Natural gas may have peaked in North America

Natural gas may have peaked in North America

By Drs. Robert and Sonia Vogl, President and Vice President Illinois Renewable Energy Association

In January 2001, natural gas prices reached $8 per therm. Homeowners, schools, businesses and industries were hit hard.

With natural gas prices around $6 per therm today, we seem set for another hammering. The amount of natural gas stored for next winter’s use is 43 percent below last year’s level. Both heating oil and propane gas supplies were at 30-year lows following last winter’s heating season.

If we have a hot summer, air conditioning demands will soar, limiting our ability to add substantial amounts of gas to winter storage. The growth in sunbelt air conditioning being met by gas-fired electrical generators accounts for much of the consumption. Gas-fueled electrical generation soared from 7 percent in 1998 to 30 percent today. Nearly 1,000 plants generating 180,000 megawatts were added. Some, like the plant in Nelson, Ill., were never completed as supplies tightened and prices rose.

Although drilling activity is up substantially, successful wells tap smaller pools of gas leading to rising energy costs. Smaller wells mean supplies are used up more quickly and more wells have to be drilled. So the race is on to find more gas in the face of rising costs and rates of consumption.

While we still supply more than 85 percent of our natural gas needs from within the country, we have used up more than 50 percent of our supplies, and production is falling. We import nearly 15 percent of our gas from Canada; production is expected to peak there this year. Mexico, expected to export gas to the United States, now imports more from us than it exports to us. Great Britain and Russia are also facing declining gas production. Global supplies are expected to peak around 2020.

In 2000, the Energy Administration Agency predicted a 20 percent increase in gas demand by 2005 and a 50 percent increase by 2015. The question now becomes one of where will we find the natural gas? There does not appear to be a quick fix to the supply problem.

One wonders if Canada will continue to be willing to export unlimited amounts of gas to the United States. After all, it would make sense for them to save their natural gas for future generations. As signatories to the Kyoto protocol, they can also use their natural gas to help them cut back on their carbon dioxide emissions. Since Canadians also subsidize their oil and gas explorations with taxpayer money, some of them must wonder why they should continue to keep the spigot wide open, when we invest so little in using energy more efficiently.

One supply side answer could come from replacing gas with oil, if the Saudis were once again willing to come to our rescue. But time is running out on that option. It is hard to imagine that Iraqi oil exports can be dramatically increased before winter. Over time, additional natural gas could again come from the Middle East.

We could bring in gas from Alaska, but it will not arrive in less than six years, and with a price tag starting at $8 billion for the pipeline, it will not be cheap. But increased supplies from Alaska would only meet about 5 percent of current demand.

We could import more liquefied natural gas. However, it would require more ships and port facilities than now exist. Previous estimates indicate imports will increase from 1 percent in 2000 to 3 percent by 2010. The most likely source of increased supplies would be the Middle East, further increasing our dependency on that unstable area of the world.

Increased coal consumption is another possibility, but that will not happen quickly, either. Additionally, coal causes environmental damages and adds more carbon to the atmosphere.

An increase in nuclear power is also a time-consuming event.

About 70 percent of the uses of natural gas appears locked in while the remaining 30 percent offers some flexibility. Conservation, more efficient energy use, and shifting to other fuels like oil and biomass could offer some relief.

Considering past experiences with high energy costs, some painful adjustments could be ahead. Why would a firm process natural gas into useful products in the United States if they could relocate to places where natural gas is abundant and low in price? Will manufacturing fertilizer from natural gas increasingly move offshore? How about chemical and pvc manufacturing? Will local manufacturers with slim profit margins shut down due to increased gas prices?

As Amory Lovins and others have repeatedly pointed out, the cheapest, quickest, cleanest and least costly means to cut energy bills is to use energy more efficiently. As energy prices rise, the savings from efficiency also increase. The most dramatic increases in energy supplies within the United States since 1975 have resulted from efficiency. As a nation we have saved around $200 billion a year through efficiency and could save another $200 billion or more. It looks like this winter will provide a huge incentive to individuals, businesses and communities to become more energy efficient.

Even if an energy crunch failed to materialize, which we doubt, any reasonable investment in efficiency will pay for itself over time and minimize the adverse effects of a prolonged supply problem.

There is time this summer to prepare for expected increases in energy prices for the next heating season. Insulation levels can be increased and more energy-efficient windows can be installed. If you need a new furnace, it can be replaced now. Your water heater can be insulated. Cracks in the building envelope can be caulked and weather-stripped. The necessary equipment and information is readily available at local building stores.

Also consider installing some renewable energy sources. If you’re remodeling your home, could you include more south facing glass to pick up more heat from the sun? Consider adding a solar water heater. If you heat a swimming pool using natural gas, a solar water heater should be considered. If you have access to wood, you may want to consider a wood stove or an outdoor wood furnace. Some people have turned to corn stoves and furnaces for heat.

But before going out and investing in a new source of energy, make sure you have first upgraded the efficiency with which you use energy.

If you attend this year’s Illinois Renewable Energy Fair, you will be able to see some of this equipment there and talk with dealers and installers of such systems. You can also attend some of the many workshops geared toward helping individuals and communities integrate renewable energy and efficiency into their lives.

While we have been long-term advocates of energy efficiency and renewables, the looming presence of peak oil and peak natural gas adds some intensity to our concerns.

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