Over the past few decades, natural gas has attracted the attention of scientists, producers, and politicians as the new crucial energy source that could potentially replace coal and oil. The historical development of the natural gas industry was driven by two key factors. First of all, the environmental concerns created by the use of coal and oil, as well as by their extraction, facilitated the search for other sources of energy. Secondly, the limited amount of oil and its extraction sites resulted in increased oil prices. Although natural gas is still a fossil fuel that can also contribute to the greenhouse effect, hence impacting the climate change, it is a cleaner and less expensive fuel, which makes it an attractive source of energy.
Today, the natural gas industry of the United States is growing fast. The natural gas systems present in the U.S. include production, gathering and processing, transmission, and distribution mechanisms (EPA “Overview of the Oil and Natural Gas Industry”). Between 2005 and 2015, the natural gas industry in the U.S. has grown by 50 percent, and it is expected to develop in the future (Rapier). The growth of the natural gas industry will affect not only the U.S. but also other regions. As noted by BP, “Natural gas is expected to grow faster than oil or coal, helped by the rapid growth of liquefied natural gas increasing the accessibility of gas across the globe” (4).On the whole, the outlook for the natural gas industry is very promising.
Natural gas presents an alternative energy source that could help the U.S. in reducing greenhouse emissions, thus having a positive effect on the environment. Moreover, the economic benefits of natural gas are also significant. This essay aims to argue that the government should support the development of natural gas industry in the U.S. due to its prospective effects on the environment and economy.
Environmental Benefits
The main factor that supports the environmentalist view on the development of natural gas industry is that it would assist in reducing CO2 emissions. According to the EPA (“Overview of Greenhouse Gases”), carbon dioxide is one of the key gases contributing to the greenhouse effect. In fact, CO2 accounted for 82 percent of greenhouse gas emissions in 2015 (EPA “Overview of Greenhouse Gases”). Consequently, the combustion of fossil fuels, especially coal and oil, to generate electricity is the main source of CO2 emissions (EPA “Overview of Greenhouse Gases”). Reducing CO2 emissions both nationally and globally would help in halting the climate change and reducing the environmental impact of human activities until clean energy sources are fully integrated into power systems.
Switching from coal and oil to natural gas could potentially reduce CO2 emissions. According to the Union of Concerned Scientists (UCS), “Natural gas emits 50 to 60 percent less carbon dioxide (CO2) when combusted in a new, efficient natural gas power plant compared with emissions from a typical new coal plant”. Moreover, natural gas can also be used to power vehicles, which will result in 15-20 percent reduction of greenhouse gases emissions resulting from transportation (UCS). Transportation is the second most important source of CO2 emissions after electricity, which means that a reduction of vehicle emissions could have a significant effect on the climate change (DOE).
Another significant environmental benefit of natural gas is that it could lower the air pollution. Coal combustion is a significant source of air pollution in many areas. For instance, in Beijing, China, household coal combustion results in severe smog that covers the city throughout the heating season. Indeed, every 10000 homes powered by coal produce 1,900 tons of nitrogen oxide, 3,900 tons of sulfur dioxide, and 5,200 tons of particulates (UCS). Apart from having a negative effect on the environment, air pollution has severe consequences for human health. Using natural gas instead of coal for heating and electricity can improve the situation. As noted by the UCS, combustion of natural gas produces very small amounts of particulates, as well as sulfur and mercury. Also, the levels of nitrogen oxides (NOx) resulting from natural gas combustion are much lower than those resulting from coal burning (UCS).
Overall, expanding the natural gas industry would make natural gas readily available to both individual and corporate users. Substituting traditional fuels, such as oil and gas, with natural gas, would help to minimize human footprint on the environment and reduce the pace of climate change. Moreover, it would also help to improve population health both in the U.S. and all over the globe by reducing air pollution with sulfur, mercury, nitrogen oxides, and particulates. Thus, by assisting the natural gas industry in growth and development, the U.S. government could avoid a significant share of environmental damage while also improving the health of people in various areas of the country.
Economic Benefits
When compared to oil and coal, natural gas presents numerous economic benefits. First of all, the recent discovery of shale formations throughout the United States indicated that the supply of natural gas is potentially much larger than that of other fossil fuels. As noted by NGV America, “Domestic reserves of natural gas are estimated to be twice that of petroleum-based upon current consumption—more than 100 years” (2). Similarly, on the global scale, natural gas reserves are abundant.
The second economic benefit of the natural gas for the U.S. is that it is not imported. As opposed to oil, which is mostly imported from abroad, almost all natural gas used and distributed throughout America is produced locally (NGV America 3). Given the abundance of natural gas reserves in the U.S., this also presents an opportunity to increase the export natural gas to other countries, which would create economic benefits.
Despite the features explained above, natural gas is also cheaper than oil, both in extraction and in trade. NGV America explains that natural gas is about 30 percent cheaper than diesel fuel and gasoline (3). Apart from benefitting transport companies and citizens, this also reduces the cost of distributing natural gas internally and across borders.
On the whole, natural gas presents several important economic benefits to the U.S., which would make the natural gas industry more efficient than coal and oil industries. Using its abundant domestic reserves of natural gas, the U.S. could maintain its leading position in the natural gas market, improving export to other countries. In addition, both individual users and producers of natural gas would benefit from cost-cutting resulting from the use of natural gas instead of other types of fossil fuel. Thus, supporting the growth of the natural gas industry in the U.S. would allow the government to improve the country’s economy.
Position
Overall, evidence from scientific and official resources indicates that the expansion of the natural gas industry would be beneficial to the U.S. economy and environment. As an environmentalist, I agree with the arguments put forward in the sources reviewed. However, although the natural gas presents a cleaner alternative to coal and oil, it is a fossil fuel that may still generate a significant amount of CO2 compared to clean energy sources. Nevertheless, as solar and wind power are not fully integrated into the U.S. infrastructure, it would be impossible to switch to green energy sources in the foreseeable future. While renewable energy sources are developed and implemented, natural gas presents an important opportunity to reduce air pollution, minimize greenhouse gas emissions, and improve the U.S. economy.
Conclusion
The U.S. natural gas industry is already large and growing. However, government support would help the industry to develop faster, thus increasing its capacity for domestic trade and export of natural gas into the global market. This, in turn, would have numerous benefits for the U.S. economy and the environment, making the investment rewarding and valuable.
While economic benefits are substantial, environmental benefits achieved due to the development of natural gas production and use are even more significant. A reduction in emissions would help in halting or reducing the pace of the climate change, thus preventing a notable share of environmental damage. Personally, I believe that it is a responsibility of people to ensure that technologies are used to benefit not just the business, but also the environment. The growth of the natural gas industry in the U.S. would help the country to minimize the negative effect of fossil fuel production and use on the environment and is thus a meaningful opportunity that should be considered by the government.
Works Cited
British Petroleum (BP). BP Energy Outlook: 2017 Edition, 2017, Web.
Introduction: Gas Hydrates as the Fuel Problem Solution
Over the past few decades, the idea of natural resources as something exhaustible has led to introducing sustainability into a number of spheres, including not only environmental field, but also economy and politics. Hence, the issue of gas resources exhaustibility has been raised. Despite the viability of the offered alternative of gas hydrates use, the threat of the latter towards the environment seems to have become a major problem.
Research Context: Concerning the Setting and the Related Issues
The given research is going to consider the most promising techniques of gas hydrates extraction. Based on the existing researches, it is going to be conducted as a theoretical exploration of the problem. That said, the research context is going to be represented by a set of models with the help of which real-life situation can be simulated.
Aims and Objectives: Analyzing the Techniques and Defining Their Viability
It is necessary to keep in mind that each of the suggested models poses a threat to deepwater production and seafloor stability. Therefore, it is crucial to once again reconsider not only the reasonability of the use of gas hydrates, but also the existing means of gas hydrate production to figure out which methods are the more reliable and the least damaging to the environment.
The objectives of the given research are to consider the positive and the negative aspects of each gas hydrate production methods, as well as to revisit the alternatives to the gas hydrate use, which will ultimately bring to the question whether the use of natural gas hydrate is reasonable enough.
Methodology: The Key research Tools and Theoretical Foil
Before answering the research question, it is necessary to mark the key steps that are going to be undertaken. First and foremost, the literature on the issue must be analyzed carefully so that the data concerning the gas hydrates could be properly represented.
Literature review
It is necessary to mention that the issue of the use of gas hydrates as the alternative to the use of natural gas has been researched for years. Starting with the early 80s, the problem was explored by the Soviet scientist Makogon (1982). Further on, Englezos (1993) devoted his paper to the issue of clathrate hydrates, thus, opening a new page for the further researches.
In the same year, Kvenwolden considered the use of gas hydrates as the possible solution to the issue of climate change (Kvenwolden, 1993). Followed by Max’s research (Max 1998), the given paper gave the reason for a number of other researches to consider the possibilities of obtaining gas hydrates. For example, Ji, Ahmadi & Smith (2001) make it clear that depressurization might be the answer to the problems.
In their turn, Yong-Lee & Holder (2001) offer the methane hydrates as the most powerful potential source of energy. Hyndman (2002) returned that the gas hydrates can be obtained from under the ocean; however, at the point, it was clear that the procedure would have been much more costly than the possible revenues. Koh (2002) simultaneously suggested considering the nature of gas hydrates.
Komai, Kawabe, Kawamura & Yoon (2003) once again mentioned sequestration as the easiest way of obtaining natural gas hydrates, therefore, developing the methodology for the further research process. Together with Pierce & Collett (2004), Ota, Morohashi, Abe, Watanabe, Smith & Inomata (2005), however, argued that the extraction of the natural gas hydrates should be carried out with the help of chemical processing.
In 2007, three researches of relatively the same impact on the issue appeared; Ahmadi, Ji & Smith (2007) developed the means to produce natural gas from methane hydrate, Castaldi, Zhou & Yegulalp (2007) considered down-hole combustion as another means of obtaining gas, and Makogon appeared once more to join Holditch and Makogon and prove that natural gas hydrates are a potential energy source for the XXI century (Makogon, Holditch & Makogon, 2007).
Though Boswell (2009) still doubted the accessibility of natural gas hydrates as a possible energy source, Demirbas (2010) and Makogon’s (2010) papers seemed to tip the scale between the choice of the two power sources. As a result, in 2012, Cook et al. (2012) explored the opportunities of obtaining gas hydrate in the Gulf of Mexico.
Summarizing the current state of affairs, Koh, Sum & Sloan (2012) and Pang, Nga, Zuo, Zhang, Mab & Chen (2012) have made it clear that gas hydrate can be obtained with the help of Ng–Robinson hydrate model (Pang, Nga, Zuo, Zhang, Mab & Chen, 2012, p. 10).
Research methods
The given research is going to combine qualitative and quantitative methods. To start with, the previously mentioned literature is going to be considered, and its results are going to be thoroughly analyzed and evaluated to have the picture of the present-day techniques and processes that must be applied to obtain the gas hydrate.
Thereafter, each of the production methods is going to be listed, with a careful assessment of ist pros, cons and impact on the environment. Finally, the most appropriate method or a combination of the ones is going to be provided.
Reference List
Ahmadi, G, Ji, G & Smith, DA, 2007, ‘Production of natural gas from methane hydrate by a constant downhole pressure well,’ Energy Conversion and Management, vol. 48, pp. 2053–2068.
Boswell, R 2009, ‘Is gas hydrate energy within reach?’ Science, vol. 325, pp. 957–958.
Castaldi, JM, Zhou, Y & Yegulalp, TM, 2007, ‘Down-hole combustion method for gas production from methane hydrates,’ Journal of Petroleum Science & Engineering, vol. 56, pp. 176–185.
Cook, A et al., 2012, ‘Electrical anisotropy of gas hydrate-bearing sand reservoirs in the Gulf of Mexico,’ Marine and Petroleum Geology, vol. 34, pp. 72–84.
Demirbas, A, 2010, ‘Methane hydrates as potential energy resource: part 1 – Importance, resource and recovery facilities,’ Energy Conversion and Management, vol. 51, pp. 1547–1561.
Hyndman, R, 2002, ‘Marine gas hydrates on the Northern Cascadia margin,’ Methane hydrates Interagency R&D Conference, Washington D.C.
Ji, A, Ahmadi, G & Smith, DH, 2001, ‘Natural gas production from hydrate decomposition by depressurization,’ Chemical Engineering Science, vol. 56, pp. 5801–5814.
Koh, CA, 2002, ‘Towards a fundamental understanding of natural gas hydrates,’ Chemical Society Reviews, vol. 31, pp. 157–167.
Koh, CA, Sum, KA, & Sloan, ED, 2012, ‘State of the art: natural gas hydrates as a natural resource,’ Journal of Natural Gas Science and Engineering, vol. 8, pp. 132–138.
Komai, T, Kawabe, Y, Kawamura, T & Yoon, J-H, 2003, ‘Extraction of gas hydrates using CO2 sequestration,’ Proceedings of The Thirteenth (2003) International Offshore and Polar Engineering Conference, Honolulu, HW.
Kvenwolden, K 1993, ‘Gas hydrates – geological perspective and climate change,’ Reviews of Geophysics, vol. 31, pp. 173–187.
Makogon, YF, 2010, ‘Natural gas hydrates – a promising source of energy,’ Journal of Natural Gas Science and Engineering, vol. 2, pp. 49–59.
Makogon, YF, 1982, ‘Perspectives for the development of gas-hydrate deposits,’ Gas Hydrates and Permafrost, pp. 299–304.
Makogon, YF, Holditch, SA & Makogon, TY, 2007, ‘Natural gas-hydrates – A potential energy source for the 21st Century,’ Journal of Petroleum Science and Engineering, vol. 56, pp. 14–31.
Max, MD & Dillon, WP, 1998, ‘Oceanic methane hydrate: the character of the Blake Ridge hydrate stability zone, and the potential for methane extraction,’ Journal of Petroleum Geology, vol. 2 no. 3, pp. 343–357.
Ota, M, Morohashi, K, Abe, Y, Watanabe, M, Smith, RL Jr. & Inomata, H, 2005, ‘Replacement of CH4 in the hydrate by use of liquid CO2,’ Energy Conversion and Management, vol. 46, pp. 1680–1691.
Pang, J, Nga, J-H, Zuo, J, Zhang, D, Mab, Q &Chen, G, 2012, ‘Hydrogen gas hydrate– measurements and predictions,’ Fluid Phase Equilibria, vol. 316 no. 1, pp. 6–10.
Pierce, BS & Collett, TS, 2004, ‘Energy resource potential of natural gas hydrates,’ 5th Conference & Exposition on Petroleum Geophysices, India, pp. 899–903.
Yong-Lee, SY & Holder, GD 2001, ‘Methane hydrates potential as a future energy source,’ Fuel Processing Technology, vol. 71, pp. 181–186.
The invention of cheaper means of mining shale natural gas has resulted in an increase in production of gas in the U.S. With the availability of shale gas in large quantities, consumers consider substituting their energy needs with power generated from gas. Coal is still considered the leading source of energy used by industries.
There are possibilities of natural gas acting as a substitute in many areas such as residential and transportation sectors. Kinder Morgan (KMI) indicates an investment activity cash flow of over $5 billion in 2012. There are projections that the company may grow by 153.1% in the current year.
KMI represents the highest growth among the three competitors under consideration. TransCanada invested a large amount in 2010. Earnings per share (EPS) for both companies are almost similar. Spectra Energy indicates high EPS rates than its competitors.
Spectra Energy is expected to grow at a lower rate than the other two competitors. The political environment indicates great concern over pollution. Policies put in place are likely to encourage the generation and consumption of renewable energy (EIA 2012).
The government is likely to prolong a tax credit of about 30% to corporations that generate renewable green energy. Consumers will be required to use more energy efficient devices that will result in a decrease in energy consumed. Political parties are associated with a particular trend of voting.
