Friday, September 28, 2012

The Natural Gas Revolution: Creator and Destroyer

The natural gas revolution is currently spreading out from North America to creatively impact countries from China to the Ukraine to Poland to Israel. These are countries that are likely to benefit from the development of their newly discovered energy riches.

In North America itself -- where the bonanza began -- innovative technologists are finding new ways to substitute cheap natural gas in place of expensive diesel:

  1. The biggest, baddest engines in the world, long chained to diesel fuel, are on the verge of a mass transformation because of cheap natural gas - with oil field equipment holding particular potential, executives said Thursday during a summit of heavy fuel users and producers.

    "Here's the first reason that large engines are going gas," said JoelFeucht, director of gas engine strategy for Caterpillar's energy and power systems division. "Large engines burn the most fuel. I could try to make it harder, but that's pretty straightforward."

    Oil companies alone use nearly 1.2 billion gallons of diesel fuel a year just for pressure pumping equipment that supports hydraulic fracturing, said David Hill, vice president of natural gas economy operations for Encana Corp. Adding the diesel used to power drilling rigs themselves, the total is more than 2.8 billion gallons annually, said Pierce Dehring, a project engineer for Baker Hughes.

    A single fracturing job can involve 7,800 gallons of diesel, at a cost of as much as $5 a gallon at some oil field operations, said Pat Osachuk, an engineer for Encana.

    The savings of natural gas, which now is around $2 cheaper for the energy-equivalent of one gallon of diesel, inspired a wave of interest at the High Horsepower Summit 2012, a conference dedicated to natural gas use in high-horsepower applications. Hundreds of company representatives packed into conference rooms at the Royal Sonesta Hotel in Houston to hear about developing engine technology and various uses of natural gas in large engines. ___Chron

  2. ...natural gas fuelled locomotives are testing on the 300-mile run north of Edmonton to Fort McMurray, rail gateway to the oil sands region of northern Alberta. Fueling and maintenance take place in Edmonton. ___Heraldonline

All types of engines are being converted to run on cheaper natural gas, from automobiles to long range diesel trucks to heavy construction equipment. The savings will eventually be transformed into profits, jobs, and new expansions and ventures.

Most politicians of the world have forgotten where economic prosperity comes from: The Ultimate Resource. Without the ultimate resource, human societies cannot prosper.

For example, countries that suppress the ultimate resource are likely to suffer from the new natural gas bonanza:
Gazprom, the natural gas company controlled by the Russian state, is in crisis. It is likely to fall victim to the shale gas revolution that is under way across the US. The shale gas revolution will probably have telling consequences for Russian state capitalism and President Vladimir Putin’s power.

This crisis erupted suddenly. With its surge in shale gas production the US has become self-sufficient in natural gas. It has overtaken Russia as the biggest natural gas producer. Crucially, US natural gas is cheap. Domestic US natural gas prices are only a quarter of Gazprom’s oil-linked eastern European prices. Such large price differentials cannot possibly last for long.

...Curiously, in 2011 Gazprom was formally the most profitable company in the world with purported net profits of $46bn, but these profits were hardly real. Investment analysts opined that no less than $40bn disappeared through inefficiency or corruption. Gazprom’s cash flow was barely positive.

In their 2010 booklet Putin and Gazprom , Boris Nemtsov and Vladimir Milov, the opposition politicians, detailed how assets were being stripped from Gazprom through large kickbacks on pipeline construction and cheap sales of financial and media subsidiaries to Putin cronies. Since shareholders have realised that only their dividend yield is material, Gazprom’s market value has plummeted by two-thirds from $365bn in May 2008 to $120bn today.

For years, many analysts have said that Russia will reform only when the oil price falls because Gazprom seems to be the Kremlin’s main slush fund, which is now being drastically reduced. The Kremlin will have little choice but to forsake its mega-projects. It has already abandoned the mastodon Arctic Shtokman field. The next steps should be to back out of South Stream, the superfluous and exceedingly expensive pipeline project, as well as the planned gigantic sky-rise headquarters in St Petersburg. But that will hardly suffice. This dysfunctional former Soviet gas ministry will have to be cut up into real companies, which need to be privatised. _Anders Aslund in FP via TheGWPF



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