The Natural Gas Resource
Abstract
Natural gas is produced from the fossilization of microscopic plants that were formed during the Carboniferous period, around 300 million years ago. Over time the gas has migrated from the rocks in which it was formed, often collecting in reservoirs beneath impervious rock caps. Conventional gas reserves from these reservoirs will normally flow to the surface once the reservoir is accessed. Gas is trapped within other rocks and can only be released by hydraulic fracturing. The main constituent of natural gas is methane but it can contain a range of other higher hydrocarbons. Proved natural reserves are around 190 trillion m3 but total reserves are certainly much larger. The Middle East and Russia hold the largest total national and regional reserves. The largest national producer and consumer of natural gas is the United States.
Keywords
Fossil fuel; methane; proven reserves; global production; global consumption; natural gas trade; gas pipelines; liquefied natural gas
Natural gas, like oil, is the product of the fossilization of microscopic plants and animals that lived in the world’s oceans during the Carboniferous period which occurred between 300 and 360 million years ago. The plants, probably similar to algae, flourished in the oceans where they absorbed sunlight and used the energy to fix carbon from the atmosphere. When they died, they formed layers on the bottom of the oceans. These layers eventually turned into a polymeric material called kerogen. The kerogen was usually mixed with sand, clay and minerals to form strata which as they thickened and became under greater and greater pressure, eventually forming sedimentary rocks with the kerogen inside them.
As a result of the high temperatures and massive pressures that the polymeric material experienced as it was buried deeper in the earth, over time the kerogen turned into oil or gas, the precise product depending on the form of kerogen and the conditions it experienced. The higher the temperature to which it was exposed, the lighter the oil that was eventually produced. For predominantly plant-based kerogen and the highest temperatures the result was often natural gas. The oil or gas, once produced, was gradually absorbed into the pores of the rock surrounding it.
Over geological timescales the rocks containing the oil or gas moved and deformed, often becoming folded, and might be buried beneath other layers of rock. The fate of the oil and gas within its pores depended on what happened to the rock that contained them. If the porous rock was close to the surface the oil and gas might eventually migrate to the surface and either escape in the case of gas or form visible pools in the case of oil. In other cases the migration of the oil and gas was halted by an overlaying cap of impermeable rock through which it could not pass. Under these conditions the gas and oil accumulated in the rock below the cap, creating a reservoir. These reservoirs are the main source of oil and gas supplies today.
The modern oil and gas industry exploits three different geological sources of oil and gas, as shown in Fig. 2.1. The fossil fuel trapped in reservoirs in sedimentary rocks below impermeable caps as outlined above are the traditional (or conventional) source. In addition some oil and gas is trapped within impermeable rocks from which it cannot easily migrate. These are called unconventional hydrocarbons and include shale oil and shale gas deposits as well as “tight gas” which is locked inside sandstone. Natural gas can also be trapped within coal seams. Coal-bed methane is considered another unconventional hydrocarbon source. The gas can be recovered from coal seams that are too deep to mine by using unconventional gas extraction techniques.
From an industry perspective, the main difference between conventional and unconventional hydrocarbons is their ease of extraction. Drilling into a conventional hydrocarbon reservoir will normally release a flow of gas or oil naturally. However in an unconventional deposit the gas must be stimulated using a technique such as hydraulic fracturing (fracking). Natural gas can either be found in association with oil in a conventional reservoir or alone in what is known as a conventional nonassociated gas reservoir.
Natural gas can also be found in one further form, natural gas hydrates. These are a crystalline form of natural gas that is created in the presence of water, under high pressure and relatively low temperatures. The hydrates are composed primarily of methane and water although other components can also be found. Natural gas hydrates are usually located within two types of geological formation, marine shelf sediments and onshore polar regions beneath permafrost. The gas from these hydrates is relatively expensive to extract and is not exploited today. However they may represent the largest global reserves of natural gas.
2.1 The Composition of Natural Gas
Natural gas as it is taken from the ground will contain a mixture of components, the most significant of which is methane.1 The gas usually contains between 70% and 90% methane as shown in Table 2.1. The remainder of the gas will be a mixture of higher hydrocarbons such as ethane, propane and butane—each of which may individually account for up to 20% of the natural gas—along with carbon dioxide, hydrogen sulfide, nitrogen and oxygen and traces of rare gases such as argon and krypton. In addition there is normally some water vapor present in the gas that emerges from the well.
