Natural Gas, Consumption of
NATURAL GAS, CONSUMPTION OF
Natural gas is a mixture of naturally-occurring methane (CH4) with other hydrocarbons and inert gases. The 2.3 trillion cubic meters (Tcm) or 81 trillion cubic feet (Tcf) of gas marketed and consumed globally in 1997 accounted for about 24 percent of the world's primary energy, ranking third among fuels after petroleum liquids (40%) and coal (25%).
The modern natural-gas industry has its origins in the nineteenth century as urban "gas works" that distributed synthesis gas (a mixture of carbon monoxide, hydrogen and carbon dioxide made by the incomplete combustion of coal, oil, or organic wastes in the presence of steam). Gas works illuminated London streets even before 1800, and subsequently provided lighting, cooking, water- and space-heating for homes, businesses and public buildings. By the late nineteenth century, gas light was common in the central districts of cities and larger towns throughout North America and Western Europe, and even in such places as Buenos Aires, Cairo, St. Petersburg, Shanghai, and Sydney.
Between the World Wars, consumption in North America switched rapidly from synthesis gas to natural gas which, lacking carbon monoxide, was nontoxic and contained three to four times as much energy as synthetic gas per unit of volume. This shift resulted from the advent of thin-walled, seamless welded steel pipe and leak-proof pipe couplings, which permitted highly compressed vapors to be transmitted safely and efficiently over long distances, together with the discovery and production of large volumes of methane as an initially unwelcome byproduct of crude oil. By 1940, almost every major American gas had become a local distribution company engaged in the resale to retail customers of natural gas purchased mostly from oil companies. In western and central Europe, a similar transition from synthesis gas to natural gas waited until the last third of the twentieth century, when pipelines were laid from natural-gas fields in the North Sea, North Africa, and Western Siberia.
In North America, the local distribution companies that distribute and sell gas to retail customers tend to be distinct from both gas producers and the operators of long-line gas-transmission pipelines, although common ownership of businesses in two or three sectors is not uncommon. Gas distributors are generally treated as public utilities, whose retail prices and other terms of service are regulated by state or provincial authorities. Prior to the 1980s, distribution utilities held a legal monopoly on both the physical delivery and the sales of gas within their local service areas. Recently, however, there has been a trend among state/provincial regulators to unbundle gas sales from supposedly naturally monopolistic transport functions of distributors, and to permit competition among gas marketers for retail sales, particularly to industrial and commercial customers.
GAS USE BY COUNTRY
Reliance on natural gas as a primary fuel varies widely among different national economies from the 1999 global average of 25 percent. In absolute quantity of gas consumed (see Figure 1), the United States is the largest single consumer, with natural gas accounting for 25 percent of its total energy consumption. The share of natural gas in total primary energy consumption in the European Union was similar to that of the United States, 23 percent, but varied from a high of 41 percent in the Netherlands, through 34 percent in Italy, 22 percent in Germany, 13 percent in France, to less than 2 percent in Sweden.
The number-two gas-consuming country, Russia, used about the same volume of gas per capita as the United States in 1999 but depended on gas for more than half (54%) of its total energy. It is worth noting that although the Russian Federation was the world's biggest gas producer, and international exporter, the entire eastern third of the country—Eastern Siberia and the Russian Far East, roughly from Krasnoyarsk to Vladivostok and Magadan—consumed less than five percent of its primary energy in the form of natural gas.
Figure 2 shows no systematic correlation between a country's dependence on natural gas and its degree of industrialization or per capita; GDP. Variation in relative dependence on gas was even wider among the less-developed and emerging economies outside of Europe and North America, from a high of 82 percent in Uzbekistan, 70 percent in Bangladesh and Algeria, and 50 percent in Argentina, to only 8 percent in India, 3 percent in China, and none at all in several African and Latin American countries.
NATURAL-GAS CONSUMPTION PATTERNS
In addition to widely differing degrees of dependence on natural gas, different regional economies exhibit dramatically contrasting consumption patterns for the gas that they do consume. Strong distinctions are evident, for example, between the diversified and finely-tuned natural-gas markets of high-income, high-latitude countries in Europe and America; the high-volume but relatively undifferentiated gas industry of Russia and other former Soviet republics; and the specialized liquified natural gasbased gas-consuming sectors of Japan, South Korea, and Taiwan.
North America and the European Union.
Figures 3 and 4 contrast the gas-consuming patterns of the world's two largest economies, the United States and Japan. The uses of gas tend to be the most diverse in high-latitude areas, where seasons are distinct and winters are cold, and in regions such as North America and the European Union, where economies are generally sophisticated. In these areas, a dense network of transmission and distribution pipelines makes gas directly available to a numerically large and finely differentiated population of potential residential, commercial, and industrial customers. There, the sales for residential, commercial, and institutional space heating peak in the winter months when the market value of gas is highest. "In contrast, peak demand for gas to generate electricity in combustion turbines and combined-cycle plants occurs in the summer, driven by power requirements for airconditioning. Together, these climate-sensitive, seasonal components of gas demand constitute its most valuable portions, generating more than 60 percent of total sales revenue."
