The Role of Natural Gas in Tomorrow's Energy Economy

AgMRC Renewable Energy & Climate Change Newsletter
March 2010

Don HofstrandDon Hofstrand
Agricultural Economist


 Crude oil has been a major driver of our energy economy since the early part of the 20th Century. Large quantities of easily accessible domestic crude oil have driven the expansion of the U.S. transportation industry.However, there are limits on the ability of oil to power the 21stCentury. These limitations include:

  1. Supply of crude oil
  2. U.S. dependency on oil imports from politically unstable and antagonistic countries
  3. Global warming concerns over the buildup of atmospheric carbon dioxide.

The energy source of the future should have an unlimited supply, can be mined or manufactured domestically and should not add to the atmospheric buildup of carbon dioxide. And, of course, it needs to be low cost so it will not impair economic growth.

One possible energy source is coal. It is domestically plentiful and has a relatively low cost to mine and transport. However, unless carbon emissions from burning coal can be captured and sequestered, coal adds substantially more atmospheric greenhouse gases than oil. So the search goes on for an energy source for the future that can meet the three criteria listed above.

Renewable energy has been pursued to meet these objectives. A group of renewable energy sources have emerged in recent decades that can potentially meet these criteria. Examples range from ethanol to solar to wind to an array of other sources. However, there are currently limits to these sources either in the amount that can be produced or the cost of producing them. It is as if these are the energy sources of the future, but the future is not here yet. The question then is what we do in the meantime.

A possible energy source is natural gas. Traditionally, natural gas has been a byproduct of the oil industry. Its price has followed crude oil prices and the major world supplies were believed to be located in the same countries where crude oil reserves are located. A key positive aspect of natural gas is that it emits fewer greenhouse gases per unit of energy produced than oil.

Recently the natural gas picture has changed. Large domestic unconventional sources of natural gas have been discovered.With new technology to economically access these supplies, natural gas is being touted as the “bridge” between the end of the oil energy era and the beginning of the renewable energy era.

Understanding Natural Gas

When the oil industry was developing, natural gas was a byproduct of producing oil. Unless it could be used locally, the natural gas was burned off in the oil field. Associated natural gas is the term used for conventional sources of natural gas located in oil fields.Non-associated natural gas is conventional deposits found in isolated natural gas fields. Russia has the largest deposits of conventional natural gas, followed by Iran, Qatar, Saudi Arabia and United Arab Emirates.

Natural gas is composed mainly of methane. In its natural state, about 90 percent is methane with the remainder composed of ethane and other hydrocarbons. When it is refined, the final product is essentially just methane. The chemical composition of methane is CH4.It is a single carbon atom surrounded by four hydrogen atoms. Other hydrocarbons (ethane, propane, butane, pentane, hexane, etc.) are composed of a chain of two or more carbon atoms that are bonded with hydrogen atoms.

CH4 Diagram 

Power Generation

Natural gas is a major source of fuel for electricity generation. Electricity is generated through the use of gas turbines and steam turbines. Natural gas is often used to generate peak power for the grid.

High levels of efficiency can be gained when gas turbines and steam turbines are combined. Called combined cycle power generation, a gas turbine generator generates electricity and the exhaust or waste heat from the turbine is used to make steam to generate additional electricity from a steam turbine. Most new gas power plants in North America and Europe combine gas generation with steam generation.

Transportation Fuel

Although natural gas can be used in internal combustion engines, its role in the transportation industry has been limited because of its low energy density (amount of energy per unit of volume). However, its energy density can be greatly increased by compressing natural gas to about 3,000 to 4,000 pounds per square inch (psi). The compressed gas volume is reduced to less than one percent of natural gas volume at standard atmospheric pressure. The compressed gas is stored and distributed in hard containers.

Although the energy density of compressed natural gas (CNG) is much greater than uncompressed natural gas, it still does not have the energy density of traditional petroleum fuels.So, CNG vehicles need more space for fuel storage. CNG takes up additional space in the trunk of a car or bed of a pickup truck. CNG vehicles from the factory may have storage tanks located under the vehicle. The tanks may be located on the top of buses.

Car powered off of natural gas 

Natural gas storage in a car (Wikipedia).

Bi-fuel cars are available in Europe to run on either gasoline from a gasoline tank or CNG from a trunk storage tank. Several manufacturers including Volkswagen, Toyota and Honda sell bi-fuel cars. In addition,any existing gasoline vehicle can be converted to a bi-fuel(gasoline/CNG) vehicle. CNG vehicles have lower maintenance costs and are considered to be safer than gasoline vehicles. They also emit significantly less pollutants like carbon dioxide, carbon monoxide,sulfur dioxide and particulate matter.

Gas-to-liquids (GTL) is a process to convert natural gas into transportation fuel. One of these methods uses the Fischer-Tropsch process. The process starts with the partial oxidation of the methane in natural gas into synthesis gas(carbon monoxide and hydrogen). Then the synthesis gas is converted to liquid hydrocarbons. Through a process called “cracking”, the resulting hydrocarbons are converted into diesel fuel.

Other Uses

Natural gas is piped to homes where it is used for a variety of tasks including cooking, clothes drying, heating and cooling. Natural gas is the major feedstock used to make ammonia through the Haber-Bosch process. Ammonia is made into an array of nitrogen fertilizers.