Table 2.1
Chemical Composition of Natural Gas
| Chemical Component | Proportion in Natural Gas (%) |
| Methane | 70–90 |
| Ethane | 0–20 |
| Propane | 0–20 |
| Butane | 0–20 |
| Carbon dioxide | 0–8 |
| Nitrogen | 0–5 |
| Hydrogen sulfide | 0–5 |
| Oxygen | 0–0.2 |
Source: Gail.
Once it has been extracted from the reservoir, the raw gas is treated to clean it and to extract higher hydrocarbons so that the residue is primarily methane. Hydrogen sulfide, which can be processed to produce sulfur,2 is also removed as is carbon dioxide.
The first processing stage will depend on the type of natural gas. When oil is extracted from associated wells the natural gas may be dissolved in it. In this case it must first be released and then separated from the oil. The separation will often occur naturally when the high pressure to which the mixture was subjected underground is reduced, when the gas comes out of solution leaving the oil free of gas. However there are cases in which specialized separation equipment is required, usually when the gas is dissolved in a light crude oil or in natural gas condensate. Separation, where necessary, is followed by a process to remove any water that is associated with the gas. Liquid water can be separated from the gas simply but some water may be in solution in the natural gas. This is removed either by an absorption or an adsorption technique.
The next stage is to remove the higher hydrocarbons. These, once separated, are often called natural gas liquids. Again there are two processes in common use, an absorption technique and the cryogenic expander process. The latter is more effective at separating lighter hydrocarbons, principally ethane, from the natural gas. Once the natural gas liquids have been separated then the liquids are themselves processed in order to isolate the different hydrocarbons they contain. These will usually include ethane, propane, butane and pentane. Separation may also result in a liquid called natural gasoline. All of these can be sold for use in oil refineries, in chemical processes, and as fuels.
After this hydrocarbon separation the natural gas is treated to remove carbon dioxide and hydrogen sulfide from the remaining gas stream. The amount of hydrogen sulfide extracted can be significant. In the United States, for example, this sulfur accounts for around 15% of total national sulfur production.
The result of all these processes is to leave a gas that is composed mainly of methane. A typical pipeline gas sold by a company in North America contains 95% methane, around 3% ethane, 1% nitrogen and 0.5% carbon dioxide3 with traces of oxygen and other hydrocarbons. However the exact composition will vary depending upon the source and this has to be taken into account by power companies because the energy content of the natural gas will change with composition and this will affect the operation of a power plant. Typically the gross heating value of natural gas is 36–42 MJ/m3.
2.2 Natural Gas Reserves
The world’s natural gas reserves are distributed across the globe, but not evenly so. The greatest conventional natural gas reserves are found in Russia and the Middle East with significant reserves in other parts of the world. These conventional reserves provide most of the world’s natural gas today. Unconventional reserves are spread more widely. According to the International Energy Agency (IEA) the conventional and unconventional recoverable resources identified across the globe are of similar size.4 Unconventional gas production accounts for up to 60% of gas production in the United States but it contributes very little in other parts of the world. The IEA suggests that total recoverable reserves could provide natural gas for 250 years at the current rate of consumption. However BP figures below in Table 2.25 suggest a rather shorter lifespan for total proved reserves.
Table 2.2
Global Proven Gas Reserves by Region, 2014
| Region | Total Proved Reserves (Trillion m3) | Regional Reserves as a Proportion of Global Total (%) | Reserve/Production Ratio (Years) |
| North America | 12.1 | 6.5 | 12.8 |
| Central and South America | 7.7 | 4.1 | 43.8 |
| Europe and Eurasia | 58.0 | 31.0 | 57.9 |
| Middle East | 79.8 | 42.7 | >100 years |
| Africa | 14.2 | 7.6 | 69.6 |
| Asia Pacific | 15.3 | 8.2 | 28.7 |
| World | 187.1 | 100.0 | 54.1 |
Source: BP.