Republicans may prefer increased production and consumption. China and India are expected to account for 50% of the increase in energy demand in the long-run (EIA 2012). The export of gas in the U.S. is expected to increase. The rate of increase of production exceeds the rate of growth in consumption.
Imports in fossil fuel are expected to decrease until 2019 when the cost of production in U.S. increases. Canada may resume as the main exporter of fossil fuel to the U.S. after 2019.
Methodology/literature review
Porter’s Five Forces have been used for industry analysis in the oil & gas transportation industry. Grundy (2006) discusses that Porter’s five forces simplifies micro-economic theory. It has been used to “predict the long-run rate of returns in the particular industry” (Grundy 2006, p. 215).
Its factors are interdependent with other factors such that it fills the gap between PEST and SWOT analysis (Arons & Waalewijn n.d. p. 3). New entrants consider the “cost of shifting between companies, the amount of capital required, and access to distribution channels” (Warner 2010, p. 43).
Randall (2008) discusses that the Porter’s Five Forces require a modification of terms to fit the energy industry. Buyers refer to producers of oil and gas instead of consumers.
Randall (2008) discusses that companies in the energy industry gain “competitive advantage through the satisfaction of different stakeholder requirements” (p. 35). Most companies operate regionally almost like monopolies.
A company needs to generate more income than the cost of its capital. Koller, Goedhart & Wessels (2010) discuss that a company is valued by its ability to keep “the rate of return on invested capital (ROIC) higher than its cost of capital” (p. 57).
A company is likely to create more value for stakeholders if it can maintain high ROIC for a longer period. KMI shows ability to maintain high IRR for a period more than 15 years.
A comparable valuation of the three companies is used on key market indicators such EPS, dividends and expected growth. Meitner (2006) discusses that company valuation may use discounted cash flows (DCF) or comparable company valuation. Market prices of shares have no significance in valuation.
Other aspects of share value become important through comparison with main competitors in the industry. KMI is compared with growth rate estimates for Spectra Energy, and TransCanada.
Bensoussan & Fleisher (2008, p. 172) discuss that political/legal environment examines policies and laws that have an influence in decision making. It also considers ability to influence political decisions, voting trends, and public opinion (Mennen 2011).
Legislation regarding regulation and taxation is affected by a Republican majority or Democrats’ reformist trends. Authorities are committed to reducing greenhouse gases (GHG) emissions and efficient energy usage.
Bensoussan & Fleisher (2008) discuss that the activism of regulatory agencies may determine the allocation of resources by the government and the private sector. Government tax cuts that are related to renewable energy may be about $2.5 billion per year between 2011 and 2035 (EIA 2012, p. 23).
Technology is likely to influence the allocation of resources by consumers and producers. Technological factors include “new discoveries, the speed of technological transfer and obsolescence” (Bowhill 2008, p. 332).
Inkpen and Moffett (2011, p. 394) discuss that safety issues have gained more concern over the years. There have been accidents related to fuel transportation such as pipeline leakages, and truck rollovers.
Economic environment considers the purchasing power of individuals. Bensoussan & Fleisher (2008) discuss that the economic factors to consider include the GDP growth rate, income distribution, balance of payments, rate of inflation among others (p. 172).
According to EIA (2012) report, populations grows at an average rate of 0.9% from 2010 to 2035. Increase in population will ensure that local consumption of energy increases. Some fraction reduces as a result of using efficient appliances.
About 50% of the increase in energy consumption is accounted for by expansion in China and India (EIA 2012, p. 74). The consumption of liquid fuel in the U.S. is expected to reach 19.9 million barrels per day in 2035. Carbon dioxide usage grows to 650,000 barrels per day.
Reports indicate that estimates about reserves vary from time to time (EIA 2012, p. 56). There is uncertainty about stocks in reserves.
There is a major shift from the generation of nuclear energy to safer energy sources (EIA 2012). The tsunami catastrophe in Japan that damaged nuclear reactors has led to a change in public opinion about the use of nuclear energy.
Most countries that had planned to use nuclear energy as a substitute for fossil fuels have considered other means of electricity generation. With countries planning to reduce their reliance on nuclear energy, consumption of fossil fuels is likely to increase.
Macro-environment
Political/legal environment
Renewable energy generation doubles as a result of the incentives to reach about 20% of entire electricity generation. In the ‘No Sunset case’ (EIA 2012 p. 19), a majority of companies that generate renewable energy are able to receive 30% tax credit.
Consumers through the ‘Extended Policies case’ will be required to use more energy efficient appliances. Gas used in the residential areas is expected to reduce (EIA 2012, p. 77). Consumers incur an additional cost in purchasing more energy-efficient appliances.
The Cross-State Air Pollution Rule was drafted to minimize the level of “sulfur dioxide and nitrogen oxides emissions in power plants that generate more than 25 megawatts from fossil fuels” (EIA 2012, p. 8).
When the private sector shifts to other sources of energy because of costs related to pollution, the demand for fossil fuels decreases. The average expected decline in residential gas usage between 2010 and 2035 is 13.2% (EIA 2012, p. 77). The decrease is as a result of using efficient devices.
However, there is an opportunity in the use of gas for electricity generation. Overall usage of gas grows by 0.4% annually from 2010 to 2035 (EIA 2012, p. 76). Companies that transport gas are likely to gain.
Economic environment
Economic growth is boosted by labor productivity which grows at a rate of 1.9% per year in the period under consideration (EIA 2012, p. 219). High productivity indicates higher income levels that may drive higher demand. Non-farm employment grows at a rate of 1.0% annually.
The energy intensive sector grows at an average rate of 1.0% per year from 2010 to 2035. The average GDP growth rate from 2010 to 2035 is 2.5% (EIA 2012, p. 104). Energy demand increases with GDP growth.
Low production in Mexico is likely to influence an increase in production in the U.S. The U.S. is expected to have an increase in exports until local prices exceed those in Canada by 2019.
At that point, exports will stabilize at an annual rate of 1.1 trillion cubic feet (EIA 2012, p. 94). International prices have an influence on the level of production in the U.S.
Social factors
Social factors include changes in consumer trends (Henry 2008, p. 56). People are likely to shift to warmer regions instead of using heating systems. In 2010, the U.S. “consumed more natural gas than it produced” (EIA 2012, p. 92).
Consumption increases at a rate of 0.4% per year while production increases at a rate of 1.0% per year. The surplus will support the stability of the export market. Shipment companies are likely to gain through the increase in exports.
The expansion in energy demand in India, China, and the world as a whole creates a sustainable market for energy suppliers and distributors. The world consumption increases by 47% between 2010 and 2035.
Technology
Tax credit issued on renewable sources of energy may increase their demand because of reduced prices (EIA 2012). Consumers are expected to use more efficient appliances that reduce consumption of energy. The invention of the vehicle battery is expected to have an impact on light duty vehicles.
Heavy duty vehicles are likely to continue using fossil fuels even after 2035. Using LNG on vehicles remains a challenge because of the lack of infrastructure to support the sale of the product to motorists. Crude oil still remains the best positioned product with infrastructure (EIA 2012, p. 44).
Industry Analysis
Threat of new entrants
New entrants are determined by the cost of entry and the expected profits. Ahlstrom and Bruton (2010) discuss that “if an industry is experiencing high returns, then other firms will wish to enter that industry” (p. 133). Ahlstrom and Bruton (2010) discuss that cost of establishment is a great barrier when it is large.
In the fuel transportation industry, only big companies are able to invest in shipment or pipeline business. Entry is reduced when there is “limitation on the access to distribution channels” (Ahlstrom and Bruton 2010, p. 134).
The pipeline business may be barred by restrictions that allow only one company to operate pipelines in a region. The restrictions are used to allow efficient use of resources. Transportation by trucks may easily face new entrants.
Threat of substitute services
Transportation of oil involves transport of oil and gas fields to refineries and from refineries to the market. Oil may be transported in many ways unlike gas which is mostly transported through pipelines (Inkpen & Moffett 2011, p. 393).
Gas may also be transported as liquefied natural gas for export. Initially, oil was transported after it was packed in barrels. The crude oil supertankers are considered a low cost transport means.
A 50-millimeter-pipeline running for 50km may cost about $2.5 million (Inkpen & Moffett 2011, p. 399). Pipelines require high initial cost and a little maintenance cost.
Buyers in most cases rely on transportation companies that they have contracted before. Transportation companies prefer to use trucks to and from the drilling sites (PLS Logistics n.d.). The number of truck trips “for one multi-well pad is estimated to be between 5,850 and 8,905” (PLS Logistics n.d., p. 2).
It includes delivery of the equipment and materials used in drilling. Barge is rarely chosen because most companies lack enough freight to fill its capacity. Threat of alternative services is reduced by the fact that a contractor may lack the necessary infrastructure. It may force buyers to use already existing transporters.
Bargaining power of buyers
Fuel transportation companies sell their services to a few major distributors or outlets. Ahlstrom and Bruton (2010) discuss that “if a small number of buyers purchase about half of the industry’s output then buyer power is high” (p. 133).
There is difficulty in shifting between different suppliers where the delivery is made through pipelines. Sea and road delivery may be shifted from one supplier to another. The services do not have an influence on the quality of product (Henry 2008, p. 73). In that case, buyers have a stronger bargaining power.
Bargaining power of suppliers
Suppliers have a higher bargaining power if their products are highly demanded (Ahlstrom and Bruton 2010). In the transportation industry, suppliers include the manufacturers of tankers, trucks, barge, trains, and pipes. Suppliers have a low bargaining power if buyers are few and large (Hill & Jones 2008, p. 51).
Fuel transporters are few and large. Suppliers bargaining power is reduced if industry entities, such as Kinder Morgan, manufacture their own pipes. They are unlikely to manufacture trucks or tankers.
Intensity of rivalry among competitors
Competition among pipeline companies is reduced because major pipelines are owned by a group of companies that are involved in drilling. For example, the Colonial Pipeline is owned partly by BP (17.96%) and CITGO Petroleum (15.79%) among other companies (Pipeline Companies 2013).
Companies are buyers of their own services. Pipelines also cover regions which eliminates the possibility of competition. For example, the Trans Alaskan pipeline System serves “the Alaskan North Slope to Valdez” (Pipeline Companies 2013, para. 4).
Investment thesis
Kinder Morgan Valuation and Financial Analysis
Company description
Kinder Morgan Inc. (KMI) comprises of holdings in The Kinder Morgan Energy Partners (KMP) as a general partner as well as a limited partner.
KMI owns a 20% stake in the Natural Gas Pipeline Company of America (NGPL). KMI acquired El Paso Corporation. El Paso is involved with distribution of gas to consumers (Edwards et al 2012).
The company’s growth is attributed to “acquisitions and Greenfield/expansion projects in fixed assets such as gas pipelines and oil production fields” (Edwards et al. 2012, p. 2). KMI’s shares are considered unique because of the clear growth prospects and high yields per share.
The company proposes a 12.5% annual dividend growth rate for the next few years. Its infrastructure in the energy sector is diversified. It reduces exposure to fluctuations in the market.
Credit Suisse forecasts a target yield of 3.75% for KMI. Credit Suisse forecasts a target price of $42 and total return that ranges between 125 and 34% (Edwards et al. 2012).
Valuation of Business
KMI had an estimated market capitalization value of $37.083 billion as of October 2012 (Edwards et al. 2012) and 38.86B as of 5 April, 2013 (Kinder Morgan, Inc 2013 “Yahoo Finance”). KMI appears to be overvalued against other general partners (GPs) and undervalued against utilities. A fair yield against GPs would be about 4.1%. KMI pays almost all of its after-tax cash flow to shareholders in the form of dividends.
KMI uses the Rockies Express Pipeline (REX) to transport fuel in the Midwest and Northeast markets. REX with a capacity of 3.8 Bcf/d is contracted 97%in the long term. The pipeline is about 1,685 miles consisting of branches with a diameter of 36 inches and 42 inches for the mainline (Martin 2012, p. 7).
The Kinder Morgan Interstate Gas Transmission (KMIGT) consisting of 5,054 miles of pipeline of varying diameter and other terminals. KMIGT has a storage capacity of 14.8 Bcf (billion cubic feet) and transport capacity of 0.98 Bcf. It has been contracted 96% in the short term.
The TransColorado Gas Transmission is 301 miles of 24 inches diameter for the mainline. More than 90% capacity is sold for a long term period (Martin 2012, p. 12). KMI owns other pipelines, processing and treating plants.
Cash-flow analysis and forecasting
The average capital gain through market prices in the last two years is about $2.27. For the two years, the cumulative dividends which are paid on a quarterly basis amount to $2.45 (Kinder Morgan, Inc 2013 “Yahoo Finance”). The amount is slightly higher than the capital gains in market prices.
TransCanada for a similar period had cumulative dividends of $3.889. TransCanada has maintained the same level of dividends of about $0.444 on a quarterly basis. KMI dividends have been increasing. Earnings per dollar of investment amount to about $0.0456 annually for TransCanada.
For KMI, earnings per dollar of investment amount to about $0.036 annually. TransCanada shareholders receive more per dollar of investment compared to KMI shares. Dividends paid by KMI amounted to 2.4b in 2012, 1.726b in 2011, and 1.549b in 2010.
In 2006, KMI was able to pay more on dividends per share ($3.23) than returns per unit estimated at $ 2.04 (Peters 2008, p. 107).
Peters (2008) discusses that investors value the ability of a firm to sustain dividend levels for a foreseeable future. KMI has shown ability to maintain “current dividend levels even when the going gets tough” (Peters 2008, p. 103).
KMI’s net income was $315m, $594m, and $41m for the periods ended Dec 30, 2012, 2011, and 2010 respectively (Kinder Morgan, Inc 2013 “Yahoo Finance”). Net borrowing amounted to $3.282b in 2012, $703m in 2011, and $1.501b in 2010.
Total cash flow from investing activities amounted to $5.084 in 2012, 2.392b in 2011, and 2.288 in 2010. The cash flow in investment activities indicates the growth prospects.
KMI total business internal rate of return (IRR) is estimated at 31%. The average IRR for the period 2000 to 2021 is estimated at 23.7% (Bradley 2012, p. 17). The company has a number of contracts that expire within four years such as the KMI Interstate storage and transport agreement (Martin 2012, p. 5).
The KMI Interstate transport involves transporting 1 billion cubic feet per day (Bcf/d). Long term contracts include the KM Louisiana Transport which has an expiry period of 17 years (2.1Bcf/d) and Fayetteville Express for 10 years (1.8 Bcf/d).
Hiscock (2012) discusses that “shale gas prices has sent gas prices plunging to one-tenth that of oil” (p. 76). As a result of the low cost of gas, there are expectations of a shift to power generated from gas rather than coal. EIA (2012) reports that lower gas prices may continue until 2019.
Afterwards, Canada will regain its competitive advantage on prices. Crude oil produced in the U.S is also expected to increase to a maximum of 6.7 million barrels per day. It then declines to 6.0 million barrels per day after 2020 (EIA 2012, p. 113). Canada holds a 21% share on exports to U.S. fuel industry.
Competitor analysis
TransCanada wholly owns 35,500 miles and partially owns 7,000 miles of natural gas pipelines. 20% of the natural gas used in the U.S. is considered to have been transported by TransCanada.
The company accounts for 15Bcf of gas transported across Canada and North America. Its storage services are available to companies operating in the eastern side of the U.S (Pipelines 2013). Its strategic market target for oil pipeline services are in the Midwest and U.S. Gulf Coast.
TransCanada market capitalization amounts to $33.783 billion. Its quarterly dividend of $0.46 is higher than KMI at $0.35. TransCanada preference shares are expected to receive a cumulative dividend of $2.80 in 2013. Its share prices are $47.16 when KMI targets $42.00.
A 52-week range of $39.87 – 49.64 compared to KMI $30.51 – 40.12. TransCanada total cash flow from investing activities amounted to $3.27b in 2012, $2.999b in 2011, and $5.33b in 2010. TransCanada invested twice as much of what it usually invests in 2010 when KMI invested twice as much in 2012.
