Public Utilities Reports

PUR Guide 2012 Fully Updated Version

Available NOW!
PUR Guide

This comprehensive self-study certification course is designed to teach the novice or pro everything they need to understand and succeed in every phase of the public utilities business.

Order Now

Fueling the Hydrogen Economy: Energy Independence Now

Environmentally benign technologies can meet the president's hydrogen plan.
Fortnightly Magazine - July 1 2003

astoundingly large reserves of oil and, especially, natural gas for environmental reasons, even though a comprehensive analysis of total environmental impacts might show that full exploitation of relatively low carbon-intensity and low pollutant emission domestic hydrocarbon resources may be the most rational strategy.

Problems With Gas Supply and Prices

Natural gas is the ideal transition fuel to a sustainable and carbon-emission-free energy system because it has the lowest carbon intensity and is the least-polluting of all fossil fuels [3]. Therefore, the recent increases in natural gas prices caused by projections of a 2 percent to 3 percent production decline in 2003 creates a problem similar to the meteoric and destabilizing price rise during the 2000-01 California energy crisis when the Henry Hub cash market (the basis of New York Mercantile Exchange Natural Gas Futures) peaked at $9.13/million Btu in January 2001 [4].

Another indication of the likely decline in natural gas consumption in 2003, especially the very price-sensitive industrial and power generation markets, is that the 12-month NYMEX Strip on April 28, 2003, was still $5.577/million Btu [4]. However, the history of U.S. natural gas reserve replacement shows that in eight of the years from 1990 through 2001, total additions to reserves exceeded production (including the 31 percent in 2001).

Several other factors have destabilized the U.S. natural gas market in recent months as Henry Hub cash market prices rose from $2.29/million Btu in January 2002 to $5.30 in January 2003, $7.35 in February 2003, and $8.06 in March 2003 after peaking at $13.31 on March 3 (prices moderated to the $5-$5.50/million Btu level in April). An additional problem has been the seesaw in underground natural gas storage statistics. There is a capacity for about 8.2 Tcf of natural gas in underground reservoirs for use in the winter months, when daily average demand of as much as 85 billion cubic feet a day (Bcf/d) greatly exceeds U.S. domestic production capacity of about 52 to 53 Bcf, plus net Canadian and liquefied natural gas imports, to provide an average total of about 60 Bcf/d [5]. Of this 8.2 Tcf, roughly 4.4 Tcf is base or cushion gas needed to maintain the integrity of the geologic structures used for seasonal storage (such as depleted oil and gas fields and saline aquifers), and up to 3.8 Tcf working gas that can be withdrawn during the winter months and replenished during the nominal injection period from April 1 to Oct. 31 [5].

In practice, the storage is never quite full (about 3.4 Tcf generally is considered the upper limit), and price stability is enhanced if working gas levels are above 3 Tcf, preferably 3.1-3.3 Tcf at the beginning of the withdrawal season [6]. During 2002, a surplus over equivalent year-ago levels changed into a huge deficit in 2003, reaching the 1 Tcf level in March. A large deficit relative to 5-year average levels also persisted, and storage dropped to a record low by March 31, since the EIA started reporting storage data in 1994 [4]. In combination with the anticipation of a domestic production decline in