Forecast & Outlook: The future of unconventional natural gas is the buzz topic within the world of energy forecasting. Natural gas is a clean, versatile fuel that could eventually expand beyond centralized utility power plants into markets for smaller scale Distributed Power systems, as a cleaner transportation fuel in the ‘Electric-H2 Age’, and if all else fails- as a hydrocarbon materials feedstock for the nano-age.
Exxon-Mobil‘s $41 billion stock and debt deal for XTO Energy has sent positive shock waves through the energy community by validating the future of unconventional shale natural gas resources.
Analysts are quick to point out the obvious market reasons for Exxon’s big bet on the US natural gas sector: future of utility power generation favoring natural gas over coal, macro policy desires to increase US domestic energy production, corporate political ‘drill baby drill‘ capital of bringing resource wealth to ‘shale counties’ in places like Texas, Lousiana, [Watch: Haynesville Documentary], Pennsylvania and New York.
On the downside this return to domestic unconventional resources speaks to new fundamentals for the hydrocarbon industry in the post ‘cheap conventional oil’ era. A brighter future for shale natural gas does not mean our conventional oil production problems disappear!
Let’s be clear…. hydrocarbons are not going away! But it is increasingly difficult for energy majors (Shell, BP, Exxon, et al) to expand their resources around traditional strategies. Hence, Exxon is jump-starting the era of non-conventionals that include shale natural gas, ‘tar sands’, deep water fields, et al.
Shale Natural Gas steals the ‘future’ away from LNG
Natural gas has a high hydrogen to carbon ratio, and is a favored cleaner transition fuel as we look to decrease reliance on carbon-heavy fuels and turn towards renewable resources over the long haul.
For years analysts claimed global ‘liquefied natural gas’ (LNG) production would eventually steal market growth from oil, but it now looks like unconventional domestic supplies could be the favored growth fuel over the next few decades.
The most likely future for natural gas is a fuel for utilities who own large central power plants that push electrons across regional energy grids. So very 20th century!
But what about the alternative futures for natural gas beyond fuel for centralized power plants?
How does the versatility natural gas apply in a future with some profound energy system discontinuities and new markets applications?
How about distributed power generation, electrification of the auto fleet, and nano-structured composite materials?
Distributed Power Generation
All eyes are on the role of natural gas in US utility power generation, but what are alternative assumptions about the economic feasibility of distributed power generation that might disrupt the 20th century utility-grid model?
Consider this alternative assumption:
In the 21st century, global energy markets will grow around distributed power generation rather than through large centralized power plants and ‘grid’ connections.
In this future, the most important elements are: access to ‘fuels’ not the grid, and low cost, reliable energy conversion systems (e.g. fuel cells) based on electrochemical conversion (not combustion via large power plant turbines).
So the most disruptive concept for utility providers is not a new fuel source (wind/solar), but new energy conversion devices (e.g. fuel cells) that can create electricity onsite at the same (or lower) cost with more reliability. Throw in cheap abundant fuels and we can imagine the whole notion of a ‘grid’ becoming less relevant.
Envisioning a world without a ‘grid’ requires a leap of faith (and knowledge base on the disruptive developmental path of distributed power systems).
But let’s imagine…
Stationary Power (e.g. Home / Factory)
Imagine Best Buy and Home Depot selling GE branded low cost energy appliances for powering our homes and offices. Connect it to your natural gas line or refuel it with natural gas from the retail market and you can have six months of electrical energy onsite without any fear of grid disruption or variable monthly costs.
If you do not have a natural gas pipeline into your homes, imagine buying solid-state ‘packets’ or ‘bricks’ sold in Walmart or Whole Foods (or delivered using a ‘milk’ truck model). In one trip you could bring back enough energy for several months.
[Hard to imagine not being connected to ‘the grid’? Just ask a 15 year old to imagine having a ‘landline’ phone connection in an age of cell phones?]
Portable Power (e.g. Object based)
Imagine a world in which gadgets and appliances do not have to be ‘plugged in’ for power!
How?