TransCanada reported a net income of $1.36b in 2012, $1.553b in 2011, and $1.286b in 2010 (TransCanada Corp. 2013 “Yahoo Finance”). It indicates a company generates more when it engages in expansive investment activities. Dividends paid amounted to $1.422b in 2012, $1.126 in 2011, and $872million in 2010.
There is a sustained increase in the amount shared as dividends. Net borrowing amounted to 42.364b in 2010. It is lower in 2011 at $124million and 2012 at $964million. TransCanada appears to have carried out an expansion program in 2010. KMI appears to have carried out an expansion program in 2012.
Spectra Energy Corp. has a market capitalization of $20billion. Its 52-week price ranges between $29.75 and 30.08. Earnings per share at $1.43 compared to KMI’s $0.35 (Spectra Energy Corp. 2013 “Yahoo Finance”).
Spectra Energy is expected to grow by 5.6% this year compared to KMI’s 153.1%, and TransCanada’s 21.7%. Spectra Energy is estimated to meet an annual growth rate of 5% in the next five years compared to KMI’s 15.45% and TransCanada’s 6.47%.
Conclusion
TransCanada invested over $5 billion in 2010 after 5 five years of stagnation in growth. It is expected to grow at a rate of about 6%. The growth of Spectra Energy poses little competitive threat to KMI.
KMI is most likely to be the major beneficiary to opportunities that come up as a result of the increase of shale gas production in the U.S. With an expected growth rate of about 15%, KMI is likely to strengthen its place as the dominant entity in oil and gas transportation industry.
Increase in production will create opportunities to expand delivery services to export markets. With an internal rate of return of 23.7%, KMI may increase investments (Bradley 2012). IRR indicates a rate higher than market rate of interest. The company has ability to use debts to increase the rate of growth.
Consumers are expected to choose options that reduce energy consumption such as shifting to warmer regions (EIA 2012). Global warming is also expected to influence the use of energy for heating purposes. Consumers will be forced to use efficient devices through legislation that bans the production of inefficient devices.
Reduction in energy consumption caused by the use of efficient devices will be replaced by population growth.
The population is estimated to grow at an average rate of 0.9% per year from 2010 to 2035 (EIA 2012). Consumption is also likely to be boosted by improvement in purchasing power. Efficient technologies results in higher productivity and higher income levels.
Shale gas production is the main drive to the increased production of gas in the U.S. It accounted for 23% of the gas produced in 2010. It is expected to account for a total of 49% of gas produced in the U.S. Transportation companies will have an opportunity to deliver 1.4 trillion cubic feet annually.
Half of these are exported as LNG. The other half is transported through pipelines to Mexico. Oil extraction from shale is considered expensive and unfeasible until new technology is invented that lowers cost.
Transportation companies are involved in long term contracts. It secures their cash flow for several years. Companies are involved in selected regions where they use pipelines. The prices rely on negotiation between buyers and transportation companies. Pipelines still remain the cheapest means of transport.
Buyers that choose rail, roads and shipment have options of selecting from different transportation companies. However, most buyers prefer to remain with transportation companies that they have contracted in the past.
Reference List
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Arons, H, & Waalewijn, P n.d., A Knowledge Base Representing Porter’s Five Forces Model, Erasmus University, Rotterdam.
Bensoussan, B, and Fleisher, C 2008, Analysis without Paralysis: 10 Tools to Make Better Strategic Decisions, FT Press, New Jersey.
Bowhill, B 2008, Business Planning and Control: Integrating Accounting, Strategy, and People, John Wiley & Sons, West Sussex.
Bradley, T 2012, CO2. Web.
Edward, J, Fogleman, S, Reilly, B, & Lodaya, B 2012, Kinder Morgan, Credit Suisse, New York.
EIA 2012, Annual Energy Outlook 2012: With Projections to 2035, DOE/EIA-0383, U.S. Energy Information Administration, Washington, DC.
Grundy, T 2006, ‘Rethinking and Reinventing Michael Porter’s Five Forces Model’, Journal of Strategic Change, Vol.15, no.764, pp. 213-229, Wiley InterScience. Web.
Henry, A 2008, Understanding Strategic, Management,Oxford University Press, New York.
Hill, C, & Jones, G 2008, Strategic Management: An Integrated Approach, South-Western Cengage Learning, Mason.
Hiscock, G 2012, Earth Wars: The Battle for Global Resources, John Wiley & Sons, Solaris South Tower.
Inkpen, A, & Moffett, M 2011, Global Oil and Gas Industry, PennWell Corporation, Oklahoma
According to an article, Hydrofracking: Issues & Controversies, hydraulic fracking or fracturing is a method of extracting natural gas from deep shale formations (Hydrofracking: Issues & Controversies 1), and Gilliland notes that hydraulic fracking has become one of the most polarizing topics today (Gilliland 1).
The process of hydraulic fracking entails drilling several thousand feet into the ground, followed by heavy pumping of several gallons of water with chemicals at considerably high pressure (Gilliland 1). Mufson comments that many industry professionals and several politicians have exalted hydraulic fracking as the best method for extracting natural gas because there are more than adequate measures to control the process (Mufson 1).
Conversely, some environmentalists have demanded a total suspension of the method due to several complaints of polluted drinking water from wells and its long-term impacts on the environment (Williamson 1). These activists have warned that possible dangers of hydraulic fracking have not been fully explored (Piddock 1). Therefore, it does not worth the risk.
To this end, they claim that the US should concentrate on renewable energy sources, which have no negative impacts on the environment. Pennsylvania and other states have large reserves of shale gas. As a result, several supporters of hydraulic fracking have claimed that the US has the potential to be energy sufficient and independent if the method is given a chance (Loris 1).
Mufson identifies the energy potential for shale gas (Mufson 1). Today, it is one of the fastest developing sources of energy for the USA. According to Robinson, in less than a decade, the percentage of shale gas production has increased significantly (Robinson 1). While hydraulic fracking presents possible risks, its potential benefits outweigh possible risks.
This essay supports hydraulic fracking in Pennsylvania as a technique of extracting shale gas and shows that it is a method worth exploiting.
There are three major reasons for supporting hydraulic fracking. First, hydraulic fracking involves the production of clean energy, which reduces the emission of greenhouse gases into the atmosphere. Second, the technique relies on sophisticated technologies, which reduce risks associated with conventional drilling. Finally, the technique can boost the economy and create millions of jobs for Pennsylvania and the US.
Clean energy
Piddock observes that natural gas has a significant role in the production of clean energy for the US (Piddock 8). Hydraulic fracking has become a single important means of extracting natural gas for clean energy.
Mufson writes that in the last few decades, the use of hydraulic fracking to extract natural gas has risen and expanded to several locations with different geological formations in the US, including Pennsylvania (Mufson 1). According to an article by Loris, supporters of the hydraulic fracking technique have touted it as an environmentally safe and highly regulated method of gas extraction (Loris 1).
Moreover, the industry has embarked on the use of advanced technologies to ensure the safety and efficiency of the extracted gas through fracking. Hobson explains that the need to get clean energy from natural gas has been driven, to some extent, by developments in oil and gas technologies (Hobson 8). While hydraulic fracking has existed since the 1940s, innovations in the industry and improved processes have unlocked massive supplies of shale gas.
Loris points out that both facts and myths are available regarding hydraulic fracking and its potential for extracting clean gas (Loris 1). Hence, it is imperative to differentiate facts from fiction in an argument. Hobson notes that Pennsylvania has an exceptional opportunity that could change its economy, energy security, and the environment (Hobson 8).
Moreover, Whitten and Beinecke focus on the potential of shale gas to provide clean energy for the US for several decades (Whitten and Beinecke 1). Gas firms have recognized that hydraulic fracking and extraction of natural gas present both opportunities and challenges about land, air, and water pollution (Gilliland 1).
Consequently, they must deploy the best methods of extracting the gas and be dedicated to environmental conservation ambassadors. To this end, natural gas industries must help local communities to understand the verified scientific facts about hydraulic fracking (Renewable Fuels Association 6).
At the same time, these firms must also demonstrate that their operations are in harmony with laws and regulatory frameworks that guide the extraction of natural gas in a safe and friendly manner (Loris 1).
Pennsylvania does not have to choose between promoting the use of clean energy and protecting the environment as Tuttle shows (Tuttle 44). With safe and responsible extraction of natural gas through hydraulic fracking, it can achieve these goals simultaneously.
Hydraulic fracking presents an opportunity for the US to rely on clean domestically available energy. It would enhance the country’s effort to reduce the emission of greenhouse gases and air pollution because natural gas is clean, has no mercury, and has low-levels of pollutants relative to other fuels.
Developments in technologies
From Porter’s article, the need to find suitable hydraulic fracking technologies have led to aggressive studies and research in the past years (Porter 1). Gas companies and other stakeholders have introduced some of the most advanced tools for extraction of natural gas as they respond to public pressure and as a part of their initiatives to enhance efficiency at the well and reduce pollution.
Hydraulic fracking can restore and improve outputs of wells in different types of formations and reservoirs. As a result, the technology has become highly applicable in operations that involve shale gas and other locations, which do not require conventional gas extraction (Mufson 1).
About pressure pumping, hydraulic fracking is the most effective method of stimulation. Hydraulic fracking allows natural gas companies to drill a few wells and drain any type of reservoir (Gilliland 1). Previously, gas companies could not extract gas from shale effectively and cost-effectively because they lacked hydraulic fracking technologies.
Pennsylvania has incredible shale formations. Gilliland shows that hydraulic fracking technologies stimulate wells and reduce costs of hydrocarbon extraction (Gilliland 1). This is beyond the normal costs for alternative energies, including solar, nuclear, and even wind.
On this note, environmentalists and other critics of hydraulic fracking technologies must realize that this method allows for stimulation of wells in shale, tight sands, and in coal bed methane (Gilliland 1). It is also the most cost-effective way of producing natural gas.
The technology allows gas firms to extract the gas from large wells, which do not use stimulation procedures. Further, technology vendors for natural gas companies are not complacent with the current state. As a result, they strive to improve hydraulic fracking technologies to cater to the needs of the industry and address the concerns of environmentalists adequately, as Porter writes (Porter 1).
According to Piddock, the major reason behind the hydraulic fracking debate is the possible contamination of drinking water and the environment (Piddock 8). Williamson notes that gas companies have different advanced techniques for protecting drinking water and the environment from the effects of hydraulic fracking (Williamson 1). They ensure that basic procedures for protecting water are implemented and completed.
Also, they also observe cases of perforation during hydrocarbon production. As Loris puts it, environmentalists and local communities in areas where hydraulic fracking takes place should not demand moratorium because, from the hydraulic fracking point of view, several methods exist to protect drinking water aquifers (Loris 1).
Gas companies monitor the fracking process through advanced technologies with the aim of protecting drinking water and the environment.
Moreover, the Renewable Fuels Association promotes transparency and informs stakeholders about processes involved in hydraulic fracking (Renewable Fuels Association 6). The community and other stakeholders can analyze all components and chemicals used in the extraction of natural gas through hydraulic fracking. The fundamental issue is the need to establish transparent processes and accountability.
In other words, gas companies must reveal the specific nature of all chemicals and other materials involved in hydraulic fracking processes (Renewable Fuels Association 8). Also, they must conduct regular studies to understand the effect of hydraulic fracking processes on the air and water quality. Such information should be available to the public for review.
From Piddock’s argument, gas companies can evaluate behaviors of wells and processes to promote the best methods of fracking (Piddock 8). Several technologies support these procedures through monitoring, assessing, and gauging elements of fractures as soon as they are formed.
As a result, companies can use more developed strategies and control the amount of fluid, the type of chemicals, the rate of pumping, and the orientation of casing to protect water and the environment. One must understand that the industry understands hydraulic fracking technologies at advanced levels because of decades of experiences (Williamson 1).
Moreover, they collect data for analysis to make informed decisions and improve the process. Technologies in hydraulic fracking have improved over the years. Therefore, Loris notes that gas companies can improve their processes through further studies in fields and laboratories and eliminate potential challenges and pollution of drinking water, air, and land (Loris 1).
New technologies could lead to the development of advanced fractures. Moreover, they can also assist in designing and developing highly permeable reservoirs for hydraulic fracking processes in different environments where fracking takes place.
Developments of technologies to focus on different stages and processes in the last decades have facilitated the development of several tight gases and shale gas resources. Consequently, firms can handle treatment in different types of wells. These developments account for different methods of drilling and extracting natural gas.
Economic benefits
According to Loris, hydraulic fracking can boost the economy and create millions of jobs in Pennsylvania and the US as a whole (Loris 1). Several studies have documented potential benefits, which the US could derive from hydraulic fracking (Loris 1; Porter 1; Mufson 1). One cannot deny this fact, and Hobson asserts that shale energy could transform the entire economy of the US by creating millions of jobs (Hobson 8).
Apart from job creation, hydraulic fracking would reduce reliance on energy imports, earn revenues for the State and Federal governments, reduce household energy bills, costs of running the manufacturing sector, and position the US as a critical player in the world energy platform and markets (Loris 1).
A closer look at these benefits shows that hydraulic fracking could be what the US economy requires to maintain steady growth as Mufson notes (Mufson 1). Today, natural gas is a critical part of US energy sources.
Consequently, it has significant influences on economic growth. The US has relied on natural gas for electricity generation, a source of livestock feedstock, chemicals for drug companies, food processing, and treatment of waste. While the price of natural gas in the US has rarely been stable, the likelihood of a large-scale extraction through hydraulic fracking could change this trend and establish steady and affordable gas prices (Loris 1).
Whitten and Beinecke claim that natural gas could support the country’s energy need for many years at the current rate of energy usages (Whitten and Beinecke 1). Hydraulic fracking ensures that drilled wells stay viable for more than ten years. Large quantities of natural gas and the ability of Pennsylvania to extract it would make the State one of the best States for conducting big businesses, particularly for the manufacturing sector.
As a result, some multinational oil and gas firms have expressed their intentions to construct petrochemical plants in Pennsylvania (Loris 1). They have located areas, which are close to the natural gas locations. Residents will enjoy permanent jobs and temporary ones during construction.
According to Hobson, abundant natural gas for extraction could make Pennsylvania one of the most attractive markets for the production of different chemicals as (Hobson 8). Moreover, dwindling growth of counties could record positive outcomes as manufacturing to re-emerge to create new employment opportunities and markets.
Industry professionals note that the rising domestic production of natural gas presents a promising future for the US (Mufson 1). Cheap and available natural gas will flood the US market. This would result in low prices of energy in the US than in other regions. Hence, the US would be able to attract new manufacturing firms. Conversely, environmentalists view shale gas from both political and environmental point of view.
New gas supplies will result in additional industries. As a result, many citizens would have considerable stakes in the gas industry. This implies that it would be politically difficult to impose additional regulations and controls Tuttle’s article demonstrates (Tuttle 44).
Still, environmentalists consider extraction of shale gas as a disruptive process, particularly drilling in which there is contaminated water from fracture formations and other drilling activities, which pollute the atmosphere. Therefore, environmentalists have considered issuing of additional regulations to control adverse outcomes of hydraulic fracking (Piddock 8).
Moreover, they might also consider other regulations that impose drilling techniques with limited contamination to the environment.
While the New York governor is unable to make any decision on whether to drill or not (Tuttle 44), the State is losing revenues and opportunities to create jobs. One may wonder why some politicians and environmentalists have ignored facts, which show that hydraulic fracking is safe and friendly to the public and the environment. The opposition could be nihilism without any sound grounds (Williamson 7).
Debates about the best hydraulic fracking practices, new regulations to control emissions, wastewater management, and other technical processes may not yield any tangible results because the industry has shown that the current practices are safe and are within the existing regulations.