Natural Gas Sources

Called conventional deposits, natural gas traditionally comes from gas fields or oil reservoirs and is found in highly porous rocks like sandstone.Concerns of the depletion of conventional natural gas reserves in the U.S have led to the prospect that the U.S. will become a net importer of natural gas. Because of its low energy density, transporting natural gas is costly. To address this problem, technology was developed to convert natural gas to a liquid form call liquefied natural gas (LNG).It is condensed into a liquid by cooling it to about minus 260 degrees Fahrenheit. LNG takes up about 1/600 the volume of natural gas. It is then stored and transported in cryogenic tanks to locations where it is regasified and distributed through pipelines. However, this is also a high cost process.

Unconventional deposits come from “tight”gas found in impermeable rock, coal-bed methane and shale gas from fine-grained sedimentary rock. New technologies have been developed to economically access shale gas. To access shale gas, the company drills down to a thin layer of shale and then drills horizontally along the layer of shale. With a process call “fracking”, a fluid is injected into the layer at high pressure which opens tiny cracks in the shale and allows the trapped gas to escape. Some analysts believe that the cost of production from shale gas is significantly lower than the cost of opening new conventional gas wells.

Large deposits of shale gas have been located in the U.S. Currently, U.S. shale gas makes up about 20 percent of total U.S. natural gas production. Production is projected to double by 2015 and triple by 2030.

However, there are environmental and safety concerns about the extraction of shale gas. Fracking is a harsh process. In addition to using huge quantities of water, there are concerns that the cocktail of chemicals used to make the “fracking fluid” may contaminate drinking water and cause other environmental damage. A substantial amount of the fracking fluid is returned to the surface along with the gas. Various states are beginning to regulate fracking. The ability to resolve these issues will have an impact on the growth of the shale gas extraction industry.

Traditionally, natural gas prices were linked to crude oil prices. As crude prices went up, natural gas prices tended to also go up. However,with the addition of large amounts of low cost shale gas, natural gas prices are becoming delinked from crude oil prices and remaining relatively low and stable as shown in Figure 1. This will expand the usage of natural gas. Natural gas will be more competitive with coal for power generation. Also, the cost differential between natural gas and crude oil will help stimulate the development of electric cars and the usage of compressed natural gas as a transportation fuel.

Imported crude oil and U.S. industrial natural gas prices

Greenhouse Gas Emissions

Substituting natural gas for oil and coal has been touted as a way of reducing carbon dioxide emissions. It burns cleaner than oil and coal and produces less carbon dioxide per unit of energy. During the burning process, methane and oxygen yield carbon dioxide and water
(CH4 + 2O2 arrow to the right CO2 + 2H2O). Because methane has more hydrogen bonded to it per unit of carbon than other hydrocarbons, carbon dioxide emissions are fewer.Natural gas produces about 55 percent of the carbon dioxide emissions of coal when smokestack emissions are measured. In addition, carbon monoxide emissions are 19 percent, nitrous oxide emissions are 20percent and sulfur dioxide and particulates are less than one percent of those of coal. Natural gas produces about 70 percent of the carbon dioxide emissions of petroleum when tailpipe emissions are measured.

When the life cycle of natural gas is examined, the advantage over oil and coal may not be as great as expected. Life cycle analysis takes into account natural gas lost during extraction and transportation. As with carbon dioxide, methane is also a greenhouse gas. But methane is much more potent. Over a 100 year period (the standard time period for measuring greenhouse gas potency), methane is estimated to be about 21times more potent than carbon dioxide. In other words, one ton of methane is as powerful as 21 tons of carbon dioxide. So, natural gas emitted directly into the atmosphere rapidly changes it greenhouse gas footprint.

However, this does not tell the entire story. Carbon dioxide and most other greenhouse gases stay in the atmosphere for hundreds of years if not longer. Conversely, methane in the atmosphere is gradually oxidized over a period of years and turns into carbon dioxide. Methane is extremely potent (much more than 21 times CO2) in the initial years after being emitted but is not even present in the atmosphere towards the end of the 100 year period (thus the average of21 over the 100 year period). It is estimated that methane, when calculated over just a 20 year period after emission, is 72 times more potent than carbon dioxide.

As discussed above, relatively small leakage of methane during its life cycle can have a large impact on the greenhouse gas footprint of natural gas. The U.S. Environmental Protection Agency (EPA) estimates that billions of cubic feet seep from loose pipe fittings or are intentionally vented from gas wells. When the entire life cycle is taken into account, natural gas may have only 25percent fewer emissions than coal. The difference may even be less,especially for older and less efficient gas-fired power plants.

Impact on Renewable Energy

Natural gas is being described as a bridge or an interim solution to our energy problem. It can provide large amounts of low cost domestically produced energy with a smaller carbon footprint than either oil or coal. As described above, there are some concerns about the ability of natural gases to fill this role. But if these challenges are met, natural gas could be a major fuel source for future decades.

So what impact may natural gas have on the renewable energy industry? Some analysts believe it will serve as the “bridge” between the current oil economy and the future renewable energy economy. In other words, it will “buy time” until the renewable energy can develop the technology and expand into the size and scale of industry required to meet the needs of the U.S. economy.

However, another scenario is possible. The availability of plentiful and low priced natural gas may lull us to sleep about the need to vigorously pursue renewable energy research and development. If we are not vigilant, we will find ourselves running out of cheap natural gas in future decades with still no viable renewable energy industry to supply our energy needs. Due to this country’s past record of not being able to address a problem until it becomes a crisis,this scenario is not just possible, it is probable.


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Lustgarten, A., ProPublica.Climate Benefits of Natural Gas May be Overstated. Scientific American. January 26, 2011.

Natural Gas, Wikipedia.

Compressed Natural Gas, Wikipedia.

Liquefied Natural Gas, Wikipedia.

Gas to Liquids, Wikipedia.

Combined Cycle Power Generation, Wikipedia.