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Natural Gas 101

What is natural gas?

Natural gas is primarily methane—a compound comprised of one carbon atom and four hydrogen atoms. Natural gas also contains small amounts of hydrocarbon gas liquids (such as propane and ethane) and non-hydrocarbon gases (such as carbon dioxide). Learn More.

What is liquefied natural gas (LNG)?

LNG is natural gas that has been purified (removing the hydrocarbon liquids and non-hydrocarbon gases) and chilled to -260°F (-162 °C). The resulting liquid is only 1/600 the volume of natural gas, which makes it economically practical to transport LNG over long distances. Learn More.

How did natural gas form?

Millions of years ago, the remains of plants and animals (diatoms) decayed and built up in thick layers, sometimes mixed with sand and silt. Over time, these layers were buried under sand, silt, and rock. Pressure and heat changed some of this organic material into coal, some into petroleum, and some into natural gas. In some places, the natural gas moved into large cracks and spaces between layers of overlying rock. In other places, natural gas occurs in the tiny spaces within some formations of shale, sandstone, and other types of sedimentary rock, where it is referred to as shale gas or tight gas. Natural gas also occurs in coal deposits, which is called coalbed methane. (Source: EIA Natural Gas)

What are the uses of natural gas?

One of the world’s most versatile substances, natural gas is burned to heat homes and run highly-efficient electrical powerplants. It is used as a feedstock in the manufacture of chemicals and fertilizers. And, it can also replace diesel and bunker fuel to power trucks, locomotives, and even the largest seagoing vessels. Natural gas is clean, abundant, and affordable. Learn More.

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If natural gas is so useful, why export it?

America produces more natural gas than we consume. This situation will continue indefinitely. Exporting a fraction of our gas surplus creates hundreds of thousands of U.S. jobs and generates billions of dollars of economic activity. Such exports will increase the energy security of America’s allies and improve human and environmental conditions worldwide. U.S. LNG is especially useful in nations where it can displace coal and/or fuel oil and thereby reduce conventional air pollutants and greenhouse gases.

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U.S. Natural Gas Resources

Who estimates natural gas supplies?

Two U.S. government agencies—the U.S. Geological Survey (USGS) and the U.S. Energy Information Agency (EIA) have shared responsibility. USGS is responsible for evaluation and projections of the various gas fields. They perform their own surveys—including seismic surveys—of potential gas resources and combine that with industry information to make long-term assessments of gas resources. EIA provides a wealth of information including short-term assessments of both gas supply and demand. Both USGS and EIA provide information at the national and gas formation levels.

What is the difference between “resources” and “reserves”?

“Proved Reserves” are oil and gas reserves where the quality of the reserves have been proven by wells being drilled and oil and gas produced. “Resources” are oil and gas that has been determined by geologic studies to be available for production. “Economically Recoverable Resources” can be produced profitably with current technology and costs. “Technically Recoverable Resources” can be produced with current technology, but not necessarily cost-effectively. When “Resources” is discussed without further definition it is typically “Economically Recoverable Resources” which are being discussed. While this may sound confusing, the chart below is illustrative of the concepts:

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What is the current estimate of U.S. natural gas “resources”?

Since the shale revolution started around 2007, U.S. natural gas resources have more than doubled from a little under 1,600 trillion cubic feet (Tcf) to a little under 3,200 Tcf. Currently the U.S. consumes roughly 25 Tcf per year, thus the often quoted statement that the United States has over 100 years of natural gas resources.

What is the current estimate of U.S. natural gas “reserves”?

This is a misleading question for the United States. To prove reserves wells have to be drilled and significant expense incurred. U.S. oil and gas producers tend to keep about 10 years of proven reserves on hand. As proven reserves are produced each year, U.S. oil and gas producers drill exploratory wells in unproven areas and replenish their proven reserves. This is primarily driven by the financial markets which desire companies to maintain 10 years of proven reserves, but don’t reward them for having more than that.

What is the current estimate of the “future supply of natural gas”?

The Potential Gas Committee’s latest biennial assessment of the nation’s natural gas resources (July 2017) indicates “Technically Recoverable Resources” of 2,817 trillion cubic feet (Tcf) as of year-end 2016. When added to the EIA’s 341 Tcf of estimated proven gas reserves (also as of year-end 2016), the “Future Supply of Natural Gas” is now estimated to be 3,158 Tcf.

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U.S. Natural Gas Production and Domestic Consumption

How much natural gas is produced currently?

U.S. natural gas production is reported monthly by the EIA. It is rapidly approaching 80 billion cubic feet (Bcf) per day. Total natural gas production in 2017 was approximately 28.8 Tcf (trillion cubic feet). Prior to the shale revolution—generally credited as starting in 2007—minimal natural gas production came from shale fields. Now shale is the source of over 60% of U.S. production, with just three fields (Marcellus, Utica, and Permian) producing a total of nearly three fifths (23 Bcf/day) of all U.S. shale gas. 