The public may not understand all the details about hydraulic fracking, but they oppose it. Some politicians have called for additional regulations under the Safe Drinking Water Act. On this note, it would be prudent to conduct studies on the safety and environmental outcomes of hydraulic fracking so that both politicians and environmentalists can make informed decisions about the technique.
Hydraulic fracking in Pennsylvania is advanced and safe, and Porter’s work shows how Pennsylvania can exploit its technologies for economic gains beyond its borders. Emerging economies like China suffer from severe environmental pollution because of the excessive use of coal in the manufacturing sector (Porter 1).
According to Porter, the State could create jobs and export its expertise and technologies to other countries, which do not know how to extract shale gas like China (Porter 1). Also, the State can help China to clean its polluted environments by focusing on hydraulic fracking for the production of clean energy.
Pennsylvania can sell its technologies and expertise to China, which has natural gas but lacks technologies and expertise to exploit it. Today, the State has some of the most advanced technologies in hydraulic fracking, which can position it as a global leader in safe exploitation of shale gas. Clean energy will address global warming and climate change.
A highly polluted country like China must reexamine its energy sources and make the necessary changes (Porter 1). Countries, which rely on coal, must seek alternative sources of energy, and that is where Pennsylvania shale gas techniques will solve their problems.
Since Pennsylvania has already seen surging extraction of natural gas, job growth, and a significant improvement in emission, the State has massive opportunities to gain from these abilities (Hobson 8). For instance, Pennsylvania will export its clean gas to other nations and receive revenues from its technical capabilities.
Therefore, environmentalists and local communities do not need a moratorium on hydraulic fracking because the process is safe and well regulated under Pennsylvania laws, such as Chemical Disclosure, Groundwater Protection, and Wastewater Management among others.
Moreover, hydraulic fracking has improved the process of extracting the previously inaccessible shale gas, and it will continue to shape the US gas industry and sustain economic growth for several decades. Therefore, Pennsylvania does not need to stop hydraulic fracking because of its potential economic benefits – jobs, revenues, economic growth, and cheap energy, among others.
Conclusion
This essay has supported the use of hydraulic fracking to extract natural gas in Pennsylvania. It has focused on clean energy, the use of advanced technologies in natural gas extraction to protect the environment and the public, and economic growth as potential benefits of hydraulic fracking.
Despite its existence for many years, hydraulic fracking has attracted the most controversial debate based on both facts and myths, which emanate from misreporting and exaggeration. A great deal of the environmentalists and community issues because of hydraulic fracking are because of the likely contamination of drinking water with chemicals used in the drilling procedures.
They also argue that the process could result in earthquakes and poor waste management. However, these claims have failed to consider both Federal and State regulations, which protect the environment, water, land, and air. The major issue is to extract natural gas without compromising the safety of the community and the environment. If gas companies can achieve that, then they can overcome energy challenges and provide clean energy.
This is a possible process because hydraulic fracking is safe and has several regulations and laws to protect communities and the environment. Also, the industry has focused on new, advanced technologies and processes to enhance the effectiveness and safety of natural gas during fracking processes.
Pennsylvania has the main role in protecting its environment and communities alongside oversight roles. It can develop specific laws and regulations, which account for its geology and hydrology to regulate the extraction of natural gas through hydraulic fracking. Communities and environmentalists can demand accountability and transparency in the process. This would eliminate myths about hydraulic fracking.
At the same time, undecided leaders must allow hydraulic fracking in their states because any delays have massive financial losses. The Federal government should not introduce new redundant regulations to control hydraulic fracking because the existing laws have adequately addressed all major concerns regarding the public and environmental safety.
Such new laws are likely to derail any progress and create a red tape system that would hamper energy production and the highly needed economic growth in Pennsylvania and other States.
The industry must commit itself to be safe and responsible practices to ensure environmental sustainability and protection. This would ensure that shale gas and hydraulic fracking play key roles in shaping the future source of energy for the US. Pennsylvania should adopt hydraulic fracking for gshale gas extraction.
Works Cited
Gilliland, Ellen. Fracking can access energy from deep below. 2012. Web.
Hobson, Margaret Kriz. “The Pennsylvania Gas Rush.” National Journal. 7 (2010): 8. Print.
Loris, Nicolas. Hydraulic Fracturing: Critical for Energy Production, Jobs, and Economic Growth. 2012. Web.
Mufson, Steven. The new boom: Shale gas fueling an American industrial revival. 2012. Web.
Piddock, Charles. “Fracking fight: the pros and cons of a new drilling technique.” Junior Scholastic/Current Event (2013): 8. Print.
Porter, Winston. The China-Pennsylvania connection. 2013. Web.
Renewable Fuels Association. Hearing on The American Energy Initiative Testimony of Bob Dinneen. 2011. Web.
Robinson, David. National Fuel’s shale gas production in Pennsylvania keeps soaring. 2013. Web.
Tuttle, Ian. ” To Drill or Not to Drill? Governor Cuomo refuses to answer the question.” National Review 65.11 (2013): 44. Print.
Whitten, Daniel and Frances Beinecke. Is fracking our energy future? Hydraulic fracturing (fracking, for short) is a new drilling technique that can extract hard-to-reach oil and gas. 2014. Web.
Williamson, Kevin D. The Truth about Fracking. 2012. Web.
The Nigerian natural gas industry is young. There is appreciation for the need to develop a consistent strategy in the sector. This project seeks to identify current efforts that the government is using to develop the natural gas sector of the petroleum industry. It focuses on the aspects of the current strategy in use by Nigeria and seeks to propose ways in which the country can get more out of its current efforts. The context of the project includes looking at international trends in the trade of natural gas. It also includes an examination of how those trends affect domestic energy policy in Nigeria.
Novelty
The novelty of the project lies in the fact that it takes up on previous studies that have examined the issues surrounding the Nigerian natural gas economy. It seeks to identify the key influences in that economy. It identifies how their interplay affects the Nigerian economy. In the end, it will provide a unified view of all the influences and propose the best strategy that cuts across the influences to yield a master plan for the Nigerian natural gas economy
Aims
The aims of the project will be as follows:
To identify the factors that influences the natural gas industry in Nigeria such as human resource development, research and development, economic and regulatory, and the outlay of requisite infrastructure.
To examine energy utilization factors in Nigeria relevant to the extraction and marketing of natural gas.
To develop a coordinated strategy that offers direction to the Nigerian policy making organs on the best way to take advantage of the countries natural gas deposits
Main work packages
The main work packages for the project are as follows:
Literature Review
This will involve looking at key literature relating to various aspects of the Nigerian economy, its energy needs and portfolio, and its petroleum industry
Data Collection
After the production of a questionnaire, there will be a data collection exercise relating to the areas of the project requiring testing and development.
Data Analysis
This will involve the use of SPSS software to analyze data to find patterns, and trends to determine the efficacy of the master plan.
Final Project Report writing
This report will cover the findings and recommend elements of the Nigerian gas utilization master plan that require adjustment
Expected Outcomes
The project anticipates the following outcomes
Literature review that contains the key elements of the Nigerian natural gas utilization master plan
A report that critically evaluates Nigeria’s energy supply options and puts them in context
Technical Risks
The project will rely on the quality of data collected. Any biases in the data will influence the outcome of the report
Resources Required
The resources required include:
Airtime
Internet access
Travel Allowance
Computer
SPSS Software
Project Beneficiaries
The key project beneficiaries are as follows:
Nigeria National Petroleum Corporation (NNPC)
As the main implementing agency of the Natural Gas Utilization Master plan, the NNPC stands to benefit most from this project. It will provide them with a view of the status of their implementation and the areas to focus on to attain sustainability.
Regulators
Energy sector regulators will also benefit because it will provide them with the metrics that influence the Nigerian gas economy. It will empower them to produce better strategies for regulation of the energy industry.
Regional Planners and Economists
As a federal republic, Nigeria depends on regional decision makers to push for national agenda within the regions. The report will empower regional planners and economists to develop and implement proactive policies
Gantt chart
Outline 2
Literature Review
Introduction
Nigeria’s Energy Supply Challenge
Nigerian Petroleum Industry
Natural Gas in Nigeria
Natural Gas Utilization Master Plan
Areas of Further Research
Conclusion
Literature Review
Introduction
Nigeria is a very significant country regionally and globally on many fronts. It is one of the largest economies in Africa, ranked only behind South Africa. It boasts of a very well educated population. Nigeria’s economy benefits hugely from oil exports, which contribute the lion’s share of its income from exports. For a long time, natural gas that surfaced during crude oil mining did not end up in economic use. Oil companies chose to flare it to reduce the risk of accidents. On the political front, Nigeria has had many rulers, with the better part of its post-colonial history under military rule. Political instability and poor macroeconomic planning resulted in a very high poverty incidence where over fifty percent of the people still live under the poverty line (Obaje, 2009). However, the situation has been improving. Nigeria has had three civilian rulers in the last decade, which has provided it with the political and macro-economic stability it has needed to take advantage of its natural resources. For the last ten years, the civilian rulers have shown a lot of interest in the development of Nigeria’s natural gas reserves.
Nigeria’s Energy Supply Challenge
Nigeria is the seventh most populous country in the world, with a population of over 155 million. Such a large population requires huge amounts of energy to meet its needs. Nigeria has had perennial energy problems despite being a key oil exporter. Nigeria’s electricity production, at 2300MW meets only a quarter of the known demand (Oxford Business Group, 2010). The country has two times the production capacity but lack of natural gas processing capacity hinders its use for power production (Oxford Business Group, 2010). Economists project that the current known electricity demand will soar if there is guarantee of reliable supply. This means that required capacity will be much larger than the projections based on current demand only. Many companies in country use alternative ways to generate power. Diesel powered generators provide power for many of them. These generators are expensive to maintain, and hence they contribute to higher operational costs for businesses in the country (Oxford Business Group, 2010). Because of the underdeveloped power sector, Nigeria has the lowest per capita consumption of power in the world, at 155kw/h (Oxford Business Group, 2010). This statistic is not one to be proud about. This is because there is a direct correlation between development and power consumption. This correlation shows up in the large poverty incidence in Nigeria. While there are other energy sources available for exploitation in Nigeria, their application remains limited. Solar and wind are readily available and may form part of a future energy mix for the country (Mwalimu, 2005). At the moment though, their use does not contribute significantly to the Nigerian energy mix. With vast amounts of crude and some of the largest known reserves of natural gas, Nigeria may not be going green any time soon. There are two major problems with the Nigerian energy system. Its electricity distribution infrastructure is in bad shape leading to consistent power failure and poor power quality (AfDB & OECD, 2010). Secondly, the distribution channels for natural gas are not well developed. These two conditions make the Nigerian energy situation dire.
Nigerian Petroleum Industry
When Nigeria got its independence from Britain in 1960, it was essentially an agrarian economy. Its oil sector was not well developed. However, with the soaring demand for oil in the succeeding years Nigeria’s oil sector blossomed and became the player that it is today. In a twist of fate, Nigerian leadership ignored many of the needs for infrastructure that it had over time at the cost of developing its oil sector. This has resulted in the current situation where Nigeria has a very huge dependence on oil (Ariweriokuma, 2008). Its economy relies on oil for over ninety percent of its foreign exchange earnings (Obaje, 2009). This situation exposes Nigeria to setbacks associated with the fluctuations that attend to the international oil market, which exposes it to catastrophic consequences.
The lack of a balanced growth strategy for Nigeria has resulted in a skewed income portfolio for Nigeria. With a contribution of over eighty percent to the national budget, the exploitation of oil and gas is the single most significant activity in Nigeria (Mwalimu, 2005). The development of the gas sector is a way to begin easing Nigeria from its heavy dependence on crude for foreign exchange and for local job creation opportunities. Natural gas promises to develop new supply chains and marketing infrastructure that will diversify the products sold from Nigeria. The natural gas economy does not operate in the same way as the crude oil economy. By operation in the two economies, Nigeria will have a better economic portfolio whenever there are fluctuations in either of the economies.
Natural gas development also promises better power generation opportunities for Nigeria. Currently, Nigeria uses some of the natural gas that it produces to run gas plants. However, it still has a large capacity to develop its natural gas generation by the installation of more natural gas fired plants.
Natural Gas in Nigeria
While Nigeria developed its crude deposits over the years, it did not go with the same zeal to develop its natural gas deposits. During extraction of crude, miners observed that the crude had a lot of gas in it. Since it did not interest the initial prospectors much, flaring became the mode of disposal of the unwanted gas. In recent times, the economic viability of natural gas has made its processing attractive. The natural gas deposit in Nigeria is three times larger than its petroleum deposits (Obaje, 2009). Nigeria is poised to become a major player in the natural gas market because of its compressed natural gas reserves are in excess of 180 trillion cubic feet. However, Nigeria has a more serious domestic energy supply problem. Development of the natural gas potential must put this into consideration.
The Natural Gas Utilization Master Plan
An economically viable development of the natural gas deposits in Nigeria requires a coordinated strategy. The Nigerian government has developed a natural gas utilization master plan. Onyeukwu (2009) identified three stages in the development of the Nigerian gas sector. He refers to the first stage as the Pre 1999 era. During this era, development in the natural gas sector did not have any coherence. Much of the gas produced at the time went to flares causing environmental damage and financial loss (Onyeukwu, 2009). There was constrained demand for natural gas during this era. After this era, there was the 1999-2005 NLNG (Nigerian Liquefied Natural Gas) era. The key developments here included mainstreaming of natural gas with a better-coordinated sector development. There was stricter enforcement of legislation to banning the flaring of natural gas. This era gave way to the Post 2005 Demand Boom/Supply Constrained Era, which coincided with increasing local and international demand for natural gas (Onyeukwu, 2009). There was a trend internationally that favored the development of natural gas deposits in low production countries such as Nigeria. The driver for this demand was the dwindling of reserves in traditional international sources.
The Nigerian government’s master plan developed under civilian rule sought to deal with both upstream and downstream issues. The three components of the Nigerian Gas Master Plan are “National Domestic Gas Supply, Pricing Policy and Regulations, and the Gas Infrastructure Blueprint” (Onyeukwu, 2009). The first component places constraints on gas suppliers to ensure they provide the conditions that make natural gas available for the domestic market. The pricing policy places a floor on the gas prices in the three divisions of the demand sector and leaves space for negotiations for actual prices. Finally, the gas infrastructure Blueprint addresses the need to develop infrastructure to handle local, regional, and international markets. Without adequate infrastructure, the exploitation of natural gas will remain elusive.
In line with the chellenges that Nigeria faces, the Nigerian National Petroleum Corporation (NNPC) identifies three priority issues for the Nigerian gas sector. The first one is building the infrastructure and developing the human resource pool required to manage the sector. The second part is the development of a local market for natural gas. At the moment, the demand for natural gas is low because petroleum prices in Nigeria are rather low, hence there is no price incentive to invest in natural gas burning equipment (Umukoro, 2009). This is changing gradually by because of the rising petroleum prices. The third area is expanding participation in the sector to include as many stakeholders as possible. While natural gas contributes to global warming, its pollution rate is lesser than that of equivalent fossil fuels (Low, 2005). This means that natural gas provides the world with an alternative to other fossil fuels in the race to reduce emissions. Also, commercializing the gas reduces the environmental effects that flaring brings along (Umukoro, 2009). When natural gas is flared without economic use, the result is net loss including environmental pollution.
There are three key weaknesses in the Nigerian gas utilization master plan. These weaknesses include a lck of strategic focus in research and development, poor physical infrastructure and an uncoordinated regulatory environment. Nigeria will need to up its game in research and development in the oil and gas sector if it will retain its place as a profitable user of natural gas (Obaje, 2009). The need to generate more power for Nigeria requires the coordinated action to develop solutions for Nigeria’s problems. The master plan must address the human resource constraints that relate to the successful translation of a gas mining country into an energy sustainable one. The low investment in R&D places Nigeria at a disadvantage. The reason for this could be the huge investment by multinationals in the oil sector, making the need for investment in oil and gas R&D unnecessary for the Nigerian economy. However, this limits the benefits that Nigeria gets from its reserves since it remains reliant on foreign owned technology to harness and distribute the resources. Most successful oil extracting companies, private or publicly owned, have very impressive R&D centers to which the Nigerian one under the NPC does not compare (Obaje, 2009).