According to the figures in the table, total proved reserves in the Middle East are 79.8 trillion m3, 42.7% of the global total. Reserves in Europe are 58.0 trillion m3, 31% of the total. Between them, these two regions account for close to 74% of proved reserves. Elsewhere, proved reserves are significantly lower. The Asia Pacific region accounts for 15.3 trillion m3 (8.2%), Africa holds 14.2 trillion m3 (7.6%), North America has 12.1 trillion m3 (6.5%) and Central and South America together have 7.7 trillion m3 (4.1%). The United States is the world’s largest user of natural gas and the rate at which it is consuming its reserves is faster than in any other region. Based on the BP figures in Table 2.2 current reserves would last for 12.8 years at the present rate of consumption.6 In contrast African reserves can be expected to last for 69.6 years at the current rate of exploitation. In practice, the size of national and regional proved reserves is continually being updated so that these lifetimes are likely to be more extensive than the figures in Table 2.2 indicate.
Table 2.37 contains figures for the annual production of natural gas. This has risen steadily over the past 45 years. In 1970 annual production was 992 billion m3. This had increased to 1435 billion m3 by 1980 and by 1990 the global output was 1983 billion m3, double the production 20 years earlier. Total output reached 2416 billion m3 in 2000 and has continued to rise, year on year, with the exception of 2009 in the midst of the global recession when output was actually lower than in 2008. Output in 2010 more than made up for the earlier drop in output and in 2014 global annual production of natural gas was 3461 billion m3.
Table 2.3
Global Annual Production of Natural Gas
| Year | Annual Production (Billion m3) |
| 1970 | 992 |
| 1980 | 1435 |
| 1990 | 1983 |
| 2000 | 2416 |
| 2001 | 2483 |
| 2002 | 2532 |
| 2003 | 2624 |
| 2004 | 2711 |
| 2005 | 2789 |
| 2006 | 2893 |
| 2007 | 2968 |
| 2008 | 3073 |
| 2009 | 2989 |
| 2010 | 3203 |
| 2011 | 3316 |
| 2012 | 3380 |
| 2013 | 3409 |
| 2014 | 3461 |
Source: BP.
Table 2.48 expands on the figures from the previous table by showing the production and consumption of natural gas by global region in 2014. The largest regional production was in Europe and Eurasia where annual production was 1002.4 billion m3. The output was balanced by the largest regional consumption, 1009.6 billion m3. Much of this gas was burnt in Western Europe although Russia was also a large consumer. The production in Europe and Eurasia was almost matched by that in North America where output was 948.4 billion m3. Consumption was virtually identical at 949.4 billion m3. The Middle East was the third largest producer of natural gas in 2014 with 601.0 billion m3. In contrast, consumption in the region was only 464.2 billion m3. Large volumes of natural gas are exported from the Middle East as liquefied natural gas (LNG). Much of this gas is exported to the Asia Pacific region. Here production in 2014 was 531.2 billion m3 whereas consumption was much higher at 678.6 billion m3. Africa produced 202.6 billion m3 of natural gas in 2014 but only consumed 120.1 billion m3. Large volumes of African gas are also exported. Finally, production of natural gas in Central and South America was 175.0 billion m3 while consumption was 170.1 billion m3.
Table 2.4
Production and Consumption of Natural Gas by Region, 2014
| Region | Annual Production of Natural Gas in 2014 (Billion m3) | Annual Consumption of Natural Gas in 2014 (Billion m3) |
| North America | 948.4 | 949.4 |
| Central and South America | 175.0 | 170.1 |
| Europe and Eurasia | 1002.4 | 1009.6 |
| Middle East | 601.0 | 465.2 |
| Africa | 202.6 | 120.1 |
| Asia Pacific | 531.2 | 678.6 |
| Global total | 3460.6 | 3393.0 |
Source: BP.
Annual production from the top 10 natural gas producing countries in 2014 is shown in Table 2.5.9 Top of the table is the United States with 728 billion m3, 21.4% of global output, followed by the Russian Federation with 579 billion m3, 16.7% of the global total. These two countries far outstrip all others. The next nearest rivals in terms of output are Qatar with 177 billion m3, Iran with 173 billion m3 and Canada with 162 billion m3. Other major producers in the table include China (135 billion m3), Norway (109 billion m3), Saudi Arabia (108 billion m3), Indonesia (73 billion m3) and Turkmenistan (69 billion m3).
