A 174-page study issued by the Massachusetts Institute of Technology in June 2011 evaluating natural gas and how it fares as an energy source in a political environment where carbon is taxed. That is, how competitive is natural gas when considering lower carbon emissions standards? The study finds, among other things, that hydraulic fracturing technology as used in shale gas drilling is safe.

1. The
Future of
Natural
Gas
AN INTERDISCIPLINARY MIT STUDY

2. Foreword and Acknowledgements
The Future of Natural Gas is the fourth in a invested in advising us. However, the study is the
series of MIT multidisciplinary reports examin- responsibility of the MIT study group and the
ing the role of various energy sources that may advisory committee members do not necessarily
be important for meeting future demand under endorse all of its findings and recommendations,
carbon dioxide (CO2) emissions constraints. In either individually or collectively.
each case, we explore the steps needed to enable
competitiveness in a future marketplace condi- Finally, we are very appreciative of the support
tioned by a CO2 emissions price or by a set of from several sources. First and foremost, we
regulatory initiatives. This report follows an thank the American Clean Skies Foundation.
interim report issued in June 2010. Discussions with the Foundation led to the
conclusion that an integrative study on the
The first three reports dealt with nuclear power future of natural gas in a carbon-constrained
(2003), coal (2007) and the nuclear fuel cycle world could contribute to the energy debate in
(2010 and 2011). A study of natural gas is more an important way, and the Foundation stepped
complex than these previous reports because forward as the major sponsor. MIT Energy
gas is a major fuel for multiple end uses — Initiative (MITEI) members Hess Corporation
electricity, industry, heating — and is increasingly and Agencia Naçional de Hidrocarburos
discussed as a potential pathway to reduced oil (Colombia), the Gas Technology Institute (GTI),
dependence for transportation. In addition, Exelon, and an anonymous donor provided
the realization over the last few years that the additional support. The Energy Futures Coali-
producible unconventional gas resource in the tion supported dissemination of the study
U.S. is very large has intensified the discussion results, and MITEI employed internal funds and
about natural gas as a “bridge” to a low-carbon fellowship sponsorship to support the study as
future. Recent indications of a similarly large well. As with the advisory committee, the
global gas shale resource may also transform the sponsors are not responsible for and do not
geopolitical landscape for gas. We have carried necessarily endorse the findings and recommen-
out the integrated analysis reported here as dations. That responsibility lies solely with the
a contribution to the energy, security and MIT study group.
climate debate.
We thank Victoria Preston and Rebecca
Our primary audience is U.S. government, Marshall-Howarth for editorial support and
industry and academic leaders, and decision Samantha Farrell for administrative support.
makers. However, the study is carried out with
an international perspective.
This study is better as a result of comments and
suggestions from our distinguished external
Advisory Committee, each of whom brought
important perspective and experience to our
discussions. We are grateful for the time they
MIT Study on the Future of Natural Gas iii

3. Study Participants
STUDY CO-CHAIRS
ERNEST J. MONIZ — CHAIR MELANIE A. KENDERDINE
Cecil and Ida Green Professor of Physics Executive Director, MITEI
and Engineering Systems, MIT
Director, MIT Energy Initiative (MITEI) FRANCIS O’SULLIVAN
Research Engineer, MITEI
HENRY D. JACOBY — CO-CHAIR
Professor of Management, MIT SERGEY PALTSEV
Principal Research Scientist, Joint Program on
ANTHONY J. M. MEGGS — CO-CHAIR the Science and Policy of Global Change, MIT
Visiting Engineer, MITEI
JOHN E. PARSONS
STUDY GROUP Senior Lecturer, Sloan School of Management, MIT
Executive Director, Joint Program on the
ROBERT C. ARMSTRONG Science and Policy of Global Change and
Chevron Professor, Department of Chemical Center for Energy and Environmental
Engineering, MIT Policy Research, MIT
Deputy Director, MITEI
IGNACIO PEREZ-ARRIAGA
DANIEL R. COHN Professor of Electrical Engineering,
Senior Research Scientist, Plasma Science Comillas University, Spain
and Fusion Center, MIT Visiting Professor, Engineering Systems Division, MIT
Executive Director, Natural Gas Study
JOHN M. REILLY
STEPHEN R. CONNORS Senior Lecturer, Sloan School of Management, MIT
Research Engineer, MITEI Co-Director, Joint Program on the Science
and Policy of Global Change, MIT
JOHN M. DEUTCH
Institute Professor, CAROLYN SETO
Department of Chemistry, MIT Clare Boothe Luce Postdoctoral Fellow,
Department of Chemical Engineering, MIT
QUDSIA J. EJAZ
Postdoctoral Associate, MITEI MORT D. WEBSTER
Assistant Professor, Engineering Systems
JOSEPH S. HEZIR Division, MIT
Visiting Engineer, MITEI
YINGXIA YANG
GORDON M. KAUFMAN MITEI
Morris A. Adelman Professor of Management
(Emeritus), MIT
MIT Study on the Future of Natural Gas v