The second and third areas that require critical attention is that of physical infrastructure and legislative and regulatory framework to govern the distribution of natural gas (Ford Business Group, 2010). The infrastructure required for proper distribution of natural gas does not exist to an appreciable extent in Nigeria. On one hand, Nigeria needs to develop a pipeline to carry natural gas to its energy utilization centers such as the city of Jos. The gas can run gas fired turbines to generate electricity and for combustion by gas engines. On the other hand, Nigeria needs to develop its power generation capacity to meet its needs by selling some of the natural gas, because the market in Nigeria is not large enough to take up all the supply available. By selling natural gas, Nigeria can use the proceeds to develop its local power generation capacity.
The challenges that the Nigerian government needs to address before it makes the use of natural gas in Nigeria profitable include policy changes such as removal of subsidies and development of carrying capacity. The oil and gas sectors of Nigeria continue to benefit from government subsidies. The Oxford Business Group (2010) argues that Nigeria needs to unshackle the two sectors from the subsidies if they will compete profitably in the international market. A key challenge in natural gas trading is the rather expensive forms of transport that it requires (Low, 2005). This calls for identification of large demand centers located near supply centers. In fact, part of the reason why there was a lot of flaring of natural gas in Nigeria was the lack of a viable market. Many oil producing countries however realized the potential for tapping natural gas during crude mining and developed the requisite business systems. To meet the strategic goals of improving the uptake of natural gas in the country, Nigeria has introduced Compressed Natural Gas (CNG) for use by cars and other automobiles (Mwalimu, 2005).
The implementation of the master plan continues to face the administrative challenges that attend to the Nigerian federation. The three tier federal system in Nigeria is full of replication and duplication of authority, making doing business difficult (AfDB & OECD, 2010). The function overlap by competing agencies only serve to reduce the speed of implementation of reforms in the sector.
On the economic front, Nigeria relies on the US dollar to transact in the international market. This leads to losses in foreign exchange. Muller et al. (2007) contend that part of the way to deal with the Nigerian over reliance of the US dollar is to trade using its national currency, the Naira, at least regionally. They contend that using the dollar in international trade robs Nigeria of the capacity to bring home some of the jobs in the natural gas value chain thereby worsening its unemployment situation. In addition Nigeria should work harder to rope in trade in oil and gas in the informal sector to increase revenues from the sector (Muller et al., 2007). They continue to say that Nigeria has very many professionals in the global oil and gas industry, hence only qualified Nigerians should get employment with the Nigerian National Petroleum Corporation and not similarly qualified foreigners. (Muller et al., 2007).
The unique selling proposition of gas is that it competes very well with other fossil fuels in as far a as green house gas emissions are concerned. Also, natural gas has fewer handling requirements in its production and development stage because it leaves no sludge or ash to deal with after utilization (Ariweriokuma, 2008). In addition it is very flexible as a fuel, providing better design development options for engines. These factors contributed to the increasing importance of gas since the mid 80’s. Security is a key concern for the gas business in Nigeria. Insecurity in the Niger delta led to dramatic losses in the closing years of the last decade (Maritz, 2010). The development of a long-term strategy needs to take into account the security situation in the country.
Areas of Further Research
There is need to research on the bottlenecks to the implementation of the plan In use because the development of another master plan will run into the same problems if they are not adressed. This area requires the determination of the impact of corruption, political expediency and incongruent planning to the implementation of the masterplan.
Conclusion
In conclusion, the Nigeria’s Natural Gas Utilization Master Plan needs cut across the energy sector and must take into account the different situations attending to the Nigerian economy. There is need to market the natural gas to other countries in order to develop the systems required for Nigeria to take full advantage of the natural gas deposits it has. In the meantime, Nigeria will do well to invest in gas fired plants to generate energy for domestic use. The Nigerian government must take a serious look at the infrastructural outlay it has in relation to the supply of electricity. The production capacity that coal fired plants will bring cannot serve their purpose with the current infrastructure. It is too weak to carry the nations needs. The third issue that requires attention is human resource development, including research and development. By developing these two areas, Nigeria will increase its profits by benefiting from both upstream and downstream activities in the natural gas sector.
Ariweriokuma, S., 2008. The Political Economy of Oil and Gas in Africa: The Case of Nigeria. Illustrated ed. New York: Routledge.
Low, P.S., 2005. Climate Change and Africa. Illustrated ed. New York: Cambridge University Press.
Maritz, J., 2010. Nigeria Like it is: A Practical Guide to Doing Business in Nigeria. Maritz Publishing.
Muller, J., Reder, M. & Network, S.-E.J., 2007. Africa and Europe: Co-operation in a Globalized World: Conference of Scribani-European Jesuit Network. Berlin: LIT Verlag Munster.
Mwalimu, C., 2005. The Nigerian Legal System. New York: Peter Lang Publishing.
Obaje, N.G., 2009. Geology and Mineral Resources in Nigeria. Ilustrated ed. New York: Springer.
Onyeukwu, H., 2009. Nigerian Gas Master Plan and Policy: Is it a Constrained Energy Policy? From the Selected Works of Humprey Onyeukwu. Lagos: Selected works Bepress.
Oxford Business Group, 2010. The Report: Nigeria 2010. Lagos: Oxford Business group.
Umukoro, B.E., 2009. Gas Flaring, Environmental Corporate Responsibility and the Right to a Healthy Environment:The Case of the Niger Delta. In F. Emiri & G. Deinduomo, eds. Law and Petroleum Industry in Nigeria: Current Challenges. Lagos: African Books Collective. pp.49-64.
Being the most important resources that drive the economy of the states across Eurasian region, oil and natural gases have significantly contributed to the growth, and civilization of various countries in Asia and Europe. Oil and natural gases are not only the sources of energy, but also the driving force of the economy as they are among the highest contributors of GDPs in these countries. The fact that most nations in the Eurasian region are independent and sovereign states makes it difficult to mobilize the oils and natural gases, which are the major resources of these states.
Given that they are the major sources of development, they have become the objects of international politics, attracting some of the top economies in the world, such as Russia and the United States. The Eurasian region has a population of around 5 billion people, which is over 70% of the world’s total population. As such, the energy sector has generated millions of job opportunities so as to sustain the population. In other words, the oil and natural gas industry is an investment that holds the economy of the various states in Eurasia, and, therefore, the energy sector holds the power of the survival of these nations.
As seen in the past, oil has been a leading cause of conflicts among the Eurasian states and the outside countries that own oil mines in these regions. September 11 is an example of a tragic event that was caused by oil disputes. The conflict between Iraq and the United States rose as a result of oil control fueled by the United State’s declaration to advocate force in securing their oil. Al-Qaeda’s plan to bomb America and a couple of America’s embassies across the world was a strategy to curb America from deploying more forces in their oil reserves. The issue of transportation is also critical. The idea of transporting Central Asian oil by passing their pipeline in Afghanistan in order to make the distribution easier and cheaper impacted the 9/11 event.
Basically, oil production and its distribution have been the cause of war over the years as most nations disagree on various issues related to these natural resources (Oliker, 2002). The conflicts associated with oil and natural gases have been stereotyped; some people say that oil is cursed, being the cause of conflicts among the nations involved in production and transportation.
Soviet disintegration had a major impact on the oil energy sector. Apart from losing over 90% of the 10 million barrels that were produced every day, the Central Asian States also suffered the lack of modern technology and shortage of production equipments. This worked in favor of Russia and Azerbaijan as they secured the dominant positions in oil and gas reserves. Nevertheless, despite the disintegration of the Soviet Union, the five Central Asian States have maintained their inter-state political relations because of their dependence on each other’s resources as some parts hold hydrocarbon resources, while others have rivers, and, therefore meet the domestic needs of other states.
This reliance has strengthened their inter-states political relations as they acknowledge the roles played by the states involved. However, there have been occasional disputes among these nations caused by discontinued supply of oil and water. However, the intervention of presidents from these states has ensured that there is an understanding from all sides. As a way to deal with the conflicts in the Eurasian region, most of Asian and European countries are usually invited in an annual meeting that was formed in 1996, known as the Asia-Europe Meeting (ASEM).
Most wars usually occur as a result of disputes in regards to control of oil mines, and the concern of availing the oil at very high prices. Over the past decade, the issue of the legal status of the Caspian Sea has been seen to raise tension among Azerbaijan, Kazakhstan, Iran, Turkmenistan and Russia (Hiro, 2009). This subject has remained a complex matter as the countries involved have not been able to come to an agreement. Nonetheless, they have signed agreements so as to contain the occasional conflicts caused by the division of the Caspian Sea. The issue of security and boundaries is also a sensitive subject in the political scene as the states involved have always been fighting for the ownership of oil and natural gases fields. The disputes among the inter-states of the Eurasian region are usually considered as ethnic conflicts, however, the intervention of the outside nation increases tensions, leading to massive loss of lives and property. The scramble for the power of influence over oil/gas fields has resulted in armed intervention, transforming inter-states’ unrests to wars (Laruelle, 2008).
The distribution of oil and natural gas all over the world has seen nations forming political and social ties. As a result, this has opened new ways for globalization, industrialization, and economic growth of countries not only in the Eurasian region but all over the world. The oil/gas industry has been known to have a major influence on the public sector. Politics requires a lot of money so with the support of the individuals in this billion-dollar industry, politicians are guaranteed the resources they need. Nonetheless, they are expected to act in favor of these individuals once they are elected.
Even though the constant war in Afghanistan has discouraged other forms of investments, the country still gains a lot of foreign income from its natural wealth. However, the deployment of foreign armed forces from countries involved in the production and distribution has started the war, opening up opportunities for other forms of investments that contribute to the growth of the nation. Additionally, the intervention of the international community has helped to reduce inter-states conflicts and tensions among countries, seeking to gain the power of influence over the production and distribution of this mineral resource.
The economic gains due to oil and natural gases have significantly enhanced the development of infrastructure in Afghanistan. Apart from the foreign income obtained from selling these resources, these states have attracted investments which have created jobs that enhance growth and development. The involvement of political leaders in the energy-sector has been the cause of conflicts as tensions are developed by efforts made by the states involved to control oil/gas production and distribution. Over the years, it is evident that oil and natural gases have brought energy security, economic prosperity, and stability in this region (Rashid, 2008). However, this has also been followed by constant conflicts that are subject to the issue of power in production and transportation. In addition to this, the demand for these resources in the energy market has consistently increased as a result of industrialization, and the various economic tasks that contribute to the modernization of the world.
References
Hiro, D. (2009). Inside Central Asia. New York: Overlook Duckworth.
Laruelle, M. (2008). Russian Eurasianism: An ideology of empire. Washington, D.C: Woodrow Wilson Center Press.
Oliker, O. (2002). Faultlines of conflict in Central Asia and the south Caucasus: Implications for the U.S. Army. Santa Monica, CA: RAND.
Rashid, A. (2008). Descent into chaos: The United States and the failure of nation building in Pakistan, Afghanistan, and Central Asia. New York: Viking.
Indices
Figure 1. Major Oil and Gases deposits in the Eurasian regionFigure 2. Political risk over mineral wealthFigure 3. Oil and natural gases price range
In 21st century, energy has become one of the vital international political issues. The globe is witnessing multiple energy confronts, soaring energy prices, climate change, global resource competition and energy poverty. The emerging of new vibrant economies like Brazil, Russia, India and China (BRICs) have hastened and worsened the present energy trends.
India and China are emerging as new demand centres in the global energy system whereas Brazil and Russia have become as significant energy exporters. The global economy is still reliant on varied energy resources namely natural gas, coal, oil, which is known as fossil fuels. This is quite distressing as these resources are depletable, increasingly costly, geographically saturated and very polluting thereby resulting in global warming.
The existing substitutes for fossil fuels like biomass energy, nuclear energy, and hydro-power are highly contentious due to their negative risks or side-effects. Further, global energy demand is set to increase many fold in the ensuing decades, especially in the developing and emerging world.
It is estimated that global energy demand is likely to exceed by over fifty percent by 2030 and up to eighty percent of this increased demand will be catered by fossil fuels. (IEA 2007b). (Lesage, Graaf & Westphal 2010:2).
As we enter the 21st century, traditional energy sources are shrinking slowly and intertwined issues of a steady increase in demand and constricted supply have compelled to new urge for “energy security” as both consumers and producers resist to manage costs, price, geopolitics and the environmental impacts.
These issues, matched with technological upgradation have kindled a historic surge in LNG projects around the globe with Qatar surfacing as the global leader in LNG liquefaction capacity. LNG production on the global level had increased from 2.1% to 2,819.4 Bcm (99.5 Tcf) in the year 2005.
Of late, there has been a considerable increase in gas production thanks to the advent of cutthroat competition that exists in customary power and gas markets coupled the lower prices. The advancement of technology has introduced combined –cycle gas turbine (CCGT) technology, which has facilitated the enhancement of the economics of generating power from gas.
CCGT technology has many advantages like with markedly higher operating efficiencies and lower capital costs, which have offered natural gas as a viable alternative over the coal which have higher emission features. (Tusiani & Shearer 2007:2).
This has resulted in the increase of the demand for LNG around the globe, and natural gas exports rose to 680 Bcm (24 Tcf) which represented about 9% in 2004, which symbolised about one-fourth of total global consumption. However, as on date, about 74% of these exports are being made through pipeline deliveries.
Out of aggregate of global natural gas consumption, LNG shares of about 6.6%. (Tusiani & Shearer 2007:2). The global fleet of LNG ships was estimated about 21,000 million deadweight tons symbolising an eight percent increase in just 3 years as of 2007 and this was about 2.4% of the aggregate of the global fleet.
This will probably kindle the growth for LNG in the North American market. In the coming two decades, it is estimated that global demand for this energy source will grow by 2.75%.
Further, during the past decade, the transport and production costs have been slashed by fifty percent and the cost of re-gasification and sea transport declined by a quarter and by a third respectively.
Major producers of LNG on an international level are Russia, US, UK, Canada, Indonesia and Algeria. Smaller producing nations are Latin America, Middle East and Asia as these nations are obtaining natural gas as a result of their oil production.(Branch 2007:65).
By 2030, Venezuela is predicted to emerge as a significant LNG supplier to Europe and North America. By 2030, Middle East, Central Asia, Russia and Australia are anticipated to become new exporters to China.
LNG supply from Russia is anticipated to grow less rapidly despite the fact of its vast resources since lion’s lion’s share of Russia’s gas reserves is technically arduous to extract and supply to market. According to IEA WEO 2006, Russia is also anticipated to start the export of gas to Asia well before 2030. (Alfdala, Reklaitis and EI-Halwagi 2010:34).
LNG imports by Taiwan have increased by 90% in January 2010 as compared to January 2009. According to Bureau of Energy Statistics, Taiwan imported about 691,000 tonnes of LNG during 2010 as compared to 469,000 tonnes of LNG imported during 2009.
It is to be observed that Taiwan is importing LNG from Malaysia, Indonesia and Qatar and two spot cargoes from Trinidad and Nigeria. (Lngunlimited, 5 March 2010:1).
About sixty four million American families use natural gas as fuel for their homes. If LNG supply is disrupted, it may affect the livelihood of millions of Americans. If more LNG imports are perused by USA, then it will have less pressure on the prices to be paid gas consumers in America. It will also minimise the impact and less pressure on energy prices on American consumers and industry. (www.lngfacts.com).
In view of the above, this research will critically offer an overview of the growing role of LNG in meeting the global energy demands in future and will investigate into whether LNG is the future energy of the world and critically conclude with findings that LNG is evolving into an international market driven commodity in future.
