Monday, August 23, 2004

Energy Autarky
In the course of catching up on last week's energy articles, I found this excellent discussion of the future US natural gas situation by Neela Bannerjee in last Friday's N.Y. Times. In particular, I found its treatment of LNG rather more balanced than some of the breathless articles that both the Times and Wall Street Journal have run over the last several months. In any case, the concerns it raises about potential future US dependence on unstable foreign suppliers of natural gas--along the lines of our current dependence on certain oil exporters--are worth some thought.

While I suggest that Ms. Bannerjee gives too little credence to the potential to increase domestic gas supplies (if we include Alaska and northern Canada in that definition), she correctly identifies the key challenge of investing sufficient capital to create an international gas infrastructure that can deliver enough gas to keep up with our needs. And once built, this expensive infrastructure of gas wells, liquefaction plants, and tanker loading facilities is indeed hostage to the good intentions of its hosts, whether they be Australian or Libyan.

Still, although I have my own reservations about relying on LNG imports to plug the current gap in North American gas supplies, I am a lot less worried about these particular issues. The international gas industry is at a much earlier stage in its development than the oil industry. An enormous amount of gas remains to be discovered as non-associated gas, or gas that is not produced in conjunction with oil. This is an important distinction, because much of the gas that is currently being produced was found by accident while seeking oil. Until the development of practical large-scale LNG systems in the 1960s and 70s, there was little incentive for energy companies to look for non-associated gas outside North America or Russia.

The implication of this is that as this market develops, it is quite possible that the current dominance of Russian and Middle Eastern gas reserves could be balanced by the discovery of significant reserves in a number of other countries. This is especially true if some of the more extreme theories about the geological origin of natural gas turn out to be correct.

Fundamentally, the concerns raised in the Times boil down to the same debate about energy independence that has been raging on and off for the last 30 years. It hinges on whether realistic alternatives to fossil fuels can be developed on a large enough scale to power our economy and applies equally to gas as to oil. In some respects, the situation is even worse for gas, since for the last two decades it has grown not just in its own right, but as the primary economically and environmentally attractive alternative to oil.

Barring the kind of wholesale development of nuclear power suggested in this satiric piece in the Sunday NY Times, I'm skeptical that wind or terrestrial solar power can be scaled up sufficiently to prevent us from burning through much of North America's natural gas endowment and becoming dependent on imported gas, even if it is used to provide the primary energy for a future hydrogen-based economy. But in a fully-globalized world with less conflict than today's, that wouldn't be the worst outcome imaginable.

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