4. CONTRIBUTING AUTHORS GRADUATE RESEARCH ASSISTANTS
GREGORY S. MCRAE SARAH FLETCHER
Professor of Chemical Engineering (Emeritus),
MIT JOHN MICHAEL HAGERTY
Exelon – MIT Energy Fellow
CAROLYN RUPPEL
Visiting Scientist, Department of Earth, ORGHENERUME KRAGHA
Atmospheric and Planetary Sciences, MIT
TOMMY LEUNG
Cummins – MIT Energy Fellow
PAUL MURPHY
Total – MIT Energy Fellow
ANIL RACHOKONDA
KAREN TAPIA-AHUMADA
GTI – MIT Energy Fellow
IBRAHIM TOUKAN
Constellation – MIT Energy Fellow
DOGAN UCOK
YUAN YAO
vi MIT STUDY ON THE FUTURE OF NATURAL GAS

5. Advisory Committee Members
THOMAS F. (MACK) MCLARTY, III — SENATOR (ret.) J. BENNETT JOHNSTON
CHAIRMAN Chairman, Johnston Associates
President & CEO, McLarty Associates
VELLO A. KUUSKRAA
DENISE BODE President, Advance Resources International, Inc.
CEO, American Wind Energy Association
MIKE MING
RALPH CAVANAGH Oklahoma Secretary of Energy
Senior Attorney and Co-Director of Energy Program,
Natural Resource Defense Council THEODORE ROOSEVELT IV
Managing Director & Chairman, Barclays Capital
SUNIL DESHMUKH Clean Tech Initiative
Founding Member, Sierra Club India
Advisory Council OCTAVIO SIMOES
Vice President of Commercial Development,
JOSEPH DOMINGUEZ Sempra Energy
Senior Vice President, Exelon Corporation
GREG STAPLE
RON EDELSTEIN CEO, American Clean Skies Foundation
Director, Regulatory and Government Relations,
GTI PETER TERTZAKIAN
Chief Energy Economist and Managing Director,
NEAL ELLIOTT ARC Financial
Associate Director for Research, American
Council for an Energy-Efficient Economy DAVID VICTOR
Director, Laboratory on International Law
JOHN HESS and Regulation, University of California, San Diego
Chairman and CEO, Hess Corporation
ARMANDO ZAMORA
JAMES T. JENSEN Director, ANH-Agencia Nacional De Hidrocarburos
President, Jensen Associates
While the members of the advisory committee provided invaluable perspective and advice to the study group,
individual members may have different views on one or more matters addressed in the report. They are not
asked to individually or collectively endorse the report findings and recommendations.
MIT Study on the Future of Natural Gas vii