Due to the safe properties of LNG and due to strict adherence of codes, standards and guidelines applying to LNG, LNG industry is being considered as one of the safeties fuel in meeting the global energy demand in the near future. The flexibility offered by LNG demonstrates its ever increasing function in international energy trade.
There are presently 32 liquefaction plants in operation and about 51 LNG reception terminals in the world. Further, there has been plan for in pipeline for more than 70 LNG terminals and about 30 planned liquefaction expansions and plants all over the world.
According to experts from the BG group, global LNG production is set to increase from ” 175m tonnes per annum in 2008 to 275 m by 2011.” However, demand may surpass the supply between the years 2011 to 2015. EIA (Energy Information Agency) has predicted that U.S LNG imports would soar to 4.5 trillion cubic feet in 2030 from just 0.6 trillion cubic feet in 2005.
LNG globalisation can be symbolised from the orders for methane tankers which are soaring, and it is predicted that aggregate fleet of tanker is likely to increase by fifty-six percent in the next five years and is anticipated to soar by 7.5% per annum until 2015.
Thus, this research essay will critically examine in depth about the growing and evolving part that LNG will play in catering the globe’s energy needs in the near future.
Aim of the Study
This research will critically evaluate the issues of globalization of LNG.
This research will examine whether LNG will be an alternative fuel of the future replacing conventional fuels (fossil fuels).
This research will critically examine the growing role of LNG in meeting the global energy demands in future.
This research will investigate the escalating international trade of LNG spot contracts thereby replacing long-term contracts.
Literature Review
Of late, Qatar has emerged as a poignant global LNG supplier as the Qatar’s geographic position enables it to supply both for Asian markets and European markets at analogues’ costs while the U.S market also falls within the competitive accomplishment.
Many giant LNG projects have emerged on-stream during 2009-10 with major of them come under the group of flexible LNG and typically assigned for the United States and Europe market.
The recent global economic recession which affected badly both Europe and U.S.A has begun to make a brunt on global LNG demand. Though, there has been less appetite for LNG in Asia also due to global economic recession, China and India showed substantial interest in sourcing excess LNG available in the market.
Due to this, flexible LNG is possible to turn out to be a really global commodity, searching for markets where it can seize the best netback value. (Goldthau & Witte 2010:229).
Over the next few years, flexible LNG in abundant volumes will come into manufacturing and LNG will retort mainly to price signs, although customer relations and politics will also play a role in its ultimate destination. In U.S.A, The import of LNG has come down substantially due to development of shale gas.
As of date, among the three regional markets, U.S gas prices are now the lowest. Though, there is availability of shale gas in U.S.A, its cost will be too high. Thus, in the long run, both LNG and shale gas will be the main source of energy for U.S.A. (Goldthau & Witte 2010:232).
Price of LNG is influenced by U.S gas market and is normally priced against the Henry Hub index, with due regard to location differentials.
However, due to fast evolution of LNG spot market and the enhanced accessibility of shipping which not committal to long-run contracts has ended in an ever escalating globalisation of spot LNG prices again driven on the margin by U.S. market prices. Further, it is to be observed that majority of the globe’s long-run supply of LNG remains protected from competitive market elements.
Due to involvement of technical intricacies of the LNG business and its requirements of massive scale investments up front, the gas manufacturers, frequently involve the national oil company which seems to be engrossed in the manufacture and liquefaction phases and assume control of the LNG shipping, offering on a CIF basis or ex-ship basis.
This arrangement originated from the gas producers’ intention to have control over the LNG project’s flourishing accomplishment and to safeguard their upstream interests. Moreover, LNG buyers are gaining rights in LNG terminals in the aggressive markets thereby to have more control over the ultimate of sale of the gas. (Michael, Tusiani & Shearer 2007:76).
Since January 2006, as per EIA historic data, oil prices have stayed above $ 55 per barrel, and this has resulted in the enhanced demand for LNG. Further, the demand for LNG appears destined to increase inevitably as major consuming nations like U.K, U.S.A and Canada which actually witness irreversible slowdowns in their gas production.
Some critics have argued whether there is adequate gas reserves inconsonance with global demand. It is to be noted that at current level gas productions, there are adequate gas resources to last for at least seven decades from now where as it is estimated that current oil reserves will last for only 42 years from now.
For instance, despite North America holds not less than 5% of global gas stocks, it symbolises for about twenty-eight percent of global utilisation, whereas Middle East contains about 36% of global gas stocks but only consumes about just 10%. (Michael, Tusiani & Shearer 2007:27).
China has issued a white paper titled “The problem of Energy Security During the Period of High Oil Prices “ which discusses about the international competition for energy resources, which has escalated in 2007 and regional vie and competition has aggravated and obscured the international security issues.
China’s white paper also looks at energy security as part and parcel of globalisation drifts and thus viewed it as an international issue. (Amineh & Yang 2010:46).
Verified global gas reserves are marginally concentrated than oil reserves. The Middle East region and the Russia hold about 2/5 and 1/5 respectively of established global gas reserves respectively.
If the ongoing LNG projects are accomplished in time, the capacity of liquefaction and carrying of LNG would reach a volume of 214 million tons per annum. LNG offers a substitute to long- outdistance transport through pipelines and conveys more opportunities to supply since LNG cargoes can emanate from varied sources. The flexibility offered by LNG demonstrates its ever increasing function in international energy trade.
LNG globalisation can be symbolised from the orders for methane tankers which are soaring, and it is predicted that aggregate fleet of tanker is likely to increase by fifty-six percent in the next five years and is anticipated to soar by 7.5% per annum until 2015. Both the size of the gas tankers is growing and at the same time, they can cover more distances by travelling more than 7000 miles without any refuelling.
Globalisation of LNG market is on the cards. With the abnormal increase in LNG projects, there exists a vibrant competition between nations owning gas reserves that can be supplied as LNG. In order to compete with offers from Qatar, Australia has reduced its prices for its deliveries to China.
Sourcing gas from Qatar is considered to be of high cost to the Asian market as compared to supply of gas from Indonesia or Australia to these provinces. Further, if gulf nations want to penetrate into European market, they are likely to witness the competition from Trinidad and Nigeria. China is anticipated to import large quantum of LNG as its total gas consumption is expected to soar to about 66 billion m3 in 2010. (Geman 2009).
Major LNG Suppliers around the World
Qatar is in the process of making the Gulf into the globe’s largest centre for LNG market. Libya and Algeria are considering the natural gas production as their long –term economic interests. Oman LNG production capacity is estimated around 10 mt/y and its Qalhat LNG is said to have made sale arrangements with “National Offshore Oil Corporation of China”.
Algeria’s production capacity is around 17.6mt /y. Algerian government has set a mark of enhancing its natural gas production to 28.7 mt/y by the year 2012. Egypt’s major LNG manufacturers are namely Egyptian LNG (ELNG) and Spanish Egyptian Gas Company (Segas).
The global economic recession may act as a barrier for the growth plans of LNG industry as the economic slump is liable to end in a reduced aggregate of energy consumption and hence its brunt on the global LNG trade stays ambiguous.
Due to global economic recession, the gas prices in the globe’s two greatest market namely South Korea and Japan have declined drastically over the last half of 2009 from $ 20 per million Btu (British Thermal Units) in August 2009 to $ 9.15 /m Btu by December 2009”. Analogues’ decline was also witnessed in the fast developing economies like India and China but is likely to be recouped in the long run.
According to experts from BG group, universal LNG production is set to increase from about” 175m tonnes per annum in 2008 to 275 m by 2011.” However, demand may surpass the supply between the years 2011 to 2015. (Ford 2009:51).
In the last five years, global demand for LNG except North American market increased by 3% and the analogues demand growth is estimated for the succeeding five years with increasing demand anticipated from growing economies like India, China and Middle East, which are using gas as a substitute for the coal and oil and using the LNG for manufacturing power. (Alfadala, Reklaitis and El-Halwagi 2009:37).
Venezuela is expected to turn out to be an important LNG supplier to Europe and the North America in the coming years. During the projection period, China is expected to import LNG from Central Asia, Russia, the Middle East and Australia during the projection period.
Though Russia is having enormous LNG reserves, Russian supply is anticipated to grow less rapidly since much of the Russian gas is theoretically intricate to extract and has to cross many obstacles for transporting to market. However, Russia is also seen as another probable major supplier to Asian market before 2030.
Recently, Russia’s Gazprom announced its maiden entry into the North American markets. Further, by 2014, Gazprom is planning to supply LNG to Rabaska terminal, which is being constructed in Levis, Quebec.
According to experts, US LNG market is not a “demand-pull” market but is only a “supply-push” one. In this category of market, other parts when they need LNG will source heavily since they do not have a significant storage facility as US will attract LNG supplies when there is low demand.
Thus, according to Credit Suisse LNG report, U.S is able to attract LNG supplies, especially during the low demand time period and will absorb the world’s excess when there is no place to store it. While future shipments to the USA will basically rest on the relative price and demand around the world, the fundamental need for LNG in the US remains strong (Alfadala, Reklaitis and El-Halwagi 2009:35).
Future Market for LNG
LNG is outperforming as a best substitute for CNG. Considering the pipeline gas, LNG offers lower onboard storage weight, more consistent fuel quality, volume and lower pressure risk. Though LNG tanks are securely insulated, at times, there is a chance of heat transfer into the tanks which is obvious.
LNG operation has become more stringent than CNG as it is reported that there has been weathering limit fuel storage time onboard of the vessel and fuel vaporization.Thus , LNG fuel is more costly than compared to CNG even if the cost of compression work is taken into consideration with that of sourcing CNG. (U.S. Federal Transport Administration 1998:84).
Due to ardent supporters of global warming stiff opposition against use of fossil fuels, LNG become the most favourite fuel for power manufacturing industry. In near future, natural gas will also be used in fuel cells for automotive power and fuel cells energised by natural –gas-to –hydrogen technology could support an increasing percentage of automotive transport. (Downey, Morgan & Threet: 31).
In the near future, the increasing global needs of energy have to be met by producing more energy to cater for the demand but at the same time, restricting and even reducing greenhouse gas emissions. (Barden, Pepper & Aggarwal 2009: 55).Hence, reliability on coal and oil is going to be minimised and at the same time, it will place more emphasis on LNG consumption. (Weirauch 2007:21).
Thus, increased LNG business will make the distinct regional markets to be more integrated one since contract terms and pricing are more flexible. Though, environmental and safety issues will restrict the import optionality in certain markets, like that of USA, LNG is no doubt will become a significant component in the international fuel supply blend.
Thus, the vibrant in the evolving LNG markets will influence that LNG, will, indeed, become the fuel for the twenty-first Century. (Alfadala, Reklaitis and El-Halwagi 2009:41).
Experts are of the view that based on the current consumption pattern, LNG demand will be soaring to about 200 million MT/per annum in 2010. This increased demand for LNG will pave the way to the introduction of extra 161 new vessels into the international LNG carrier market from 2005 to 2010.
This will increase the LNG ship fleet to 336 at the end of the year 2010. This anticipated increase in the demand for LNG careers simply denotes the increase in the demand for gas.
Thus, the increase in the demand for LNG and as the same have to be transported from one end of the globe to the other end of the globe, this will result in the introduction of larger vessels of 145,000 m3 to 250,000 m3, which will reap the economies of scale and will enhance the profitability of the transporting company. (Ariweriokuma 2008:188).
However, there are also risks involved in the transportation business of LNG. A narration of accidents involving LNG carriers was given by Lakey and Thomas (1983). Further, there have been many instances of LNG spills on the decks of the LNG ships. (Wright 2006:11).
There have been many instances of lightning strikes followed by fires on LNG ships. However, these business risks are inherent in every business and this risk can be mitigated by availing insurance covers. Thus, LNG, will, indeed, become the global fuel for the twenty-first Century. (Alfadala, Reklaitis and El-Halwagi 2009:41).
Research Methodology
This chapter will aim to justify the methodological decisions taken and used to investigate this research problem, through the choice of research design, data collection method, measurement tools, sample and size. The objective is to match the most appropriate methodological approach to the problem, bearing in mind time frame restrictions and limited resources.
Many collections of published works, which deal with the recent ideas and debates of the globalisation of LNG will be examined, analysed and then deliberated. Some case study examples and evidence from across the world have also been widely discussed in this research. To support the theme and idea, this research has utilised the data’s published by the WEO, Credit Sussie on the subject to support its findings.
Research Philosophy
Research philosophy describes the way researcher think about the development of knowledge which affects the way researcher go about doing research. There are three types of research philosophies: positivism, Interpretivism and realism.
This research is based on mixtures of all these three philosophy but most of the part of this research follow realism approach as this recognise the importance of understanding people’s socially constructed interpretations, understand the social forces, structures and processes that influence and people’s view and behaviours.
As per positivists view, a data cannot be regarded as proven if it has not been tested empirically. Positivism has statements which can be analysed scientifically and it has no value assessment. (Saunders et al 2006).
According to Interpretive philosophy the reality of knowledge depends on understanding and interpretation and realities can differ across time and place. This philosophy action is not governed by discrete patterns of cause and effects but by rule that social actor use to interpret the world. But it is implicitly conservative because it ignores the possible structure of conflict in the society and the possible sources of social change.
Realism shares some philosophical aspect with positivism and it also recognises that people are not object to be studied in style of natural science. (Saunders et al 2006).
Research Approach
Research approaches can be classified into two categories: First one is inductive approach, in which we collect the data and develop theory as a result of analysis. Whereas deductive approach is another method in which we develop the theory and hypothesis and design research strategy to test hypothesis and another one. (Saunders et al 2006).
This research will use the deductive approach for this research as this approach focus on:
Moving from data to principle
The need to explain the causal relationship between the variables
The collection of quantitative data
The necessity to select samples of sufficient size in order to generalise conclusions. (Saunders et al 2006).
Research Strategies
This part o research deals with research strategy of collection of data and analysing method and how this study is going to handle constraints in this research based on the research questions and objectives. Although there are various research strategies, this research will follow experimental strategies because:
It defines the theoretical hypothesis
Selection of samples
Use of dependent and independent variables
Includes comparison
Conduct pilot study
Determine place, time and duration of the experiment (Saunders et al 2006).
Data Analysis
To find out the available data
To assess the available data
To corroborate the available data
Further, as referred earlier, this research will be using an empirical study approach as a main research tool for this research. An empirical study will explain the expansion of exhaustive intensive wisdom about a specific “study”. Further, an empirical study approach will help the research study has an extensive talent to forward answers to the questions like how, what and why. (Robson 2002).
Thus, empirical study methodology has been advocated as a constructive strategy if the goal is to develop a vast understanding of the background of the research and the processes being endorsed. Further empirical study methodology is a tremendously valuable style of investigation of existing theory. (Saunders et al 2006).
The past empirical research studies offer a great insight in to this research study and this research study has used mostly the past empirical studies to corroborate and vouch that LNG will be the future fuel for the globe and there is every possibility of the process of “globalisation of LNG “in the coming decades.
Past empirical studies like IEO WEO Report of 2006, EIA of U.S report, Credit Suisse LNG report, EIA International Energy Outlook 2008 will be used in this research study to corroborate the research hypothesis.
IEO WEO survey conducted in 2006 estimated the demand from North America and concluded that the supply of natural gas from indigenous sources in the North American region will not keep match over the estimation period and as a result, it identified that there will be a great demand for LNG in USA in the years ahead.
As per recent research study, the global LNG supply is expected to increase by forty-four percent from 2007 to 2010 and there will be back end load due to project implementation delays. Supply of LNG is anticipated to increase from 22.3 bcf/d in 2007 to 32.2 bcf/d by 2010. (Alfdala, Reklaitis and EI-Halwagi 2010:34).
According to Credit Suisse LNG report, there was a 3% increase in global demand for LNG (except North America) over the last five years and the identical demand growth is anticipated in the next five years with increased demand anticipated from India, China and the Middle East, which are likely to replace LNG in the place of oil and use more LNG for manufacturing of power. (Alfdala, Reklaitis and EI-Halwagi 2010:35).