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How much natural gas might be produced in the future?

What are the current levels of domestic consumption by sector?

How much natural gas might be consumed by those sectors in the future?

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U.S. Natural Gas Exports

How much natural gas is exported by pipeline currently?

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How much natural gas is exported as LNG currently?

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Which nations are consuming U.S. LNG at present?

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How much natural gas might be exported in the future?

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Will such exports harm U.S. natural gas consumers?

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Global Natural Gas Supply and Demand

How much natural gas is produced and consumed worldwide?

Natural gas is an increasingly important source of energy. Globally 22% of energy came from natural gas in 2017. That compares to 32% from crude oil and 27% from coal. It is increasingly consumed in all parts of the world with ~3,500 billion cubic meters (bcm) consumed in 2017 (or ~125 trillion cubic feet).

Which nations produce more natural gas than they consume?

The world’s largest natural gas exporters include Russia, Qatar, Norway, Australia, and the United States. Canada also has huge resources and production capacity, but lacks export capacity (beyond pipelines to the United States). Currently the United States exports more gas by pipeline than it does by LNG. The same is true of Russia and Norway, while Qatar and Australia both predominantly export natural gas as LNG. Iran also has huge natural gas resources, but global sanctions have kept it from commercializing their resources.

Which nations consume more natural gas than they produce?

Most of the countries of the world import some natural gas, either by pipeline or LNG. And many countries both import and export natural gas. One surprising example is Canada. It has huge natural gas resources, and yet just north of Detroit a large pipeline feeds natural gas from the United States to Canada’s Dawn facility. Overall, European Union (EU) nations import large quantities of natural gas, as do the Asian countries. For geographic reasons, the EU nations currently meet most of their natural gas import needs by pipelines from Russia, while over 50% of the world’s LNG supply ends up in Asia.

How is global gas supply and demand expected to change in the future?

Natural gas has been referred to as a “bridge fuel” as the world moves from coal to renewable fuel sources. More recently analysts are acknowledging renewable energy sources need to be paired with a highly-flexible energy source. That has meant for every gigawatt (GW) of wind or solar capacity added to regional power grids a corresponding GW of natural gas-fueled power turbines has been added. The end result is a rapid increase in natural gas consumption globally, and in China in particular.

Major natural gas fields continue to be discovered and new countries enter the field of natural gas suppliers routinely. One recent example is the large gas resources found in the territorial waters of Cyprus, Egypt, and Israel. On the other side of the coin, natural gas production from Norway and Trinidad is expected to decline over the next decade. Overall, there is little doubt Russia, Qatar, Australia, and the United States will be major natural gas providers for decades to come.

How much global demand could be met by U.S. LNG?

The United States has 23.5 mtpa (million tons per annum) of LNG export capacity as of Q2 2018, or about 8% of global supply. By the start of 2020 that is expected to be ~65 mtpa, or about 16% of 2020’s global supply. But that is only expected to require 10 billion cubic feet (Bcf) per day of U.S. natural gas feedstock. Considering the U.S. is producing close to 80 Bcf/day of natural gas supply, the United States is not constrained by supply as to the amount of LNG it can produce and export.

Which LNG-producing nations are our principal competitors?

The world’s top eight LNG exporters in 2017 were: Qatar, Australia, Malaysia, Nigeria, Indonesia, Algeria, Russia, and Trinidad. Qatar, Australia, and Russia either have additional capacity under construction or have announced plans to continue expanding the capacity. It is expected that Australia will exceed Qatar’s LNG exports in 2020. Russia’s first LNG train at Yamal began operating in late 2017. The second and third trains are expected to enter service by the end of 2019. Perhaps surprisingly, by 2020 the United States is expected to be the world’s third largest exporter of LNG behind only Qatar and Australia.

The U.S. LNG Export Industry

How many U.S. LNG export projects are there?

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Which LNG export projects are operating currently?

LNG is exported both on huge LNG tankers that hold roughly 20 million gallons each and via ISO containers which hold roughly 12,000 gallons. Focusing solely on facilities exporting by tanker: Cheniere Energy’s Sabine Pass Liquefaction has four fully operational LNG trains; Dominion Energy Cove Point LNG has one train which is in the commissioning process and is expected to be fully operational in Q2 2018. Each of the five trains can produce roughly 100 million gallons of LNG per month.

Which LNG export projects are under construction?

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Which LNG export projects are authorized but not yet under construction?

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Which LNG export projects are under regulatory review?