7. Abstract
Natural gas is finding its place at the heart of the The U.S. natural gas supply situation has
energy discussion. The recent emergence of enhanced the substitution possibilities for
substantial new supplies of natural gas in the natural gas in the electricity, industry, buildings,
U.S., primarily as a result of the remarkable and transportation sectors.
speed and scale of shale gas development, has
heightened awareness of natural gas as a key In the U.S. electricity supply sector, the cost
component of indigenous energy supply and has benchmark for reducing carbon dioxide emissions
lowered prices well below recent expectations. lies with substitution of natural gas for coal,
This study seeks to inform discussion about the especially older, less efficient units. Substitution
future of natural gas, particularly in a carbon- through increased utilization of existing combined
constrained economy. cycle natural gas power plants provides a rela-
tively low-cost, short-term opportunity to reduce
There are abundant supplies of natural gas in U.S. power sector CO2 emissions by up to 20%,
the world, and many of these supplies can be while also reducing emissions of criteria pollut-
developed and produced at relatively low cost. ants and mercury.
In North America, shale gas development over
the past decade has substantially increased Furthermore, additional gas-fired capacity will
assessments of resources producible at modest be needed as backup if variable and intermittent
cost. Consequently, the role of natural gas is renewables, especially wind, are introduced on a
likely to continue to expand, and its relative large scale. Policy and regulatory steps are needed
importance is likely to increase even further to facilitate adequate capacity investment for
when greenhouse gas emissions are constrained. system reliability and efficiency. These increas-
In a carbon-constrained world, a level playing ingly important roles for natural gas in the
field — a carbon dioxide (CO2) emissions price electricity sector call for a detailed analysis of the
for all fuels without subsidies or other preferen- interdependencies of the natural gas and power
tial policy treatment —maximizes the value to generation infrastructures.
society of the large U.S. natural gas resource.
The primary use of natural gas in the U.S.
There are also a number of key uncertainties: manufacturing sector is as fuel for boilers and
the extent and nature of greenhouse gas emission process heating, and replacement with new
mitigation measures that will be adopted; the higher efficiency models would cost-effectively
mix of energy sources as the relative costs of fuels reduce natural gas use. Natural gas could also
and technologies shift over time; the evolution substitute for coal in boilers and process heaters
of international natural gas markets. We explore and provide a cost-effective alternative for
how these uncertainties lead to different out- compliance with Environmental Protection
comes and also quantify uncertainty for natural Agency (EPA) Maximum Achievable Control
gas supply and for the U.S. electricity fuel mix. Technology standards.
The environmental impacts of shale development In the residential and commercial buildings
are challenging but manageable. Research and sector, transformation of the current approach to
regulation, both state and Federal, are needed to efficiency standards to one based on full fuel
minimize the environmental consequences. cycle analysis will enable better comparison of
different energy supply options (especially
MIT Study on the Future of Natural Gas xiii

8. natural gas and electricity). Efficiency metrics The evolution of global gas markets is unclear.
should be tailored to regional variations in A global “liquid” natural gas market is benefi-
climate and electricity supply mix. cial to U.S. and global economic interests and,
at the same time, advances security interests
Within the U.S. market, the price of oil (which through diversity of supply and resilience to
is set globally) compared to the price of natural disruption. The U.S. should pursue policies that
gas (which is set regionally) is very important encourage the development of such a market,
in determining market share when there is the integrate energy issues fully into the conduct of
opportunity for substitution. Over the last U.S. foreign policy, and promote sharing of
decade or so, when oil prices have been high, know-how for strategic global expansion of
the ratio of the oil price to the natural gas price unconventional gas production.
has been consistently higher than any of the
standard rules of thumb. If this trend is robust, Past research, development, demonstration, and
use of natural gas in transportation, either deployment (RDD&D) programs supported with
through direct use or following conversion to a public funding have led to significant advances
liquid fuel, could in time increase appreciably. for natural gas supply and use. Public-private
partnerships supporting a broad natural gas
research, development, and demonstration
(RD&D) portfolio should be pursued.
xiv MIT STUDY ON THE FUTURE OF NATURAL GAS