More than 60 percent of natural gas physically consumed in the course of a year is nevertheless attributable to purchases at lower, interruptible prices by industrial boiler-fuel users and electrical generators that are capable of substituting natural gas in off-peak months, when gas is available at prices competitive with those of "black fuels" (coal and heavy fuel oil). In addition to these relatively low-value, price-sensitive industrial gas uses is a wide range of intermediate-value demand categories for natural gas, such as in process and feedstock use.
In such diverse and sophisticated gas-using economies, security of supply and the efficient employment of producing assets depend upon an extensive network of pipelines that interconnect regions with diverse climates and diverse consumption patterns: winter-peaking and summer-peaking; demand that is climate-sensitive, business cycle-sensitive, and price-sensitive; customers who place a high premium on continuity of supply, and those who are relatively insensitive to risk of interruption. These parties depend to a different degree, and place different values on the access these lines give them to a large and widely distributed system of underground and other gas-storage facilities. The dispatch and allocation of producing, transmission, and storage capacity within the large and diverse population of producing assets and end-users is coordinated by a highly differentiated system of first-sale and wholesale, cash and forward prices for the gas commodity, and for auxiliary services.
Former Soviet Union
Russia, Ukraine, and other entities of the former Soviet Union [FSU] depend even more heavily on natural gas for their primary energy than do the high-income market economies of North America and the European Union. Moreover, their structure of gas demand differs considerably from that of Europe and America, along with the physical and institutional infrastructure of their energy sectors. Because of severe winters, space-heating and domestic water heating doubtless account for an even greater share of total gas consumption than in the West. Rigorous comparison is not possible, because space- and water-heating by means of gas is seldom served or metered separately for individual homes or flats, offices, or small enterprises. Most dwellings and workplaces do use gas or another primary fuel such as coal for space- and water-heating, but only indirectly through steam or hot water cogenerated at steam-electric stations or generated in stand-alone gas-fired district heat plants. District heat produced in this manner is typically distributed to apartment blocks and office towers through elevated and insulated ducts.
Gas for process and feedstock use, and industrial heat for metallurgy, smelting, and materials drying, and other manufacturing applications in the FSU is often delivered directly to the gas-using enterprise, but neither price nor any general system of end-use priorities is systematically used to dispatch or allocate transmission capacity seasonally or among competing domestic shippers, or gas deliverability among competing domestic users. Thus far, the prevailing strategy for accommodating supply and demand in these areas has been to strive to provide sufficient field deliverability and transmission capacity to accommodate the unconstrained aggregate demand of all connected customers, without causing pipeline pressure to collapse.
Japan, South Korea, and Taiwan
The natural-gas industries of Japan, Korea and Taiwan are based almost entirely on gas imported by tanker as liquified natural gas (LNG). These insular and peninsular economies produce almost no domestic natural gas, and until recent efforts to develop production on the Russian island of Sakhalin immediately north of Japan, import of natural gas by pipeline from nearby has not seemed a realistic alternative. In 1999, LNG imports provided about 12 percent of Japan's primary energy, 9 percent of South Korea's, and 6 percent of Taiwan's. In turn, these three countries together accounted for 79 percent of the world's international movements of LNG.
LNG imports to East Asia from Alaska, Southeast Asia, and the Middle East have generally been targeted to specific base-load electrical generating stations built adjacent to the receiving terminals. To minimize delivered costs per unit of fuel, the entire chain of physical facilities from the producing field, through the liquefaction plant at tidewater in the exporting country, the tankers and import terminals, to the receiving customers are tightly coordinated as to capacity and scheduling. The corresponding chain of commercial transactions is composed almost entirely of long-term "take-or-pay" contracts—which oblige the purchaser to pay for the full contracted volume, even if that volume is not or can not be taken—for fixed rates of delivery from specific physical sources to specific end-use facilities.
Japan is the world's second largest economy and the fifth greatest consumer of natural gas, behind the United Kingdom and Germany and ahead of Ukraine and Canada. It nevertheless lacks a network of transmission and distribution pipelines capable of delivering gas to diverse and dispersed customers, or reallocating it among them in response to shifting seasonal or business demand. As a result, delivered gas prices to households and industry (other than for base-load power generation) are nearly the highest in the world. Not surprisingly, consumption of natural gas in the residential, commercial, and industrial sectors, and for peak-load electric generation, is exceptionally small.
In the 1990s, Japan's smaller insular and peninsular neighbors, Taiwan and South Korea, began to create integrated national gas-distribution systems that joined previously separate LNG terminals and the potential markets between them. This strategy, particularly in Korea, is consciously directed at creating a more competitive bulk market for gas and expanding the use of gas for space-heating, electricity peaking supply, and industrial fuel.
