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June 27th, 2013

Flaming Ice -- The Next Disruptive Energy Source??

by Andrew Price, President & COO

Methane hydrates, sometimes referred to as "flaming ice", are composed of natural gas deposits and water frozen together as solids. Although previously discovered on land in artic permafrost, a few nations including Japan are exploring untouched hydrates lying beneath the seabed. The New York Times and The Atlantic have reported that countries in dire need of an alternative energy source, such as Japan, have successfully begun the intensive offshore extraction process. Could methane hydrates disrupt the world energy markets in the future, just as shale gas production in the US is doing today?

Releasing gas from methane hydrates, found miles below the ocean surface, is done by melting the frozen hydrates, either by heating, lowering the pressure, or injecting chemical inhibitors. It can be a very expensive and inefficient process, which is why so much speculation exists as to whether it is economically feasible with current technology. There was a time in the not too distant past that extracting natural gas and oil from shale was thought to be too expensive. Shale gas production is now flooding the US with plentiful and inexpensive fuel. Thanks to the “shale revolution” the US is now contemplating energy independence and debating how much natural gas is acceptable to export. Is it possible that methane hydrates is the next resource to disrupt the status quo?

Although estimates of the extent of these deposits vary greatly from approximately 10,000 tcf to over 100,000 tcf, the resource appears to be enormous by any measure. For perspective, the US is projected to use only 27 tcf of natural gas each year by 2030. According to the USGS (United States Geological Survey), the world’s supply of gas hydrates is more than 15 times that of shale gas, and may contain more organic carbon than coal, oil, and other natural gas reserves combined. Dispersed over large areas, either in arctic permafrost regions or many miles offshore in deep oceans, the remoteness of methane hydrates poses a challenge. Deposits are located mainly off the coast of Southeast Asia and near the U.S., in the waters of the Pacific and Gulf of Mexico.

From an environmental perspective, the discovery of more natural gas, a substance that has more than twenty times the global warming potential of carbon dioxide over a 100 year period, isn’t necessarily cause for celebration. The current drilling process can leak natural gas directly into the atmosphere, where each molecule of methane does as much damage as more than 20 molecules of carbon. Furthermore, cheap abundant natural gas makes it more difficult for renewables, like wind and solar to compete.

The upside? Natural gas is a cleaner burning fuel than all other fossil fuel options. Due to the abundance of supply, it can allow “dirty” power plants, especially those using coal, to convert their fuel source to a “cleaner” option. A shift away from coal to natural gas is already well underway in the United States. Methane hydrates could cause a similar shift in other parts of the world which are still accelerating their use of coal for power generation. 

The natural gas industry has been rapidly changing since the introduction of shale gas to the market. US natural gas imports have decreased sharply and exports are starting to rise. Companies including Exxon Mobil and Cheniere Energy, who built multi-billion dollar terminals to import liquefied natural gas during the prior natural gas shortage, have spent billions more to convert these facilities into exporting terminals.

Japan is leading the charge to commercialize methane hydrates. One of the largest importers of liquefied natural gas, oil and coal, Japan potentially has vast amounts of methane hydrates off its shores. Japan’s fossil fuel imports have grown as its nuclear fleet is still mostly idled by the fallout of the Fukushima disaster. Natural gas commodity currently costs about $15 per MMBtu in Japan and less than $4 per MMBtu in the U.S. If Japan is successful in extracting this gas, it could mean trouble for those planning to export natural gas from the US to Asia to capture the price spread.

Special thanks to Michael Cochrane who co-wrote and did much of the research for this blog post.

Photo Credit: Oil, be seeing you blog:

Tags: (Methane Hydrates, Japan, Shale Gas, United States, LNG, Liquefied Natural Gas)

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