9. Chapter 1: Overview and Conclusions
PURPOSE AND OUTLINE OF THE STUDY
Despite its vital importance to the national Having explored supply volumes and costs, we
economy, natural gas has often been overlooked, use integrated models to examine the role that
or at best taken for granted, in the debate about natural gas could play in the energy system under
the future of energy in the U.S. Over the past different carbon-constraining mechanisms or
two or three years this has started to change, and policies. It is important to recognize that the study
natural gas is finding its place at the heart of the does not set out to make predictions or forecasts
energy discussion. of the likelihood or direction of CO2 policy in the
U.S. Rather, we examine a number of different
There are a number of reasons for this shift. scenarios and explore their possible impacts on
The recent emergence of substantial new sup- the future of natural gas supply and demand.
plies of natural gas in the U.S., primarily as a
result of the remarkable speed and scale of shale Natural gas is important in many sectors of the
gas development, has heightened awareness of economy — for electricity generation, as an
natural gas as a key component of indigenous industrial heat source and chemical feedstock,
energy supply and lowered prices well below and for water and space heating in residential
recent expectations. Instead of the anticipated and commercial buildings. Natural gas competes
growth of natural gas imports, the scale of domes- directly with other energy inputs in these sectors.
tic production has led producers to seek new But it is in the electric power sector — where
markets for natural gas, such as an expanded role natural gas competes with coal, nuclear, hydro,
in transportation. Most importantly for this wind and solar — that inter-fuel competition is
study, there has been a growing recognition that most intense. We have, therefore, explored in
the low carbon content of natural gas relative to depth how natural gas performs in the electric
other fossil fuels could allow it to play a signifi- power sector under different scenarios. We have
cant role in reducing carbon dioxide (CO2) emis- also taken a close look at the critical interaction
sions, acting as a “bridge” to a low-carbon future. between intermittent forms of renewable energy,
such as wind and solar, and gas-fired power as a
Within this context, the MIT study of The Future reliable source of backup capacity.
of Natural Gas seeks to inform the discussion
around natural gas by addressing a fundamental We look at the drivers of natural gas use in the
question: what is the role of natural gas in a industrial, commercial and residential sectors,
carbon-constrained economy? and examine the important question of whether
natural gas, in one form or another, could be a
In exploring this question, we seek to improve viable and efficient substitute for gasoline or diesel
general understanding of natural gas, and in the transportation sector. We also examine the
examine a number of specific issues. How much possible futures of global natural gas markets, and
natural gas is there in the world, how expensive the geopolitical significance of the ever-expanding
is it to develop, and at what rate can it be pro- role of natural gas in the global economy. Finally,
duced? We start from a global perspective, and we make recommendations for research and
then look in detail at U.S. natural gas resources, development priorities and for the means by
paying particular attention to the extent and cost which public support should be provided.
of shale gas resources, and whether these sup-
plies can be developed and produced in an
environmentally sound manner.
Chapter 1: Overview and Conclusions 1

10. HIGH-LEVEL FINDINGS 5. Increased utilization of existing natural gas
combined cycle (NGCC) power plants
The findings and recommendations of the provides a relatively, low-cost short-term
study are discussed later in this chapter, and opportunity to reduce U.S. CO2 emissions
covered in detail in the body of this report. by up to 20% in the electric power sector,
Nevertheless, it is worth summarizing here or 8% overall, with minimal additional
the highest level conclusions of our study: capital investment in generation and no
new technology requirements.
1. There are abundant supplies of natural gas
in the world, and many of these supplies 6. Natural gas-fired power capacity will play
can be developed and produced at relatively an increasingly important role in providing
low cost. In the U.S., despite their relative backup to growing supplies of intermittent
maturity, natural gas resources continue to renewable energy, in the absence of a
grow, and the development of low-cost and breakthrough that provides affordable
abundant unconventional natural gas utility-scale storage. But in most cases,
resources, particularly shale gas, has a increases in renewable power generation
material impact on future availability will be at the expense of natural gas-fired
and price. power generation in the U.S.
2. Unlike other fossil fuels, natural gas plays 7. The current supply outlook for natural gas
a major role in most sectors of the modern will contribute to greater competitiveness
economy — power generation, industrial, of U.S. manufacturing, while the use of
commercial and residential. It is clean and more efficient technologies could offset
flexible. The role of natural gas in the world increases in demand and provide cost-
is likely to continue to expand under almost effective compliance with emerging envi-
all circumstances, as a result of its availability, ronmental requirements.
its utility and its comparatively low cost.
8. Transformation of the current approach
3. In a carbon-constrained economy, the to appliance standards to one based on full
relative importance of natural gas is likely fuel cycle analysis will enable better com-
to increase even further, as it is one of the parison of different energy supply options
most cost-effective means by which to in commercial and residential applications.
maintain energy supplies while reducing
CO2 emissions. This is particularly true in 9. Natural gas use in the transportation sector
the electric power sector, where, in the U.S., is likely to increase, with the primary
natural gas sets the cost benchmark against benefit being reduced oil dependence.
which other clean power sources must Compressed natural gas (CNG) will play
compete to remove the marginal ton of CO2. a role, particularly for high-mileage fleets,
but the advantages of liquid fuel in trans-
4. In the U.S., a combination of demand portation suggest that the chemical conver-
reduction and displacement of coal-fired sion of gas into some form of liquid fuel may
power by gas-fired generation is the lowest- be the best pathway to significant market
cost way to reduce CO2 emissions by up to penetration.
50%. For more stringent CO2 emissions
reductions, further de-carbonization of the
energy sector will be required; but natural
gas provides a cost-effective bridge to such a
low-carbon future.
2 MIT STUDY ON THE FUTURE OF NATURAL GAS