COMMERCIALIZATION STRATEGIES FOR "STRANDED GAS"
Natural gas is frequently found in association with crude oil, in the search for crude oil, or fortuitously at great distances from developed gas markets or from existing gas-transmission infrastructure-providing access to such markets. In the first half of the twentieth century, carbon black—high-quality soot used as colorant in printing inks and as an additive to rubber in tires—was a leading "scavenger industry" for stranded gas in North America. Later in the century, manufacture of fertilizer, particularly ammonia and urea, created a major part of the early demand for gas along the U.S. Gulf Coast, in Alaska's Cook Inlet basin and in China. The oil industry has recently devoted great effort to promoting gas-to-liquids (GTM) conversion systems to make stranded gas into motor gasoline or diesel fuel. Several GTM technologies are firmly proved, but thus far appropriate market conditions for their commercial application have been hard to find. All of these initiatives are seeking opportunities to convert abundant, low-cost gas into a higher-valued commodity that is liquid or solid at ambient temperatures, and thus can be moved in "normal" tankers, barges or railcars, rather than requiring costly transcontinental pipelines or cryogenic (super-cooled) transport systems. Other notable applications for stranded gas are the local generation of electricity for local consumption and, particularly in the Middle East and North Africa, desalinization of seawater.
INTERFUEL SUBSTITUTION AND COMPETITION
The broad variance in the amount of energy consumed as natural gas, and the diverse mixes of consumption patterns in different countries, illustrate important characteristics of energy supply and demand generally:
- Neither gas nor any other primary fuel or energy source is technically or economically indispensable to modern civilization. Society's energy "needs" are for heat, light, motive power, information media, and small hydrocarbon building blocks for construction of larger organic-chemical molecules. Primary energy in one form of another is the world's most abundant resource and, in the aggregate and at any human scale, inexhaustible. Economical means are already well established, rapidly proliferating, and improving to transform liquid, solid, or gaseous fuels (and "non-fossil" energy forms) one into another, or into electricity.
- Commercially exploitable natural gas is distributed unevenly in the earth's crust, but is everywhere in relentless competition with other fuels and energy forms over practically all of its actual and potential uses. A substantial share of existing fuel-consuming equipment, mostly in industry or used to generate electricity, has installed dual or multi-fuel capacity. Considering (1) those additional facilities that could economically be retrofitted to use another fuel or energy source, (2) facilities that are nearing the end of their economic lives and subject to replacement by alternatively powered installations, and (3) imminent investment decisions regarding new producer and consumer durables, at least half of the world's energy use is attended by active, near-term interfuel competition.
With appropriate changes in intake, burner, and exhaust hardware, natural gas is readily substitutable for liquid petroleum, coal, and other fuels in almost every stationary (i.e., non-transport) application. Common stationary uses include space heating and cooling, electrical generation, metallurgy, pulp and paper manufacture, petroleum refining, materials drying, and food processing. Natural gas in compressed form or as LNG does indeed serve as transport fuel in motor vehicles, ships, and railway locomotives, and can be adapted even for aircraft, but such mobil employments are less common. Methane and the havier hydrocarbon components of natural gas- ethane and propane-also compete with naphtha, gas oil, and synthesis gas from coal as a feedstock for making the fertilizers ammonia and urea, and "primary petrochemicals" such as ethylene, propylene, methanol, vinyl chloride and acetonitrile. These primary petrochemicals serve as building blocks for further processing into plastics, solvents, pharmaceuticals and other intermediate chemical products.
TRENDS IN GAS CONSUMPTION
Because of the greater difficulty and expense of storing or transporting fuel in gaseous form, markets have historically tended to treat natural gas as less valuable than liquid petroleum products per unit of heating value. However, at the turn of the twenty-first century, world consumption of natural gas is increasing at nearly twice the rate of increase for total primary energy for two reasons: emissions and efficiency.
Natural gas will continue to be substituted for oil and coal as primary energy source in order to reduce emissions of noxious combustion products: particulates (soot), unburned hydrocarbons, dioxins, sulfur and nitrogen oxides (sources of acid rain and snow), and toxic carbon monoxide, as well as carbon dioxide, which is believed to be the chief "greenhouse gas" responsible for global warming. Policy implemented to curtail carbon emissions based on the perceived threat could dramatically accelerate the switch to natural gas.
Natural gas also has an efficiency advantage in electricity generation. The economic and operational superiority of gas-fired combustion turbines and combined-cycle machines (and prospectively, the superiority of gas-powered fuel cells) relative to coal- and nuclear-powered steam turbines made the combination of natural gas and natural gas turbines the supply favorite of most electric utilities in the 1990s.
Arlon R. Tussing
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