EIA (Energy Information Agency) has predicted that U.S LNG imports would soar to 4.5 trillion cubic feet in 2030 from just 0.6 trillion cubic feet in 2005.
According to Credit Suisse LNG Report, U.S will buy LNG during the phases of low demand and will intake the global excess when there is a sluggish in demand. However, in the future also, U.S going to remain as a strong market for LNG forever. (Alfdala, Reklaitis and EI-Halwagi 2010:35).
Simon Cattle, Head of Supply and Trading of BP visualises that European LNG imports are likely to have about 100 percent increase in 2020 from the current level of over 170 billion m3 from 2010 levels, which are accounting for about 25% of the total European gas supply, and he anticipates that UK will surpass Spain as Europe’s largest LNG consumer and importer. (Lngunlimited, 5 March 2010:3).
According to the EIA International Energy Outlook 2008, global primary energy demand is estimated to soar by fifty percent between 2005 and 2030, and this will be greatly reliant on the magnitude of economic growth by then. The emerging Asian tigers namely India and China will be witnessing an abnormal economic growth due to globalisation.
Due to this fact, it is estimated that more than twenty-five percent of global energy demand will be coming from the Asian tigers namely India and China by 2030. On contrary, the share of U.S consumption of energy is likely to decline to 17% from that of 22% between 2005 and 2030.
As per the EIA International Energy Outlook 2008, world gas consumption is anticipated to increase for the phase 2005-2030 to 158 tcf in 2030 from 104 trillion cubic feet (tcf) in 2005. Further, gas import dependence is likely to soar substantially in all major consumer markets around the globe.
According to EIA IEO 2008, except in Southeast and East Asia where gas import dependence is already very high, gas import dependence is likely to soar considerably in all chief consumer markets. The import dependency of the China and the EU will soar about seventy percent of their domestic consumption by 2030. (Amineh & Yang 2010:4).
As per EIA IEO 2008, as of January 2008, Iran and Russia jointly hold about 43 % of global gas reserves. Though the Middle East has major gas resources, but it stays chiefly untapped. This is mainly due to intricacies or cost associated in developing these gas resources and supplying the same in the market.
Considering the international oil market, the global gas market can be said to be a regional one which comprised of Russian –European market, Asia and the North-American market.
Non-OECD Eurasia and Europe and the Middle East vouch for about forty percent of the international production of natural gas in the year 2005 and are anticipated to account for about forty-five percent of the increase in the global gas production between 2005 to 2030.
Further, OECD nations will lose their share of international production to 27% from that of 39%. Further, it is predicted that by the year 2030, supplies of gas for the global market will emanate from lesser nations than that of today due to some of the gas sources will dry up by then. (Amineh & Yang 2010:4).
GANTT chart for the Research Study
The above Gantt chart indicates the association between the project tasks, together with estimation of time for completion of research study for each section. The horizontal axis of Gantt chart exhibits the time at which each phase of the project will be completed and the vertical axis indicates the research activities to be accomplished. The blue bar shows the required start time and duration of the different phases of research activities.
Once the project is approved, the research project would be concentrating from 11th October to 15th November for the completion introduction, aim and objectives of the research study. From 2nd December to 10th December, research study will be concentrating on the literature review and Methodology. From 8th January to 18th January 2011, findings, conclusion and recommendation section will be completed. (Pyzdek 2004:42).
List of References
Alfadala, Reklaitis et al. (2009) Gas Processing Symposium: 2009, New York: Elsevier.
Alfdala Hassan E., Reklaitis G. V. Rex and EI-Halwagi Mahmoud M. (2010). Proceedings of the 1st Annual Gas Processing Symposium. New York: Elsevier.
Amineh Medhi & Yang Guang. (2010). The Globalisation of Energy: China and the European Union. New York: Brill.
Ariweriokuma, S. (2008). The Political Economy of Oil and Gas in Africa. The Case of Nigeria, New York: Taylor and Francis.
Barden Justine, Pepper William and Aggarwal Vineet. (2009). The Impact of High Oil Prices on Global and Regional Natural Gas and LNG Markets. The Energy Journal p 55-72.
Branch, A. E. (2007). Element of Shipping. New York: Taylor and Francis.
Downey M.W., Morgan W.A & Threet J.C (2001). Petroleum Provinces of the Twenty-first Century. New York: AAPH.
Ford, N. (2009). LNG INDUSTRY SEEKS GROWTH DESPITE RECESSION. Middle East, (398), 50-54. Academic Search Premier Database.
Geman, Helyette. (2009). Commodities and Commodity Derivatives. Modelling and Pricing. New York: John Wiley and Sons.
Goldthau Andreas & Witte Jan Martin. (2010). Global Energy Governance: the New Rules of the Game. New York: Brookings Institution Press.
IEA WEO (2006). The World Energy Outlook 2006. Web.
Lesage D., Graff T V D & Westphal K. (2010). Global Energy Governance in a Multipolar World. New York: Ashgate Publishing.
LNGFACTS. (2010). About LNG. Web.
LNG Unlimited (2010). China to take Big Bite of LNG in the Year of Tiger. Web.
LNG Unlimited (2010). BG Pumps Up the Australian Volume. Web.
LNG Unlimited (2010). MOL Vessels Find a Home. Web.
There is no use denying the fact that nowadays, natural gas is one of the main sources of energy in the world. With this in mind, it is possible to say that this transformation led to an increase in the importance of this source. Incoherent society, natural gas influences the world policy greatly as economies of a great number of states depend on its manufacture and consumption. Moreover, oscillations of the price of natural gas lead to significant changes in the market and can result in the appearance of the world financial crisis (“One Year Natural Gas Prices and Price Charts” para. 4). Resting on these facts, it is possible to analyze the oscillations of the price of natural gas and their influence on the market.
First of all, it is possible to say that nowadays, the price of natural gas is comparatively low. According to the latest statistics, natural gas costs $2.54 on Tuesday, October 13 (“Naturalgas Price Live” para. 1). This fact shows that nowadays, the tendency towards low prices could be observed. That is why the situation on the market is rather tensed, though stable. States, which depend on the sale of this source, obviously feel the budget shortfall as it was created in terms of high prices on gas. Russian Federation is one of the countries of this sort, and it now tries to reconsider its economy and budget.
Yet, it is possible to compare current low prices with the prices of gas in the middle and second half of the 20th century. Analyzing the data connected with the prices on natural gas, it is possible to admit that nowadays, it is even cheaper than it was “during 72% of the years since 1919” (Perry para. 3). In 2009 the average price was $ 5,64 per million British thermal units. However, under modern conditions, such a low price has a greater influence on the market because the world is more dependent on the prices of natural gas. There were no signs of stagnation and financial crisis in 1973 while nowadays researchers predict serious aftermath in case the prices become even lower.
Additionally, it is possible to say that “an all-time high of 15.39” (“Natural gas 1990-2015” para. 1) was reached in December 2005. It was characterized by significant changes in the market as leading gas producers were able to dictate their rules and obtain great benefits, promoting the development of the economy and pumping up the budget.
The lowest price was achieved in January 1992 and consisted of $1,02 per million British thermal units (“Natural Gas Prices” para. 5). This fact led to the collapse of the economy of a great number of states, and Russian Federation even suffered from the market crash as money obtained from the sales of natural gas was the main way to pump up the budget.
The following table shows oscillations of the price of natural gas.
Natural gas is one of the natural fuels that are used by mankind for both commercial and residential purposes. In the United S America it is mainly used for cooking and heating by the largest percentage households although it is applied as a raw material in the industrial sector as well. The usage of natural gas has increased for the past years with many citizens preferring it to other sources of energy.
Other uses of the natural gas that have emerged with the evolution of the energy and the manufacturing industry include, its use as vehicle fuels, powering the industrial furnaces, running air conditioners among others. The research paper looks into the natural gas industry in the US where it analyses its aspects. It also covers the emergence of the natural gas market, its discovery for the industrial, commercial and the residential use.
The evolution of the natural gas market industry is discussed in detail. Other than these, the research main objective is to analyze the effects of natural gas production in the US and imports from other countries. On the determination of the market structure and the evaluation of supply and demand in the future time series data is used. This is also applied to determine the price of the natural gas process.
The paper is organized systematically where there is literature review that looks into materials concerning the natural gas industry and several aspects would be discussed. Series trend data would be used to determine the supply and demand as well as the price determination of natural gas. The main body of the research paper would discuss and analyze the research findings of the data used in the research paper. The summary and conclusion will be based on the findings of the study on natural gas.
Literature
This part of the research paper used paper reviewed materials that have connection to the natural gas industry in the United States of America. The use of the natural gas in the United States of America has increased compared to the recent past. Natural gas is used as a burned fuel in the US, where in the 2009; more than 25% of natural gas was consumed.
These areas of consumption include the generation of electricity, fueling vehicles, heating buildings, heating water, baking foods, running air conditioners, and industrial furnace power. According to a report released in December 22, 2010 by Michael Ratner show that emergence of natural gas use has been necessitated by the fact that it is a cleaner because of its low carbon content.
Ratner (1) points that the combustion of natural gas is known to emit two thirds carbon dioxide less compared to coal, and a quarter less compared to oil. This is an explanation why the use of natural gas has been increasing bearing in mind that the environment conservation has been emphasized during the climate change summit over the years. Other reason why it is highly used in the USA is because natural gas combustion produces less particular matter, nitrogen dioxide and sulfur dioxide when compared to carbon (Ratner 1).
With the discovery of new methods of natural gas extraction like from shale, has encouraged the use of natural gas in the USA. This has been adopted by other countries seeing the demand and supply in the natural gas oil industry increase significantly. Some of the factors that determine the quantity of natural gas demand and the quantities in the market include technical capability, price, environmental concerns, as well as the political considerations in the natural gas producing countries (Ratner 1).
The evolution of the natural gas markets is likely to be determined by the unconventional natural gas reserves the US that is evolving. The USA remains the largest consumer of natural gas with consumption of 22% of the world’s production in 2009. According to Ratner (1) more than 84% of the gas in the USA was used for domestic purpose. This is a large percentage meaning that people have changed their trends in the usage of natural gas in the US.
Usage of natural gas has been there before although it was used in small quantities in the US for only domestic purposes. It has undergone evolution over the years. Over the years the discovery of its usage in industrial and commercial purpose in large quanties has revolutionalised the natural gas market.
According to Nersesian (248) the demand of natural gas has increased with world consuming 24% with the exclusion of bio fuels. US have become the largest importer because of its increased demand for both domestic and industrial consumption. For the residential purpose the natural gas use increase during the winter for the heating purposes. This according to Nersesian (249) has increased the demand for natural gas.
It has also made the prices of the commodity increase with the residential use by residential customers paying the largest bills. This has resulted to the chicken egg syndrome, where the residents depend highly on natural gas in the residential areas for the provision of warm during the winter season. In the industrial sector consumes largest amount of gas with more than 200, 00 consumers forming 35% of the natural gas use. This is less compared to the residential use of natural gas that has more than 60 million users annually.
The demand has continued to increase with the conflict in the Middle East where the oil crisis has affected the oil market. The industrial use includes incineration, waste treatment, dehumidification, petrochemical industries among other industrial uses. The more natural gas is being use the more the effect is relayed to the consumer goods production. This is because it is directly used as raw materials thus affecting the price of these products (Nersesian 249).
According to Roberts (1) the use of the natural gas in the US in the 1970 grew dramatically. He adds that most of the gas produced was a byproduct of the production of the crude oil. This was necessitated by the fact that the oil reserves at that time where lager and would be long lived.
This has changed over the years making the USA the largest importer of natural gas in the 21st century. Roberts (1) adds that for the past 40 years the usage of natural gas has been cyclical and market intervention by the government has been the reason why the trend has been changing. The regulation of the natural gas prices in the market was initiated by the federal government in the 1950s. This was the beginning of the evolution of the natural gas markets.
Roberts (1) notes that the Federal Power Commission was the predecessor of the Federal Energy Regulatory Commission that encouraged the supply of the natural gas through the pipelines and asserted a certain price for this. This saw an increase in the demand of natural gas after the market prices were regulated to low levels. Consequently the exploration rate declined because the returns were low and prices were low too.
After several laws and Acts were passed in the late 1970s the demand decreased and alternative methods of energy generation were put into place. Economic downturn led to decline in demand for industrial use of natural gas and the price of natural gas increased. The demand for natural gas has since increased after the economy has recovered (Roberts 1).
Production and increased demand for natural gas has had several impacts on US. With higher prices of natural gas, it has become more cheap and economical to import some of the products that are related to natural gas. For example, ammonia based fertilizers are imported, and alternative feed stocks have become attractive like the corn oil and naptha that is used for petrochemicals (Roberts 2). Other plants that don’t use natural gas have been closed because they were not ready for the change.
Data
The consumption of natural gas in the United States has been extremely high. This is based on the basis of several data trends on the percentage allocation on its use and demand over the years. The allocation of the use of natural gas in different sectors is also discussed and analyzed.
According to Ratner (3) the world consumption of natural gas in 2009 amounted to more than104, 000 bcf that forms 24%. USA formed the largest consumer with 22,849 bcf which formed a 22%. The economic downturn that resulted from the recession and the War in the Middle East has seen a 2% decline in the consumption of natural oil in the US. Ratner (3) notes that a third of the natural gas consumption in the US is used in the electric power generation, commercial use, industrial use, and residential use.
In 2009 generation of electric power had increased as compared to 2008 usage. It had a consumption of 6,900 bcf of natural gas an increase with 3% (Ratner 3). Te transport sector uses the les amounts of natural gas because of the several logistics involved its usage. Although it has no soot and it is environmentally friendly, the logistic hurdle has been the great problem.
Nersesian (249) notes that the projected figures of the usage of natural gas in the US show that it is clear that more than 20% that is over 60 million residents is used for residential purposes. The purpose of this is drying, cooking, heating, pool heating, and consumer space and water heat as well as gas fire places.
The residential demand increases to its peak during the winter with a more than 70% annual consumption although it varies depending on the season. The residential gas consumers pay the largest amount with the commercial users paying only 15%.
This sector has more than five million commercial users making them pay the second largest price. The sectors in the commercial that use natural gas include the motels, restaurants, retail establishments, healthcare facilities, hospitals, government buildings and offices (Nersesian 249). Their demand is not determined by the season it’s an all year usage scenario. Industrial sector forms over 35% in the natural gas total demand with more than 200,000 customers.
The industrial sector faces fluctuation in the demand for natural gas usage although it’s not seasonal. The major effect is the fluctuations and variations in the economic activity changes. The impact of increase in the prices in natural gases is that industries can change to other sources like bio fuels. The electricity sector has more than 5,700 users that account to 30% of the total demand (Nersesian 249). The electricity generation sector has more than 5,000 natural gas generating plants.
The Study
The demand for natural gas in the United States of America has increased over the years making it the largest user. According to Ratner (1) natural gas plays a great role in the world energy mix because of its growing resource base. This is because of it produces low carbon compared to fossil fuels.
Although US have been ranked as the largest importer of natural gas, report by Ratner (2) indicates that the unconventional gas reserves in the US from the shale gas have increased over the last years. Shale gas reserve has increased to 76% with its production increasing to 47%. This has changed the position of US as a net importer of natural gas to a potential exporter (Ratner 2). With the increase in demand, there has been a decline by 2% because of the economic downturn and the recession.
With increase in demand the market price of natural gas has been low. Natural gas price in Canada, USA and UK is set by the market that is set by the economic activities (Retner 11). There are hubs centers that provide the natural gas sellers and buyers with price data that are competitive.
Some of the hubs in US include the LA, Henry Hub in Erath which form a multiple interstate where most of the natural gas pipelines interconnect (Ratner 11). The demand for natural gas has made itself stand itself wholly; this has made it become uncompetitive with other sources of fuels.