11. 10. International gas trade continues to grow natural gas allows high recoveries from conven-
in scope and scale, but its economic, tional reservoirs at relatively low cost, and also
security and political significance is not yet enables natural gas to be economically recov-
adequately recognized as an important ered from even the most unfavorable subsurface
focus for U.S. energy concerns. environments, as recent developments in shale
formations have demonstrated.
11. Past research, development, demonstration
and deployment (RDD&D) programs These physical characteristics underpin the
supported with public funding have led to current expansion of the unconventional
significant advances for natural gas supply resource base in North America, and the
and use. potential for natural gas to displace more
carbon-intensive fossil fuels in a carbon-
BACKGROUND constrained world.
The Fundamental Characteristics On the other hand, because of its gaseous form
of Natural Gas and low energy density, natural gas is uniquely
disadvantaged in terms of transmission and
Fossil fuels occur in each of the three funda- storage. As a liquid, oil can be readily trans-
mental states of matter: in solid form as coal; ported over any distance by a variety of means,
in liquid form as oil and in gaseous form as and oil transportation costs are generally a small
natural gas. These differing physical character- fraction of the overall cost of developing oil
istics for each fuel type play a crucial part in fields and delivering oil products to market. This
shaping each link in their respective supply has facilitated the development of a truly global
chains: from initial resource development and market in oil over the past 40 years or more.
production through transportation, conversion
to final products and sale to customers. Their By contrast, the vast majority of natural gas
physical form fundamentally shapes the supplies are delivered to market by pipeline, and
markets for each type of fossil fuel. delivery costs typically represent a relatively large
fraction of the total cost in the supply chain.
Natural gas possesses remarkable qualities. These characteristics have contributed to the
Among the fossil fuels, it has the lowest carbon evolution of regional markets rather than a
intensity, emitting less CO2 per unit of energy truly global market in natural gas. Outside
generated than other fossil fuels. It burns cleanly North America, this somewhat inflexible
and efficiently, with very few non-carbon pipeline infrastructure gives strong political
emissions. Unlike oil, natural gas generally and economic power to those countries that
requires limited processing to prepare it for control the pipelines. To some degree, the
end use. These favorable characteristics have evolution of the spot market in Liquefied
enabled natural gas to penetrate many markets, Natural Gas (LNG) is beginning to introduce
including domestic and commercial heating, more flexibility into global gas markets and
multiple industrial processes and electrical stimulate real global trade. The way this trade
power. may evolve over time is a critical uncertainty
that is explored in this report.
Natural gas also has favorable characteristics
with respect to its development and production.
The high compressibility and low viscosity of
Chapter 1: Overview and Conclusions 3

