Natural Gas (Introduction)

Gas takes off


This FactBook offers an introduction to the current and upcoming natural gas technologies available in the energy mix. It explores the full natural gas value chain: upstream—resources and production; midstream—processing, transport, storage, and distribution; and downstream— end uses. The reasons behind natural gas’s growing importance within the global energy mix are assessed and challenges associated with gas use, and likely developments in natural gas technologies, are explored. This FactBook is one of a series of academically reviewed publications by the A.T. Kearney Energy Transition Institute, a non-profit energy transition research organization established in 2011.

Natural gas has become a crucial part of the energy-supply mix

Having long been overlooked as an energy source, natural gas has become – over the past two decades – a crucial part of the energy mix, mainly because of its abundance and its low carbon content relative to other fossil fuels.

Natural gas resources are usually classified according to the properties of the reservoir in which they are trapped. Resources are referred to as conventional when accumulated in a reservoir whose permeability characteristics permit natural gas to flow readily into a wellbore, and as unconventional when buoyancy forces are insufficient and intervention is required to make the gas flow.

In general, unconventional reservoirs – namely coalbed, tight, and shale – tend to achieve lower recovery rates than conventional reservoirs, and usually require more technology. Two technologies – hydraulic fracturing and horizontal drilling – have been instrumental in exploiting unconventional resources. A fourth type of unconventional reservoir, methane hydrates, is promising but is still in the early development phase.

As the FactBook underscores, natural gas resources are abundant. Depending on data sources and the definition used for reserves, supplies would last for up to 58 years, based on a figure for gas consumption in 2013 of 3.5 tcm. Technically recoverable resources, meanwhile, would last for over 200 years. Conventional natural gas reserves are abundant and, following recent discoveries and the development of associated gas resources, considerably more widespread than previously thought. Unconventional resources, meanwhile, are also widespread geographically.

Complex infrastructure is needed to get natural gas to end users

The FactBook describes the crucial role that gas processing plays in the value chain, albeit a less complex one than refining in the crude oil value chain. Indeed, in most cases, raw natural gas collected at the wellhead needs to be processed to meet pipeline quality standards, to ensure safe and clean operations, and to extract valuable natural gas liquids (NGLs). In 2013, NGLs contributed to 10% of global liquid hydrocarbon supply.

Natural gas’s main drawbacks relative to other hydrocarbon fuels are its low volumetric energy density and gaseous nature, which make it harder to handle than solid or liquid fuels. In order to be transported, natural gas needs to be conditioned in some way, increasing shipping costs and limiting fungibility. Nonetheless, long-distance trade has increased steadily in recent decades. LNG trade is playing an increasing role in natural gas shipping, complementing pipelines, which have been in use since the 19th century and remain the dominant means of transportation. LNG is benefiting from expanding infrastructure, which could be developed further thanks to floating liquefaction and regasification concepts. Nevertheless, many gas fields are too small or remote to justify pipelines or LNG investments. In order to tap these resources, alternative technologies are under consideration, notably gas-to-liquids and compressed natural gas.

Other FactBook insights show that improvements in natural-gas transportation, the development of trading hubs, and significant regulatory changes have combined to create a more dynamic economic environment for the natural gas business. The indexation of gas prices to the oil price is becoming less common, at least in the U.S. As a result, price spreads between three main regional blocs – North America, Europe, and Asia – have widened over the past decade.

Within this framework, and as markets mature, storage is becoming an increasingly important tool in stabilizing prices. Rapid response time has become an essential parameter, making salt caverns more popular storage solutions than depleted oil and gas fields or deep aquifers.

Finally, natural gas needs to be pressurized, odorized, and controlled to be safely delivered to customers. Even if the smart gas-grid concept is less recognized than its power counterpart, natural gas grids are becoming smarter and more efficient as a result of the integration of information and communication technologies.

Natural gas plays a major role in all end-use sectors except for transport

Natural gas use has increased greatly since 1990 and accounts for more than 20% of the global primary energy mix. Going forward, its share of the primary energy mix is expected to continue increasing – albeit at a slower pace than in recent years – driven mainly by non-OEDC countries.

Power generation, the FactBook points out, is now the main driver of natural gas consumption, representing 40% of gas demand globally. In fact, natural gas use is expected to play a vital role in facilitating the transition to a carbon-constrained economy by replacing coal in power generation and by compensating for shortfalls in output from intermittent renewables. Indeed, gas-generation technologies benefit from strong flexibility and efficiency performances.

Natural gas is also widely used for its thermal applications. For many years, use of natural gas in commercial and residential buildings was the backbone of natural gas demand, especially for space heating and water heating. It is expected to remain a crucial source of heat in the foreseeable future. Natural gas is also used widely as a heat source in industry and it plays an important role as a chemical feedstock.

Natural gas is also garnering attention in the transport sector as an alternative to gasoline or diesel. In fact, it is already being used on a large scale in passenger vehicles in several Asian and South American countries, although from a global perspective transport applications remain marginal. While its role in transport may develop further – not just in passenger vehicles, but also in heavy-duty vehicles, and in rail and maritime transport – natural gas’s low energy density and limited infrastructure could restrict its penetration outside niche markets. In addition, leaks of methane, a potent greenhouse gas, could undermine its assumed climate benefits.


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