The price of fuels in the US is also determined by the consumer needs. For instance, the residential consumers are the ones that pay the highest prices because of their demand that is determined by season. The commercial users follow in terms of demand and pay because of the economic activities. The demand of natural gas in the US is not likely to reduce because the unconventional gas a reserve that has been found.
In most case, the natural gas use in the US has articulated by the fact because gas in available and not expensive compared to other sources of fuels.
The production of natural gas in the use has its impacts. For one it has revolutionized the manufacturing industry by making use of natural gas a car fuels. This is seen as a way that reducing the amount of carbon, sulfer dioxide and other particular particles that are not environmentally friendly. It production has also made sure that its demand remains high with no reservations of its use getting low.
Production of ammonia has been affected with its production reducing drastically. According to Huang (15) the raw materials for ammonia fertilizers in the natural gas and its production have reduced because of the increased prices associated with natural gas. The production has reduced by 35% and the ammonia production plants have reduced over with 44%. This has reduced the supply of ammonia gas in the US with many companies opting to import ammonia from other countries because it’s cheap.
Other producing countries especially in the Middle East have the lowest prices of natural gas. This is obviously going to have negative impact on the price of natural gas in the US.
According to Huang (11) the imports of natural gas in the Middle East and the North Africa have been limited to low capacity production. With the in prices being low the imports from these countries is more likely to affect the exportation of natural gas to the US. Although these countries do not produce ammonia fertilizers from natural gas, if they did they would have a large market share in Asia and China compared to US. The imports may also reduce because with sustainable natural gas production there is no need to import natural gas.
The countries that export natural gas in the US will have to find another suitable market because the imports will reduce drastically (Gene 138). This is because of the production of natural gas in the US. It is also going to affect the manufacturing industry because increased production would mean more employment and industrial production. Imported natural gas is clean. According to Gene (138) the production of natural gas would see production of by products that would boost the economy.
Summary and Conclusion
Natural gas is used in large quantities in the USA with the household consumptions leading the usage followed by electricity generating. Natural gas household consumption include heating water, warming houses, cooking, powering fans, heating pools, ironing among others. For industrial use it is used as raw materials, powering industrial furnaces, running the air conditioners, incineration, waste treatment, dehumidification, petrochemical industries among other industrial use.
In the manufacturing it is as fuel in car, manufacture of ammonia based fertilizers, plastics and other materials. The reason why natural gas is preferred is because its environmentally clean, compared to coal. It also produces less sulfur dioxide gas and carbon and other particular matter. The discovery of unconventional natural gas reserves from shell formation has prompted the demand to increase. The emergence of the use of natural gas can be traced in years back although it was used in small quantities.
Over the years it usage has been increasing with the US being the largest user and importer. It uses natural gas in the residential places, transport sector, the industrial sector and the commercial sector. The increased uses have prompted the demand to increase and importing its gas from natural gas producing states like Russia. The statistics clearly show how US has been using natural gas with the population using natural gas increasing annually.
For residential use natural gas fluctuates seasonally with summer having the highest demand. On the other hand the industrial gas demand is determined by the economic activities. The market for demand of natural gas has evolutionised over the years after several laws governing the productivity, transport and pricing. The pricing is determined by the demand of natural gas in the US and the Middle East political stability.
The demand for natural gas is not likely to reduce over the years because of its environmentally friendly aspect. The United States is now becoming a net exporter as opposed to a net importer of natural gas due to the discovery of unconventional reserves.
The price in the US is determined by the market demand and the economic activity. From the research it is noticeable that because of its various aspects, natural gas is not competitive from other kinds of fuels. The production of natural gas in the US is likely to have effects. The demand is more likely to increase and so are the prices.
This would mean that imports from other countries may be reduced because they have their own sources. In terms of export however, this may reduce because the Middle East and North America produces natural gas that is of low price. The production of ammonia in the US has declined over the years because of its high price. Despite the fact that natural gas is being produced in the US, the price hikes has made it cheap and economical to import ammonia fertilizers from other countries.
Works Cited
Gene, Whitney C. E. B. Energy: Natural Gas. S.l.: Thecapitol Net, Inc, 2010. Print.
Huang, Wen-yuan. Impact of Rising Natural Gas Prices on U.S. Ammonia Supply. 2007. Web.
Nersesian, Roy L. Energy for the 21st Century: A Comprehensive Guide to Conventional and Alternative Services. M E Sharpe Inc, 2010. Print.
Ratner, Michael. Global Natural Gas: A Growing Resource. 2010. Web.
Roberts, J. Paul. The Evolution of Natural Gas Markets. n.d. Web.
The use of natural gas in the United States has experienced dramatic growth since late 20th century. In most of the period, natural gas which saw massive production was a by-product of crude oil production. Long-lived reserves and easy target have since been provided by the large reservoirs of dry natural gas production.
“On April 1992, the Federal Energy Regulatory Commission (FERC) issued an order requiring a comprehensive natural gas restructuring, which was meant to enhance a more competitive ground into the natural gas industry.
Subsequently, the order enhanced the unbundling of pipelines’ gas sales and transportation services, thus the natural gas producers and the shippers could engage in arms-length transactions.” More importantly, the order made it possible for natural gas buyers to do this with an equitable and fair access to pipeline transportation from the sellers (Dahl, 112).
The main focus of the order was to create a capacity reallocation program, known as “capacity release.” This was to enable the shippers who had the capacity right of firms to release large amount of capacity through the pipeline for sale.
In addition, there were requirements on the pipe release, which required posting of information necessary to provide the interested parties with an opportunity to bid on the release capacity. This created a bidding competition, which saw the bidders with the largest value to become the acquiring shipper.
In 1993, the FERC commenced evaluating pipeline’s conformity filings, also putting in place the ‘capacity release’ enactment. All pipelines were to be approved and their operations were to be as per the requirements of the Order. The FERC aimed at ensuring that there was a well functioning capacity release to the market and a more competitive ground for natural gas delivery by the natural gas industry.
While on the same time, enhancing the efficiency of cost distribution and mitigating rate increases to firm gas customers, which were achievable since the firm shippers of natural gas paid for the fixed costs of transportation (Lautzenhiser & MacDonald, 253).
Having analyzed the main focus concerning the industrial requirements according to the order, let us look at the industry at a glance. Natural gas which is almost composed of methane entirely is a useful fuel used for commercial purpose as well as residential purposes. Its production, transportation and consumption is measured in cubic feet, which is equivalent to an area measuring one foot in regard to all three dimensions.
“The energy of one cubic feet can be estimated to hold energy equivalent to around one million British thermal units (Btu), however this energy does fluctuate due to different chemical composition of a gas.” In the twenty-first century, the use of natural gas is increasingly been used to generate of electricity, with many production industries embracing use of natural gas in place of nuclear energy as it shows effectiveness in the speed of electric generation as well as it contributed to cleaner environment.
This enabled the natural gas production to take over other energies such as coal and other fossil fules, and its role was expected to be extended further by the Clean Air Act effect. The natural gas is also used more due to its efficiency in retaining and distributing the heat energy produced through electricity generation (Dooley, 453).
The origin of the natural gas industry is traceable back in 1859 in Titusville, Pennsylvania. During this time, the first pipeline transportation was established in United States when oil was struck 69 feet below the ground by Edward Drake, a former railroad conductor.
It was however used to light street lights as there was no easy way of transporting the gas into people homes. Later on, natural gas was established in domestic usage through water warming and cooking food by gas producers.
However, during this period, its usage remained constricted until the end of the Second World War when some metallurgy advancements, pipes making rolling and welding processes contributed to improvement of distribution channels. There was expansion in layout of pipelines and widened usage of natural gas in America industry (Hackworth, Koch & Rezaiyan, 193).
“The first Natural gas Regulation Act was passed on 1938 which was the first government regulation of the industry”. The Act’s aim was to protect the consumers from the emerging monopolies in the natural gas industry through price regulation of the natural gas (Lautzenhiser & MacDonald, 153).
In the 1970s and 1980s there were acute outages of the gas which contributed to the eventual change from price regulation thus heightening the demand for the natural gas supply and decreasing the prices. Gradually, innovation and technology improvement started to be realized in natural gas industry as a result of competition.
In 1990, the “Clean Air Act Amendment” boosted the natural gas demand as it argued that natural gas was the cleanest energy source and by late 1990s, the natural gas industry was leading the supplier of energy with more than a half of the nation’s energy and indications showing that the reliance on natural gas was increasing.
The consumption of natural gas as energy had risen up to 70 percent of energy needs by 1999. According to Lautzenhiser & MacDonald (363), “there were more than 1.3 million miles of natural gas transmission and distribution pipelines traversing the nation, delivering supplies to 60 million commercial and residential customers.”
In early 2000, there have been proposals on pipeline projects which were estimated to boost the capacity of gas delivery by 23.2 billion cubic feet per day. As a result, a significant number of coal burning power and nuclear plants were shut down while other was being converted to natural gas facilities.
“In the beginning of 2000’s, the natural gas industry suffered from the sluggish market impacts, incoherent market deregulations and from the upheavals in the general energy industry, which were attributed greatly to the 2000 energy crisis in California together with the collapse of energy giant, Enron. This led to downsizing operations, large scale sell-offs, and a drastic decrease in shareholder’s equity in several firms”.
According to Dahl (341), “although natural gas makes up just one-third of the entire energy industry, because most energy companies have diversified interests that span the market, the beginning of the twenty-first century saw the industry weather a difficult storm of customers and investor distrust.” This saw declining capability of production, despite the fact that the usage of natural gas was expected to increase.
As mentioned earlier, the state regulation and myriad of federal are the core determinant of the distribution and transportation of natural gas.
This has categorized the two practices by putting the “interstate pipeline under FERC jurisdiction” and local distribution companies under the domain of their state’s public utility commission. Although historically oligopolies have directed the distribution chain of the natural gas from the producers to the consumers, deregulation during 1980’s and 1990’s enhanced by the fragmentation and competitiveness in the industry.
Before the deregulation, the chain of the gas distribution involved transporters who relied on the gas producers for supply, and were required by the wholesale agreement to provide the gas to distributors. The distributors under retail chain then delivered the gas to the end users.
However, on the employment of the deregulation, the natural gas industry experienced an expansion and extension of the traditional roles. In addition, there were new entrants in the distribution chain; these were “consultants, brokers, marketing affiliates and independent marketers”.
“The natural gas industry has trade associations, which represent the numerous segments”, for instance the demands of local-distributing firms are represented by “American Gas Association”, “The Natural Gas Supply Association” represents the giant gas producers, and “The Interstate Natural Gas Association of America” which represents pipelines’ firms.
“Other related organizational representations include; small independent gas producers who are represented by Independent Petroleum Association of America, gas producers who are represented by Domestic Petroleum Council, and local distributors who are represented by the Natural Gas Council”. The deregulation has increased the accessibility and consistency of the supply of natural gas and has also enhanced increase the gas’ demand.
Focusing on the current industry conditions, the early years of 2000 have seen the industry experiencing serious setbacks. California for instance experienced a significant power shortage and outages in 2001. In 2002, there was an artificial shortage of the natural gas which was attributed to El Paso Corp intention of heightening the gas price in its greed intention of acquiring vast amounts of profits.
Following this scenario, the Enron Corp was faced by severe losses due to withdrawal of support by the Wall Street investors due corruption allegations, which lead to a drop by 90% in the shareholder’s wealth.
As a result, the natural gas industry was faced by tailspin of downsizing, lay-offs, and sell-offs. The industry therefore lost its credibility and went on a hard track of obtaining bankers and investors an attempt which remained wary of the volatile industry (Dahl, 290).
While the natural gas supply remained above average in 2002 with regard to previous five years, the natural gas storage supplies showed poor records in 2003 contributing to higher prices. However, as the U.S economy started recovering from the economic downturn as at the end of 2003, it was projected that that natural gas demand would rise by about 4% and would be consistent.
On the other hand, the production was not expected to increase regardless of the low level of storage. However the deregulation gradually revised the trend of both the production and distribution of the natural gas and the usage in commercial and domestic area. This was accompanied by increased demand of the natural gas.
However, the natural gas industry emphasizes more on market efficiency. “Under the pipeline maintenance investigation, the U.S Department of Transport reported that more than 800,000 leaks in service line and gas main is experienced every year”. This is significant representation of earning through gas loss beside a clear presentation of a potential disaster (Dahl, 284).
According to the Energy Information Administration, “it is projected that the use of natural gas as an electricity generating fuel would grow by 30% in year 2010 in comparison to 1992 levels. The increasing reliance of the natural gas has called for regulations that will ensure that the markets dealing with this product are exercising efficient operations. The recent years have seen the natural gas industry transforming from strict regulations to increasing competition”.
This is a change has been attributed to the whole distribution chain from the wellhead sources to the burner tip end user. However, the competition has affected the industry strategic choices which have become complicated due to the “expansion of pipeline services, natural gas derivative markets which have been successfully developed, and the North American market integration” (Dooley, 173).
According to Dooley (317), “any explanation of capacity release transactions must begin with an overview of the regulation that created the mechanism, thus the legislation creating the mechanism needs to be overviewed”. This will enable one to realize that natural gas pipelines, unlike others, were not designed as common carriers, however according to Order No. 636 and 636 the FERC has the mandate to change natural gas pipelines into common carriers.
The FERC attempted to change the pipelines transformation into common carrier in 1992 through revolutionizing the natural gas industry by authorization of pipelines unbundling their services to natural gas end users. In capacity release, the determination that the capacity will be utilized over a certain period of time enables determination of period of release, quantity to be released, whether or not the release is recallable among others.
The capacity release is transacted through pipeline’s ebb and though it is initiated by the seller, buyers also have the potential of triggering them (Dooley, 213).
There are important variables which are the key determinants of the prices for release capacity. According to Dahl (372), “the price of release capacity of natural gas industry is influenced by several factors which include; the distance over which the capacity release is effective, amount of capacity release, the number of releasing shippers on a given pipeline, the discounted interruptible rate of transportation on pipelines where the release is undertaken and the time length under which the release operation is effective, the capacity utilization degree on the pipeline, the specified minimum rate in posting of the release capacity, consideration whether deals contain recall right or not and whether the deal was prearranged or not among others.”
Natural gas industry has developed research and technology where development programs, research and designs were appropriated $246 million in 1999 at the Department of Energy. Adoption of intensive natural gas technology were also announced by Gas Research Institute which aimed at implementing natural gas cooling technology and natural gas micro turbines among other.
This saw “Enron Gas Pipeline Company being awarded in 1999 for surveying fugitive emission compressor stations which was a promising undertaking in helping the industry to secure co-funding and consortium for testing natural gas such like methane”.
The overall effort in improving the research and technology of the natural gas industry is aimed at enhancing expansion of natural gas market as well as improving natural gas conveyance. The evolution of natural gas fueled vehicle contributed to an increase of natural gas consumption by 26 percent despite the fact that it accounted for a minimal fraction of U.S natural gas consumption (Hackworth, Koch & Rezaiyan 413).
In addition, the industry have been able to introduce a residential natural gas dehumidifier which have since replaced air conditioning units which used electricity in private homes, industrial and commercial applications. Notably, United Technologies manufactured “natural gas fuel cells which could produce heat and electricity by combining oxygen and hydrogen”.
The low emission by these cells has made the technology look more suitable when used inside buildings. These natural gas fuel cells have been used in various industries such as food processing, hospitals and mass transit agency.
Works Cited
Dahl, Carol. “International Energy Markets.” Understanding Pricing, Policies and Profits. 2004.
Dooley, John. “Unintended consequences: energy R&D in a deregulated energy market.” 27th August 1998.
Hackworth, John, Koch Robert, & Rezaiyan, John. “Economic Evaluation and Market Analysis for Natural Gas Utilization.” April 1995.
Lautzenhiser, Stephen & MacDonald Scott. “Evaluation of Capacity Release Transactions in the Natural Gas Industry.” June 1994
