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Fuel for Thought: Some Questions on the Future of Gas-Fired Generation

Fortnightly Magazine - December 1999

to the development of the International Fuel Cells Corp./ONSI PC-25 200-kW natural gas-fired, phosphoric acid electrolyte fuel cell cogeneration system. I also championed the "total energy" concept as part of the industry GATE initiative (Group to Advance Total Energy), the forerunner of today's cogeneration industry. In addition, I was an early proponent of development and commercialization of gas-fired, combined-cycle turbines, which now clearly are destined to capture the majority of new modular generation in the United States and much of the rest of the world.[Fn.3]

To validate this option and all the other distributed and modular generation technologies that depend on ample, low-priced supplies of natural gas (and liquefied natural gas, LNG, in areas without indigenous supplies), IGT worked to develop the global LNG industry and GRI pioneered so-called "unconventional sources" of natural gas. My role in the policy area primarily was to rebuild confidence in the huge, economically recoverable North American natural gas resource base, which pretty much had been written off during the Carter Administration.[Fn.4] Somehow energy policymakers had forgotten the power of price and technology elasticity of supply and demand.

Gas Supply:

The Current Outlook

The pessimism of the 1970s gave way eventually to the "gas bubble" of the 1980s. We now may be going a little overboard with confident predictions of a U.S. natural gas market as large as 30 trillion cubic feet (Tcf) by 2010. The recent major forecasts don't see this occurring until nearer to 2015.[Fn.5, 6] In fact, the drilling slump between 1998 to 1999 caused by low oil and gas prices has created some concern that gas deliverability in the lower 48 states might drop below projected demand by 2000.

Fortunately, the stunning reversal in this price decline triggered by OPEC and other oil producer output cuts beginning in April 1999 at least has restored the active U.S. gas rig count to an adequate level. This problem, therefore, should prove temporary - as have similar previous occurrences.

Reserve replacement for 1998 should be near 100 percent since the active gas rig count in 1998 averaged 560, only 4 below the 1997 level when total additions were 104 percent of gas production.[Fn.7, 8] Moreover, the number of gas well completions in 1998 was 12,106, the highest since 1985 and substantially higher than the 11,327 completions in 1997.[Fn.9] Average total additions of 1.9 billion cubic feet per well from 1990 through 1997, and 1.8 billion cubic feet per well in 1997,[Fn.10] suggest total 1998 additions of 22 to 23 Tcf. That amount exceeds considerably dry gas production of about 19 Tcf. In other words, the drilling slump apparently hit U.S. gas exploration and development relatively late in 1998 and, as noted above, already had abated by September 1999.

Nagging Worries:

Limits on Market Penetration

Despite a very bright promise, several factors appear to place limits on residential and commercial market penetration of microturbines and fuel cells.

Cheap Grid Power. It seems highly unlikely that most electric power users, especially residential and commercial users, will want to sever their connection with the electric grid. They generally could