12. The Importance of Natural Gas in the coming from indigenous resources. Perhaps of
Energy System more significance, is the very important role that
natural gas plays in all sectors of the economy,
Natural gas represents a very important, and with the exception of transport. Very approxi-
growing, part of the global energy system. mately, the use of natural gas is divided evenly
Over the past half century, natural gas has between three major sectors: industrial, residen-
gained market share on an almost continuous tial and commercial, and electric power. The 3%
basis, growing from some 15.6% of global share that goes to transport is almost all associ-
energy consumption in 1965 to around 24% ated with natural gas use for powering oil and
today. In absolute terms, global natural gas gas pipeline systems, with only a tiny fraction
consumption over this period has grown from going into vehicle transport.
around 23 trillion cubic feet (Tcf) in 1965 to
104 Tcf in 2009, a more than fourfold increase. In the Residential and Commercial sectors,
natural gas provides more than three-quarters
Within the U.S. economy, natural gas plays a of the total primary energy, largely as a result
vital role. Figure 1.1 displays the sources and uses of its efficiency, cleanliness and convenience
of natural gas in the U.S. in 2009, and it reveals a for uses such as space and hot water heating.
number of interesting features that It is also a major primary energy input into the
are explored in more detail in the body of this Industrial sector, and thus the price of natural
report. At 23.4 quadrillion British thermal units gas has a very significant impact on the com-
(Btu)1, or approximately 23 Tcf, gas represents a petitiveness of some U.S. manufacturing
little under a quarter of the total energy supply industries. While natural gas provided 18% of
in the U.S., with almost all of this supply now the primary fuel for power generation in 2009,
Figure 1.1 Sources and Use of Primary Energy Sources in the U.S. with Natural
Gas Highlighted (quadrillion Btu), 2009
Supply Sources Demand Sources
94.6 Quads
Percent of Source Percent of Sector
72% 94%
Petroleum 35.3 22%
27.0 Transportation
1% 3% 3%
5%
41%
3%
Natural Gas 23.4 32% 40% 18.8 Industrial
11%
30% 35% 7%
17%
76% 10.6 Residential &
1%
7% 1%
Commercial
Coal 19.7 <1%
93%
12% 26% 48% 18%
1%
9% 11% Electric
Renewables 7.7 38.6
53%
22% Power
100%
Nuclear 8.3
Source: EIA, Annual Energy Outlook, 2009
4 MIT STUDY ON THE FUTURE OF NATURAL GAS

13. it provided 23% of the produced electricity, By the mid 1990s, wholesale electricity markets
reflecting the higher efficiency of natural gas and wellhead natural gas prices had been
plants. As will be seen later in this report, deregulated; new, highly efficient and relatively
natural gas-fired capacity represents far more inexpensive combined cycle gas turbines had
than 23% of total power generating capacity, been deployed and new upstream technologies
providing a real opportunity for early action in had enabled the development of offshore
controlling CO2 emissions. natural gas resources. This contributed to the
perception that domestic natural gas supplies
A Brief History of Natural Gas in the U.S. were sufficient to increase the size of the U.S.
natural gas market from around 20 Tcf/year to
The somewhat erratic history of natural gas much higher levels. New gas-fired power
in the U.S. over the last three decades or so capacity was added at a rapid pace.
provides eloquent testimony to the difficulties
of forecasting energy futures, particularly for Between 1989 after the repeal of the FUA and
natural gas. It also serves as a reminder of the 2009, the U.S. added 306 GW of generation
need for caution in the current period of capacity, 88% of which was gas fired and 4%
supply exuberance. was coal fired.2 Today, the nameplate capacity of
this gas-fired generation is significantly under-
The development of the U.S. natural gas market utilized, and the anticipated large increase in
was facilitated by the emergence of an interstate natural gas use has not materialized.
natural gas pipeline system, supplying local
distribution systems. This market structure was By the turn of the 21st century, a new set of
initially viewed as a natural monopoly and was concerns arose about the adequacy of domestic
subjected to cost-of-service regulation by both natural gas supplies. Conventional supplies
the Federal government and the states. Natural were in decline, unconventional natural gas
gas production and use grew considerably resources remained expensive and difficult to
under this framework in the 1950s, 1960s and develop and overall confidence in gas plum-
into the 1970s. meted. Natural gas prices started to rise, becom-
ing more closely linked to the oil price, which
Then came a perception of supply scarcity. itself was rising. Periods of significant natural
After the first oil embargo, energy consumers gas price volatility were experienced.
sought to switch to natural gas. However, the
combination of price controls and tightly This rapid buildup in natural gas price, and
regulated natural gas markets dampened perception of long-term shortage, created
incentives for domestic gas development, economic incentives for the accelerated devel-
contributing to a perception that U.S. natural opment of an LNG import infrastructure. Since
gas resources were limited. In 1978, convinced 2000, North America’s rated LNG capacity has
that the U.S. was running out of natural gas, expanded from approximately 2.3 billion cubic
Congress passed the Power Plant and Industrial feet (Bcf)/day to 22.7 Bcf/day, around 35% of
Fuel Use Act (FUA) that essentially outlawed the nation’s average daily requirement.
the building of new gas-fired power plants.
Between 1978 and 1987 (the year the FUA was This expansion of LNG capacity coincided with
repealed), the U.S. added 172 Gigawatts (GW) an overall rise in the natural gas price and the
of net power generation capacity. Of this, market diffusion of technologies to develop
almost 81 GW was new coal capacity, around affordable unconventional gas. The game-
26% of today’s entire coal fleet. About half of changing potential of these technologies,
the remainder was nuclear power. combined with the large unconventional
Chapter 1: Overview and Conclusions 5

