The rise of gas power

Michael Richardson, The Straits Times 15 Mar 10;

WHEN Singapore switched some years ago from oil to natural gas as its mainstay for generating electricity, gas was seen as a 'transition' fuel until renewable energy or nuclear power became feasible.

With oil prices liable to rise sharply and concerns growing about climate change linked to the burning of fossil fuels, it made sense to switch as piped gas from Indonesia and Malaysia became available. When burned, gas emits less than half the carbon dioxide produced by equivalent amounts of coal or oil. So by switching to gas, Singapore sharply reduced its global warming greenhouse emissions.

At the time, reserves of conventional gas, trapped in big pockets under the land or seabed, appeared to be stretched by rising demand. However, in the past few years, enterprise, technological advances and an ever-widening search for new sources of energy have transformed the outlook. The technology enables gas to be extracted from more places underground. In the United States, Canada, Australia, Asia and Europe, huge reserves of so-called unconventional gas trapped in shale rock, coal seams and tight layers of sandstone have been identified.

A study by IHS Cambridge Energy Research Associates released last week shows that a boom in shale gas production in North America has more than doubled total gas resources and can supply over a century of consumption at current rates.

Gas locked in shale formations is expected to account for 50 per cent of US supply by 2035, up from 20 per cent today and just 1 per cent in 2000. The gas is released using new techniques in horizontal drilling to inject a mix of water, sand and chemicals under high pressure into the rock to fracture it - a process known as 'fracking'.

The North American shale gas boom is significant for Asia in at least two ways. First, it has helped reduce global gas prices by taking the US, the world's biggest user, out of the running as a major importer of liquefied natural gas (LNG).

This plus a recession-driven fall in demand for gas saw spot LNG prices tumble last year to around US$4 (S$5.60) per million British thermal units (mmBtu), from record highs of about US$22 per mmBtu in 2008.

There is now a gas glut, which is good news for established buyers of LNG in Asia signing new contracts, and for emerging buyers like Singapore - which plans to start importing around 1,500 million tons of this super-cooled gas in tankers in 2013.

Asia accounts for about two-thirds of the world's LNG imports. Major consumers are Japan, South Korea, China, Taiwan and India. Unlike oil, much of the gas - both conventional and unconventional - lies in or close to Asia.

The second implication of the North American shale gas boom for Asia is that it may herald similar gas reserve expansions elsewhere, although 'fracking' has become controversial in the US where critics say it uses excessive amounts of water and risks polluting water supplies.

Still, energy consultants Nextant said that global unconventional gas resources may amount to 934 trillion cubic metres and if only 20 per cent can be economically recovered, the world's proven gas reserves could be doubled.

Production of methane (the main component of natural gas) from coal seams is already occurring in Australia, China, Colombia and Europe. Russia will be added to the list soon, followed perhaps by India.

Lambert Energy Advisory reckons that Australia's coal bed methane amounts to the equivalent of 40 billion barrels of oil while Indonesia and China each have 75 billion. In addition, China's shale gas potential is put at between 50 and 100 billion barrels of oil equivalent.

Australia aims to use its coal bed methane resources to become the world's biggest exporter of unconventional gas. Indonesia, which plans to open tenders for onshore shale gas this year, and Canada could also become leading exporters.

If major developing economies like China, India and Indonesia burned more gas and less coal in generating electricity, it would help curb greenhouse gas emissions in Asia.

Despite current low gas prices and the wave of new gas field development, energy company executives see global demand, led by Asia, growing fast enough in the next few years to absorb excess supply and lift prices. They say that the long-term challenge is to keep developing new gas supplies beyond unconventional gas reserves. This may come over the next few decades from gas hydrates - vast deposits of crystallised methane held in place by low temperature and high pressure, and found on the seabed or beneath the land permafrost zones of at least 100 countries.

The US Geological Survey says that hydrates may contain more organic carbon than the world's coal, oil and non-hydrate gas combined. The US, Japan, China, India and South Korea are all in the race to try to tap gas hydrates. If they overcome the major challenges involved, gas will remain a long-lasting part of the global energy scene.

The writer is a visiting senior research fellow at the Institute of Southeast Asian Studies.