It was a "classic" publicity event-long on vision, but short on substance. There he was, the Secretary of the Department of Energy (DOE), Spencer Abraham, standing toe-to-toe with each of the...
CERA's Daniel Yergin says global gas markets will define the new century, just as oil did for the last 100 years.
the year 2000-and larger than the entire electric power industries of the United Kingdom and France combined. Well over 90 percent of the new capacity is fueled with natural gas.
"But rising demand for gas has collided with what is now emerging as a natural gas shortage in the United States. Traditional sources of supply can no longer keep up with electricity-driven rising consumption. Very disappointing results from the drilling boom of 2000-2001 were the first indicator of this disparity. Since 2001, supply has declined by four percent. New wells will be drilled in the years ahead, and new supplies added. (Owing to the depletion of existing wells, in 10 years more than half of domestic supply will have to come from wells that have not yet been drilled.) There may be a modest rebound in supply over the next couple of years, which, together with a weak economy and mild weather, may temporarily mask the reality of the shortage. ...
"In response to the tightening of supply and demand in the United States, domestic gas prices have doubled, weighing the economy down. And today's supply gap is small in comparison to what it could be a few years from now, when the real North American gas production decline begins. Higher prices will hurt homeowners and such industries as fertilizer, chemical, and plastics that depend on gas. Companies in those sectors are already cutting back on production and closing plants. But the full effect of higher gas prices has not yet been felt. When it is, factories will be exported, and jobs-measured in hundreds of thousands or even millions-will be lost. In a very painful way, that will lower consumption in the industrial sector. Some of this is already happening."
The Rising Potential
Yergin believes that a new LNG infrastructure will have to be in place to a great extent by 2010, when demand for power will overrun the current glut of gas-fired generating capacity, and he has drawn support in this view from Fed Chairman Alan Greenspan, who pushed last June for a new global gas market system, in spite of the odds.
"If North American natural gas markets are to function with the flexibility exhibited by oil, unlimited access to the vast world reserves of gas is required," Greenspan said before the U.S. House Committee on Energy and Commerce.
"Markets need to be able to effectively adjust to unexpected shortfalls in domestic supply. Access to world natural gas supplies will require a major expansion of liquefied natural gas (LNG) terminal import capacity. Without the flexibility such facilities will impart, imbalances in supply and demand must inevitably engender price volatility."
Yergin has started to put more specificity on what will be required to reach a global market for natural gas. He says that developing the full potential of LNG could cost upward of $200 billion worldwide, and energy companies will have to choose between investments in LNG and other investments.
Yergin, like Greenspan, believes that geopolitical concerns of other countries cannot all be dismissed, but he says the best response to