14. resource base, has become more obvious over The likely technology mix in a carbon-
the last few years, radically altering the U.S. constrained world, particularly in the power
supply picture. We have once again returned to sector: the relative costs of different tech-
a period where supply is seen to be abundant. nologies may shift significantly in response
New LNG import capacity goes largely unused to RD&D, and a CO2 emissions price will
at present, although it provides a valuable affect the relative costs. Moreover, the tech-
supply option for the future. nology mix will be affected by regulatory and
subsidy measures that will skew economic
These cycles of perceived “feast and famine” choices.
demonstrate the genuine difficulty of forecast-
ing the future and providing appropriate policy The ultimate size and production cost of the
support for natural gas production and use. natural gas resource base, and the environ-
They underpin the efforts of this study to mental acceptability of production methods:
account for this uncertainty in an analytical much remains to be learned about the perfor-
manner. mance of shale gas plays, both in the U.S. and
in other parts of the world. Indeed, even higher
Major Uncertainties risk and less well-defined unconventional
natural gas resources, such as methane
Looking forward, we anticipate policy and hydrates, could make a contribution to
geopolitics, along with resource economics and supply in the later decades of the study’s
technology developments, will continue to play time horizon.
a major role in determining global supply and
market structures. Thus, any analysis of the The evolution of international natural gas
future of natural gas must deal explicitly with markets: very large natural gas resources are
multiple uncertainties: to be found in several areas outside the U.S.,
and the role of U.S. natural gas will be
The extent and nature of the greenhouse gas influenced by the evolution of this market —
(GHG) mitigation measures that will be particularly the growth and efficiency of
adopted: the U.S. legislative response to the trade in LNG. Only a few years back, U.S.
climate threat has proved quite challenging. industry was investing in facilities for sub-
However, the Environmental Protection stantial LNG imports. The emergence of the
Agency (EPA) is developing regulations domestic shale gas resource has depressed
under the Clean Air Act, and a variety of this business in the U.S., but in the future,
local, state and regional GHG limitation the nation may again look to international
programs have been put in place. At the markets.
international level, reliance upon a system of
voluntary national pledges of emission Of these uncertainties, the last three can be
reductions by 2020, as set out initially in the explored by applying technically grounded
Copenhagen Accord, leaves uncertainty analysis: lower cost for carbon capture and
concerning the likely structure of any future sequestration (CCS), renewables and nuclear
agreements that may emerge to replace the power; producible resources of different levels
Kyoto Protocol. The absence of a clear and regional versus global integrated markets.
international regime for mitigating GHG In contrast, the shape and size of GHG mitiga-
emissions in turn raises questions about the tion measures is likely to be resolved only
likely stringency of national policies in both through complex ongoing political discussions
industrialized countries and major emerging at the national level in the major emitting
economies over coming decades. countries and through multilateral negotiations.
6 MIT STUDY ON THE FUTURE OF NATURAL GAS

