation represents only .3 percent of total U.S. natural gas consumption.

Many observers believe that transportation represents a tremendous untapped opportunity for natural gas in the U.S. For instance, in the IEA's "Golden Age of Gas" scenario, the U.S. would experience the greatest increase in demand for natural gas out of all developed countries, driven by the lower prices of unconventional sources such as shale gas. Describing the potential in the U.S., the IEA study states:

At nearly 790 bcm in 2035, gas demand is around 18 percent higher. This increase is driven by the power generation and transport sectors, causing coal demand to drop by around 9 percent and oil demand by around 6 percent in 2035, compared with the New Policies Scenario. In the power sector, lower gas prices prompt increased electricity demand and therefore higher capacity additions, but it also means that gas-fired generating capacity substitutes for the most inefficient coal-fired generating capacity. In the [Golden Age of Gas] Scenario, the share of coal in the electricity generation mix declines from 49 percent in 2008 to 30 percent in 2035, and gas increases from 21 percent in 2008 to 27 percent in 2035. In the transport sector, the increase in NGVs [natural gas vehicles] is driven initially by commercial fleet vehicles, such as buses.

This gas-oriented scenario hints at the more ambitious vision presented by financier T. Boone Pickens in his highly publicized Pickens Plan. Under Pickens' vision, the U.S. would use its vast reserves of natural gas to gain independence from foreign oil, while lowering the environmental impact.

The Pickens Plan could have deep implications for U.S. industry and business, particularly so when it comes to providing energy for transportation. Pickens calls for ambitious development of natural gas vehicles (NGVs), a technology that he describes as "off-the-shelf" for cars and trucks. Worldwide, more than 10 million NGVs are in operation, but the U.S. only has 130,000.

"Natural gas already has a tremendous advantage, particularly when used for trucks and fleet vehicles. Most trucking today is round-trip, one-tank routes," the group's website notes. "There are approximately 1.5 million miles of gas pipe and distribution lines crisscrossing the country, making natural gas available on nearly every street and community in America today."

The IEA suggests that vehicle fleet operators are in a good position to benefit from the easily available natural gas vehicle technology, combined with inexpensive shale gas. Pickens' website asserts that "any fleet operators - taxi cabs, utilities and express delivery firms, for example - whose vehicles go back to 'the barn' every night are candidates to be up-fitted to NGVs."

 

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