Ahead of the North American Gas Forum, Energy Dialogues LLC met with Guy Lewis at UOP Honeywell…
…to discuss UOP Honeywell’s views on the natural gas sector, where the market is heading and what the opportunities are ahead.
Monika Simões, Energy Dialogues: Technology has been a key driver in accelerating the shale gas boom in the US and globally. What do you foresee as future drivers in the natural gas sector? What technology breakthroughs yet to come have the ability to continue transforming the sector in North America and also globally?
Guy Lewis, UOP Honeywell: A key driver for the natural gas sector is the increasing demand for transportation, residential/industrial use and export. To meet this demand, new sources of gas are required including unconventional gas, associated gas, and lower quality (including high sulfur content) conventional gas. We are familiar with the fact that the geology of unconventional gas reservoirs varies by regions. As we’ve seen with new shale gas plays in the U.S. and now in China, Poland, and elsewhere, hydraulic fracturing does not lead to the same results in all cases as the rocks are different. The mix of quartz, clay, and other minerals as well as the number of natural fractures and the stress orientation of the rock all impact the quality of the fracturing and the production rate of gas. But not as well understood is the fact that developing these resources can also require specialized and integrated treating and separation technologies due to varying logistical challenges and variations in gas feed quality. Meeting these challenges requires a diverse portfolio of technologies and adapting this portfolio to each resource is key to the future transformation of the sector both in North America and globally.
A second key driver is the desire to increase environmental and economic efficiency. One example would be advances to economically capture flared gas to enable it to be monetized and generate profits rather than be wasted lighting up the night sky and adding to greenhouse gas emissions. One solution is building new pipelines but this is not always practical for associated gas such as in the Bakken. An alternative is small scale LNG. Small scale LNG has been receiving attention as a way to take treated pipeline gas and provide a transportation fuel for long-haul trucking. But a second use is to create a “virtual pipeline” by taking gas that would otherwise be flared and transport it as LNG to demand centers. A second example would be the use of membranes for gas treating which are modular for easier deployment to remote and harsh locations and eliminate the possibility of solvent spills as solvents would otherwise be required.
Monika Simões, Energy Dialogues: What do you see as the important economic impacts and advantages of the natural gas boom in the US?
Guy Lewis, UOP Honeywell: The real economic potential of the natural gas boom in the US is enabled by the vast reservoirs of shale gas and gas from shale oil that are newly accessible through hydraulic fracturing and horizontal drilling. This opening up of previously untapped resource has unlocked a staggering 3,400 Tcf of natural gas in North America over the last four years (IHS). As a result, one of the key economic impacts will be on job creation as we look to develop this resource. A recent report by IHSCERA states that 1.8 million new jobs will have been created to develop shale resources in the U.S. by the end of this year and that this job creation will grow to 2.5 million by 2015 and to 3.5 million by 2035. The natural gas boom will also drive economic growth by contributing royalty and tax revenue to state, local and federal governments. The current low and stable natural gas prices in the US have also contributed to a reduction in energy costs by consumers and have encouraged a manufacturing renaissance evidenced by an expansion of operations in the US, building of new production facilities, and reopening of plants that were shut down. We are also now seeing a second wave of new manufacturing opportunities resulting from exploitation of the natural gas liquids recovered from wet shale gas and shale oil. In addition to domestic economic prospects, the US natural gas market is creating export opportunities as US supply is higher than domestic demand. International natural gas prices are significantly higher than in the US, for example Japan is five times higher, creating the incentive for export and significant income to be funneled back into the economy through exports. In total, natural gas is playing an increasingly pivotal role in our economic recovery. It has been noted that the entire increase in U.S. GDP relative to Europe can be linked to development of domestic shale resources.
Monika Simões, Energy Dialogues: Moving from the upstream to the downstream sector, where does UOP Honeywell see the biggest potential for natural gas use and why? What is important in the process of uniting supply and demand sides?
Guy Lewis, UOP Honeywell: The biggest potential for natural gas use is in power generation. Natural gas is cleaner and cheaper than coal over the lifecycle of power plants and new gas plants are easier to install. As the US becomes more concerned about carbon dioxide and pollutant emissions, the use of natural gas for electricity generation is expected to increase to supply both residential and commercial sectors. A second potential for natural gas is within the oil and gas industry itself. With the natural gas boom, additional infrastructure to support the production and transportation of natural gas is needed and much of this, such as pipeline compressor stations and field operations, can use natural gas for fuel and power generation as an alternative to diesel fuel. A third potential is the use of natural gas as fuel for heavy duty engines for trucking, mining, rail, and marine transport due to the lower price and impact of gas. Key to uniting supply and demand sides is supporting infrastructure development in the form of pipelines, gas processing, liquefaction and re-gasification terminals and development of efficient engines to utilize natural gas at lower cost incremental to diesel engines. Clear regulations and equitable policies are also key. We should also not lose sight of the importance of developing the opportunities for the natural gas liquids that are often generated with natural gas from shale. We have seen weakness in prices for ethane and propane as we await the addition of incremental export and petrochemical capacity. As demand for these valuable NGL’s ramp up, this will further increase the incentive to develop the shale gas resources.
Monika Simões, Energy Dialogues: Where do you see the biggest challenges for North American natural gas and how can those challenges be met?
Guy Lewis, UOP Honeywell: Technologically, as new sources of gas are being developed, there will be significant challenges to develop remote regions that are faced with limited water, infrastructure, and other logistical challenges. The varying quality of the new sources of gas and new uses also increase the complexity of the gas value chain putting demands on gas infrastructure to enable gas interchangeability. As a result, innovative solutions will be required with specialized and integrated treating and separation technologies. Of course, good environmental stewardship is required across the value chain for the industry to maintain its license to operate.
Monika Simões, Energy Dialogues: There seems to be an ongoing debate around natural gas as the future fuel or a bridge fuel? How does UOP Honeywell see the importance of natural gas evolve?
Guy Lewis, UOP Honeywell: The importance of natural gas is likely to continue to evolve and expand under any circumstances, as a result of its availability, its utility and it’s comparatively low cost. In the US, natural gas is the most cost-effective alternative to maintain energy supplies while reducing CO2 and pollutant emissions. The future of natural gas enabling energy self-sufficient regions will be enabled by investments in fit for purpose infrastructure to get the product efficiently to customers and to insure that customers are satisfied with product quality and that society is satisfied that the resources are being developed in a sustainable fashion. As to whether it is a future destination fuel or a bridge fuel, I won’t speak for Honeywell but I personally believe that the world is going to need to access the full potential of natural gas and other sustainable fuels to meet the world’s growing demand for energy. As a result, I see an important long-term role for natural gas.
Monika Simões, Energy Dialogues: UOP Honeywell is participating in the North American Gas Forum as sponsor and speaker – where do you see the key benefits of the forum to UOP Honeywell and on a broader scale how can the North American Gas Forum contribute to advancing the natural gas sector and emphasizing important industry dialogue?
Guy Lewis, UOP Honeywell: As stated on the North American Gas Forum website, this event provides a “unique platform to hear leading voices of shale and other conventional and unconventional gas producers, LNG export decision makers, the transportation and power generation sector, natural gas infrastructure and midstream sector, the manufacturing industry and industry thought leaders.” I have had the opportunity to participate in earlier forums you have organized. I agree it is a unique platform in that it is more of a dialogue than other events and attracts key decision makers that provide great opportunities for networking and to hear the latest views on policies and industry developments. For UOP Honeywell, we are looking forward to the opportunity to exchange information and knowledge with key players across the natural gas value chain and contribute to and gain first-hand insights into the future of the industry.