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Domestic Economic Benefits of U.S. LNG Exports

How many jobs are created/sustained by the U.S. LNG export industry?

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What are the other economic benefits of U.S. LNG exports?

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Domestic Impacts of U.S. LNG Exports (Negligible!)

Are LNG exports harming industrial or other domestic gas consumers?

LNG feed gas supply is currently less than 4 billion cubic feet (bcf) per day. Significantly this demand is driving pipeline construction and reversals. The Leach/Rayne pipeline is a prime example. This pipeline started bringing natural gas from the Marcellus and Utica fields south to Henry Hub in early 2018. A new pipeline from the Marcellus field to Cove Point will bring feed gas to that export terminal. Cheniere and Tellurian have both announced plans to build pipelines directly to low-cost natural gas producing areas. The U.S. natural gas industry has been fully able to provide the LNG industry with feed gas supply and pipeline transport capability without causing increases in domestic U.S. natural gas prices.

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Will LNG exports raise domestic gas prices?

Since 2007, U.S. natural gas production has increased ~50%. The U.S. reference natural gas price is mostly widely quoted as the Henry Hub (HH) price. As production has increased HH natural gas prices have fallen as domestic supply has grown to fully meet U.S domestic demand. Now that the United States is no longer a natural gas importer, future natural gas prices should be tied to production costs of dry gas. Given that the United States has 100 year supply of natural gas resources, there is no shortage of domestic gas, but HH prices will have to cover full lifecycle cost of exploration and production of dry gas.

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Will LNG exports exhaust the U.S. natural gas supply?

By 2020 all under construction U.S. LNG trains will be operational and U.S. LNG exports are expected to be ~10 bcf/day (about 3.5 tcf for the year). U.S. resources at this time are ~3,200 Tcf. Thus 2020 LNG exports are at a rate of about 1% of natural gas resources per decade. Further, U.S. natural gas resources continue to expand, thus U.S. LNG exports are negligible when evaluating the long term health of the U.S. natural gas supply.

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Why do the largest industrial energy consumers continue to fight LNG exports?

Natural gas is a classic supply and demand market. With lower demand, prices will be lower. With higher demand, prices are higher, pipelines are run at higher levels, etc. One specific example is the U.S. Gulf Coast. There are a large number of chemical plants which use natural gas as a feedstock. As the Appalachian region gets better connected to the U.S. Northeast there should be less and less demand for Gulf Coast gas. In the absence of LNG exports that would cause the cost of natural gas to drop significantly since much of it is produced as associated gas and thus is a byproduct of oil production. LNG exports pulling 10 bcf/day of natural gas feedgas in 2020 is offsetting the drop in demand and is keeping the value of Gulf Coast natural gas relatively elevated ($2.50-$3.00/mmbtu in the summer).

Do U.S. LNG export projects harm the environment?

Globally coal and residual fuel oil (RFO) are a major source of fuel for electricity generation. Both are extremely dirty and polluting fuel sources. RFO is the dirtiest, most polluting product produced by oil refineries as it is effectively a waste product left after the valuable distillates—such as gasoline and diesel—are refined from crude oil. RFO is not significantly used in the United States or EU, but globally about 10% of crude oil is consumed as RFO, and almost half of global RFO consumption is for power generation.

The U.S. produced about 60% of its electricity from coal in 2007 along with the corresponding pollution. Since 2007, U.S. production of electricity from coal has dropped by almost half to around 30%. Much of that was caused by a conversion to using natural gas-fueled power plants. Due to the conversion from coal to gas powerplants, the United States has seen a significant drop in pollution emitted from powerplants. And, if the global community follows the U.S. example, readily available natural gas is required and that in turn means increasing availability of LNG.

Global Environmental Benefits of U.S. LNG Exports

Why do we need natural gas in an era of “renewables”?

Many argue electricity from renewables, such as solar and wind, have the potential to replace part of the current coal and RFS power production resources. Historically the highly variable nature of wind and solar mean that every gigawatt (GW) of solar/wind capacity put in place requires a GW of natural gas power production capacity be put in place. Natural gas production facilities are used because nuclear and coal power plants are not flexible enough to make the highly dynamic generation changes required to pair with solar/wind facilities. Thus, natural gas powerplants will be a major component of any global effort to reduce usage of coal for power generation.

Can U.S. LNG exports reduce conventional air pollutants?

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Can U.S. LNG exports reduced carbon dioxide emissions?

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What are the “lifecycle” costs/benefits of U.S. LNG exports?

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Geostrategic Advantages of U.S. LNG Exports

How can U.S. LNG exports improve the energy security of our allies?

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Can U.S. LNG compete with “pipeline” gas?

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What are the other geostrategic advantages of America’s new energy abundance?

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