Table 2.5
Top 10 Natural Gas Producers, 2014
| Country | Annual Production (Billion m3) | Proportion of World Total (%) |
| United States | 728.3 | 21.4 |
| Russian Federation | 578.7 | 16.7 |
| Qatar | 177.2 | 5.1 |
| Islamic Republic of Iran | 172.6 | 5.0 |
| Canada | 162.0 | 4.7 |
| People’s Republic of China | 134.5 | 3.9 |
| Norway | 108.8 | 3.1 |
| Saudi Arabia | 108.2 | 3.1 |
| Indonesia | 73.4 | 2.1 |
| Turkmenistan | 69.3 | 2.0 |
| The rest of the world | 1170 | 33.6 |
Source: BP.
The figures in Table 2.610 show the top 10 natural gas consuming nations. As with the previous table, the United States is at the top with 759.4 billion m3, followed by the Russian Federation with 409.2 billion m3. Third in the table is China with 185.5 billion m3, then Iran with 170.2 billion m3, Japan with 112.5 billion m3, Saudi Arabia with 108.2 billion m3, Canada with 104.2 billion m3, Mexico (85.8 billion m3), Germany (70.9 billion m3) and the United Arab Emirates (69.3 billion m3). Several of the countries in this table subsidize the cost of natural gas for their own populations and this pushes consumption much higher. These include the Russian Federation, Iran, Saudi Arabia, Mexico and the United Arab Emirates. In contrast the consumption in countries such as the United States, China, Japan and Germany is more closely matched to their economic capacities and outputs.
2.3 Natural Gas Trade
The global trade in natural gas has two components, the trade in gas through natural gas pipeline networks and the trade in LNG. Much of the trade in pipeline gas takes place within countries such as the United States but there are also major international natural gas pipelines that transport gas across national borders.
National pipeline networks carry natural gas from producers to consumers. Within a single nation the management of such networks is relatively straightforward both technically and economically. However, the complexity of management rises when a pipeline crosses a border and involves two jurisdictions with different regulations. The situation can become even more complex when a pipeline carrying gas from one country to a second passes through a third, intervening country on the way. This latter country will make transit charges and may require some of the gas for its own use. Political bargaining can also play as part, as has happened in recent year with exports of gas from Russia to Europe through Ukraine.
In consequence of these difficulties most cross-border natural gas pipelines cross only a single border and have clearly defined exporters and final destinations for the gas. The major exception to this is the network of pipelines that connect Eastern and Western Europe. Most of these deliver Russian gas to Western Europe but future pipelines may also deliver gas from central Asian gas fields.
The main pipeline exporters of gas are the Russian Federation, Norway and Algeria. According to the IEA, the Russian Federation exported 203 billion m3 of natural gas in 2013, Norway exported 103 billion m3 and Algeria 45 billion m3. All three sell gas to markets in Western Europe. Big importers of the gas include Germany which takes much of its gas from Russia and both Italy and Spain which import gas via pipeline from Algeria. Other European nations such as France and the United Kingdom are also big importers of natural gas.
The second natural gas export market is based on LNG. This usually involves natural gas being transported by pipeline to a port where it is liquefied and then loaded into a bulk tanker. The process is reversed at the destination port with the LNG being regasified before being delivered into a pipeline network for transport to consumers.
There have historically been two LNG trading regions, the Atlantic Basin and the Pacific Basin. The Atlantic basin in dominated by the key European markets of Italy, France, Belgium, the Netherlands and the United Kingdom. The main Pacific Basin importers, meanwhile are Japan, South Korea and Taiwan with the markets expanded more recently with the addition of China, India, Thailand and Singapore. Japan and South Korea between them accounted for 52% of global LNG imports in 2012. In recent years the separation of the two regions has become less clear with some exporters of LNG selling into both trading regions.
The number of LNG exporters has been growing steadily over the past 20 years as markets have expanded. In 1996 there were only 8 exporters11 and 17 in 2012. The most significant is Qatar which exports LNG to both basins and in 2012 supplied close to one-third of global LNG supply. Other important LNG exporters include Malaysia, Australia, Nigeria, Indonesia, Trinidad, Algeria and Russia.
Much LNG is traded under bilateral deals but there is a growing spot and short-term market for LNG. In 2012 these accounted for 73.5 Mtonnes of LNG, or 31% of the total global LNG trade of 238 Mtonnes.12