We evolve from a ‘grid energy storage’ model (the battery) to a ‘fuel conversion’ (micro fuel cell).
Instead of plugging in every night, we’d simply ‘refuel’ (via a ‘packet’ of liquid fuel or solid gas).
In this future micro fuel cells (e.g. micro power plants) are embedded inside every object (toaster, cell phone to washer & dryer).
No more cords, no more grid dependency.
We simply refuel (How often? Obviously, adoption will depend that it is orders of magnitude more convenient)
Future of the ‘Fuel’ Provider
In both futures the ‘fuel’ provider becomes the critical stakeholder as energy conversion shifts from central to distributed- and from storage (battery) to conversion (fuel cell).
In this future, energy majors can bypass lower margin , long-term contracts with Utilities, and focus on more profitable end consumer markets. The profit potential has some precedence – e.g. price premium paid for battery electrons is higher than grid energy; the price premium paid on bottled water is higher than tap!
Natural gas (via pipelines or retail shelf distribution) could emerge as the preferred ‘fuel’ for distributed power generation.
Transportation ‘Fuel’ (vs Grid Storage)
Oil’s biggest problem is its lack of substitutability. We cannot put electrons from solar or nuclear energy inside a combustion engine gas tank. And despite the vision of the “Pickens Plan” to subsitute oil for gas, natural gas is unlikely to take away any significant market share from gasoline in this waning era of the mechanical engine. It is hard to imagine winning market share in a liquid fuel market match up.
But the future of natural gas might be brighter in the era of electric vehicles powered by the integration of batteries (storage) and hydrogen fuel cells (on board fuel conversion).
If indeed, the current ‘fuel’ and on-board conversion model extends into the electric age, natural gas will be in a solid position for growth beyond oil.
Why are fuel cells and ‘fuel’ model so relevant to the automakers and energy majors?
First, low cost manufacturing incentives for car makers! Automakers need a low cost, scalable power generation system for electric motors. And despite all the hype, batteries are not the end game. Fuel cells offer better performance, lower cost per mass, and preserve the ‘fuel’ and on-board conversion model (rather than a pure storage model of batteries).
Second, Utilities operated within a highly regulated market, and are unlikely to innovate in any meaningful way. Plug in for ‘fleets’ is doable, but extending fixed wall socket access to a world with over a billion vehicles is an expensive vision. It is hard to imagine us moving away from ‘portable’ fuels in the transportation sector.
The incentive for energy majors is to maintain their dominant role in the transportation fuel market even beyond the era of oil and the combustion engine.
So ‘fuels’ still matter. And this is the big mental barrier in the public conversation about vehicle ‘electrification’:
Electricity stored in a battery is a ‘storage’ model. It is grid dependent. No fuel is converted on board.
Electricity produced from hydrogen converted in a fuel cell is a ‘fuel’ model. This is the end game.
And despite all the challenges of hydrogen storage (gas, liquid or solid) and infrastructure (commercial pump, retail shelf or home production) it is much more likely that energy majors will out-innovate utility companies and retain their ‘fuel’ provider role in the post combustion engine era of transportation.
Natural gas has a high hydrogen to carbon ratio making it an ideal source of hydrogen for electric vehicles.
Materials Feedstock
Natural gas is already the preferred hydrocarbon feedstock for most polymer-based materials manufacturing. But what about for emerging classes of high end materials based on nanostructured molecules like carbon nanotubes and carbon-based particles? Again, we see natural gas as holding its ground as preferred feedstock for nanostructured materials.
Most carbon nanotubes are produced from natural gas that reacts over metal catalysts. So even in this ‘carbon age’ of materials engineering, natural gas is likely to hold its market position as the feedstock of choice!
What else to watch? The ‘anti’ positions to Shale Gas production
There is little debate over how clean natural gas is compared to coal and oil. But the extraction of unconventional shale gas reserves is not without its own environmental footprint. The process of ‘fracking’ uses water and sand to push out gas molecules from shale deposits. And environmental groups are already raising some small red flags about the unknowns of shale gas field development.
So consider this the beginning of Round One in the PR campaigns for and against natural gas!
