Friday, September 26, 2008

Conference Highlights

I spent the last three days at the annual energy investment conference held by the sponsor of this blog, John S. Herold, Inc. Many of the panels I attended were overshadowed by the enormous uncertainty about the US financial system and pending bailout proposals, along with the Presidential election, the dynamics of which appear to have shifted again. However, the sessions provided some very interesting insights into an important unfolding natural resource play, along with showcasing some nifty applications of existing technology that could help to narrow the gap between growing global energy demand and the stagnating supply of conventional oil.

The two words that I heard most frequently this week were “shale gas”, the development of which just might facilitate achieving some of Mr. Pickens’s ideas about energy security. This is not the kind of shale that has been touted as a nearly unlimited source of unconventional oil, but rather a layer of natural gas-bearing rock that until recently was very difficult to tap. But as several panelists explained, companies have “cracked the code” for drilling into these deposits and producing flows that compete favorably with conventional gas fields in both output and cost. The result could be a modest gas bubble—a period of relatively abundant US natural gas supplies—though it comes with an inherent price floor not far below current levels. So while it is unlikely to rejuvenate struggling gas-based industries such as fertilizer production, for which $7/MMBTU is still quite dear, it could support expanded natural gas use in both transportation and power generation, where it could yield significant environmental and cost benefits.

One of the two technologies that impressed me was featured on the Alternative Energy panel I moderated. One of the founders of DKRW Advanced Fuels described a clever application of off-the-shelf technology that turns Wyoming coal into unleaded gasoline without releasing the vast quantities of CO2 that have made coal liquefaction look unpalatable. This trick is accomplished by marrying GE’s gasification technology (the old Texaco Coal Gasification Process on which I worked briefly as a young engineer) with ExxonMobil’s methanol-to-gasoline process that operated for 10 years in New Zealand, until the natural gas field feeding it was depleted. The output is 87 Octane unleaded gasoline and a pure CO2 stream that will supply the region’s extensive enhanced oil recovery projects, which will effectively sequester it. This scheme creates a double energy benefit: mainstream liquid fuel from America’s most abundant energy resource, and increased output at some of our aging oil fields. Even better, it looks like this can be accomplished with lifecycle greenhouse gas emissions no worse than from conventional oil.

The other technology that caught my attention was presented by an old friend and former Texaco colleague, who is now the CEO of Compact GTL. Instead of using proven gas-to-liquids technology to unlock “stranded” natural gas reserves—non-associated gas deposits far from infrastructure or markets—he aims to apply it to the problem of “distressed gas.” He defines that as natural gas produced in conjunction with oil in projects for which the cost and logistics of traditional methods for handling the gas have become an obstacle to developing the oil field. Previously, such gas would be flared, but that practice is being phased out on environmental grounds. Turning it into synthetic oil could prove cheaper than re-injecting it into the ground, while also shortening the development cycle of some large oil fields. Another double win, if it proves practical.

With the country still debating the merits of expanded oil drilling and looking to renewable energy sources that have not yet achieved the scale necessary to wean us off imported oil and slash our greenhouse gas emissions, the approaches described above can provide a valuable bridge. They could also be real money-spinners, at a time when other parts of the economy are looking pretty sick.

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