WHY GAS HYDRATE?

A. Johnson
Hydrate Energy International, Kenner, LA 70065 USA

The consideration of gas hydrate as a resource must take place in the broader context of natural gas supply and demand. From one perspective, the pursuit of unconventional resources, including gas hydrate, is completely unnecessary. Worldwide the proven reserves of conventional gas are enormous – in excess of 6,000 TCF – and have doubled over the past 20 years. The current proven reserves represent 67 years of consumption. In addition, large new conventional discoveries are still being made. This leads to the question: Why Gas Hydrate?

In locations with large reserves and few consumers, natural gas is virtually a worthless byproduct of petroleum operations. Throughout the twentieth century large volumes of gas were flared or vented for lack of a viable market. While this practice is decreasing due to environmental considerations, nearly 10 BCF of gas continues to be flared or vented worldwide each day.

In contrast to the locations where natural gas has very little value, it is in short supply and relatively expensive elsewhere. Such disparities in price exist largely due to transportation issues. On a BTU basis, gas is harder to transport than oil, even through pipelines. Thus, even where pipelines exist, gas is typically priced lower than oil for the equivalent amount of energy in BTUs.

Where there are no pipelines connecting supply to demand, the economics of natural gas are far different from those of oil. Without pipelines, oil is still very easy to transport by ship. Transporting natural gas by ship requires its liquification (and then the regasification of the LNG at a receiving port). This is an expensive process, although with increased experience, the costs associated with the LNG process have dropped by more than 1/3 in the past 5 years. Indeed, many in industry see LNG as the solution to the natural gas needs of the industrial world. The expansion of LNG markets challenges the viability of unconventional gas resources.

The expansion of other conventional gas operations also impacts the future of unconventional resource development. For the United States, new pipelines from the Alaskan and Canadian Arctic and the expansion of infrastructure in the Rocky Mountains may significantly decrease the need for unconventional gas. The pipeline capacity for natural gas in the deepwater Gulf of Mexico is so constrained that the National Petroleum Council has reported that there will be no room for gas from hydrate for 20 years. These issues present a challenge to any unconventional gas resource. 

In spite of these obstacles, a realistic case can be made for unconventional gas, including gas hydrate. First, there is a growing gap in Canada and the United States between wellhead delivery and consumption. The combined gas production of the US and Canada appears to have peaked in 2002 and is declining at an annual rate of 6%. Meanwhile demand in the United States is increasing. The National Petroleum Council projects the demand to increase from the current 23 TCF/year to 30-34 TCF/year by 2025. In the EIA’s recent Energy Outlook, the expectation was for unconventional gas production to increase to 9.2 TCF/year in 2025, representing 43% of US production that year.

LNG will play an important role in filling the gap between supply and demand, yet an over-reliance on LNG raises a number of concerns as well. First, is the vulnerability of supply. Most of the large and growing conventional gas reserves available for export are in unstable regions – the Middle East, the former Soviet Union, Southeast Asia, and West Africa. The potential for supply disruptions is very large over the next 20 years. A second concern is the potential for supply disruptions at the regasification facilities, either due to accidents or terrorist attacks. Because there will be relatively few of these terminals, the loss of even one will have a significant impact on supply to customers. A third concern involves the number of LNG import terminals that are likely to be built, given site restrictions and public opposition. LNG imports may not be able to fill the gap between domestic production and demand.

The long-term prospect for natural gas in most of the industrialized world is for continued high prices. Even if gas from gas hydrate is more expensive than conventional production, the rate of return for investors has the potential to be excellent. This fact has made other unconventional gas resources viable. Tight gas sands and coalbed methane now account for 18% and 8% of U.S. gas production, respectively. To be a commercial resource, gas hydrate (as with any unconventional resource) will have to make economic sense to its stakeholders. Several issues need to be addressed:

• What is the commercial resource base for gas hydrate? That is, how much gas can be produced from hydrate through various extraction methods, and what are the flow rates? This issue includes many questions regarding the occurrence of gas hydrate in geological materials, including volumetrics, hydrate/sediment interactions, reservoir continuity, and the overall issue of gas hydrate as part of a petroleum system.
• What is the cost of finding, developing, and producing a gas hydrate deposit?
• What new technology must be developed for commercial gas hydrate production?
• What are the geologic hazards associated with gas hydrate development?
• What is the minimum natural gas price at which gas hydrate achieves commercial rates of return?

For now, we cannot answer these questions with any certainty. Addressing these questions should be the context for future research into gas hydrate as a resource.