15. The analysis in this study is based on three Unconventional natural gas, and particularly
policy scenarios: shale gas, will make an important contribution
to future U.S. energy supply and CO2 emission-
1. A business-as-usual case, with no significant reduction efforts. Assessments of the recover-
carbon constraints; able volumes of shale gas in the U.S. have
increased dramatically over the last five years,
2. GHG emissions pricing, through a cap- and continue to grow. The mean projection of
and-trade system or emissions tax, leading the recoverable shale gas resource in this report
to a 50% reduction in U.S. emissions below is approximately 650 Tcf, with low and high
the 2005 level, by 2050. projections of 420 Tcf and 870 Tcf, respectively.
Of the mean projection, approximately 400 Tcf
3. GHG reduction via U.S. regulatory could be economically developed with a natural
measures without emissions pricing: a gas price at or below $6/MMBtu at the wellhead.
renewable portfolio standard and measures While the pace of shale technology development
forcing the retirement of some coal plants. has been very rapid over the past few years,
there are still many scientific and technological
Our analysis is long term in nature, with challenges to overcome before we can be
a 2050 time horizon. We do not attempt to confident that this very large resource base is
make detailed short-term projections of being developed in an optimum manner.
volumes, prices or price volatility, but rather
focus on the long-term consequences of the Although there are large supplies, global conven-
carbon mitigation scenarios outlined above, tional natural gas resources are concentrated
taking into account the manifold uncertainties geographically, with 70% in three countries:
in a highly complex and interdependent Qatar, Iran and Russia. There is considerable
energy system. potential for unconventional natural gas supply
outside North America, but these resources are
MAJOR FINDINGS AND largely unproven with very high resource
RECOMMENDATIONS uncertainty. Nevertheless, unconventional
supplies could provide a major opportunity for
In the following section we summarize the diversification and improved security of supply
major findings and recommendations for each in some parts of the world.
chapter of the report.
The environmental impacts of shale develop-
Supply ment are challenging but manageable. Shale
development requires large-scale fracturing
Globally, there are abundant supplies of of the shale formation to induce economic
natural gas, much of which can be developed production rates. There has been concern that
at relatively low cost. The mean projection of these fractures can also penetrate shallow
remaining recoverable resource in this report freshwater zones and contaminate them with
is 16,200 Tcf, 150 times current annual global fracturing fluid, but there is no evidence that
natural gas consumption, with low and high this is occurring. There is, however, evidence
projections of 12,400 Tcf and 20,800 Tcf, of natural gas migration into freshwater zones
respectively. Of the mean projection, approxi- in some areas, most likely as a result of sub-
mately 9,000 Tcf could be developed economi- standard well completion practices by a few
cally with a natural gas price at or below $4/ operators. There are additional environmental
Million British thermal units (MMBtu) at the
export point.
Chapter 1: Overview and Conclusions 7

16. challenges in the area of water management, development through both research and
particularly the effective disposal of fracture regulation. Transparency is key, both
fluids. Concerns with this issue are particularly for fracturing operations and for water
acute in regions that have not previously
management. Better communication of
experienced large-scale oil and natural gas
oil- and gas-field best practices should
development, especially those overlying the
massive Marcellus shale, and do not have a be facilitated. Integrated regional water
well-developed subsurface water disposal usage and disposal plans and disclosure of
infrastructure. It is essential that both large and hydraulic fracture fluid components should
small companies follow industry best practices; be required.
that water supply and disposal are coordinated
on a regional basis and that improved methods The U.S. should support unconventional
are developed for recycling of returned fracture natural gas development outside U.S.,
fluids. particularly in Europe and China, as a means
of diversifying the natural gas supply base.
Natural gas trapped in the ice-like form known
as methane hydrate represents a vast potential The U.S. government should continue to
resource for the long term. Recent research is sponsor methane hydrate research, with a
beginning to provide better definition of the particular emphasis on the demonstration
overall resource potential, but many issues of production feasibility and economics.
remain to be resolved. In particular, while there
have been limited production tests, the long-
term producibility of methane hydrates U.S. Natural Gas Production, Use and
remains unproven, and sustained research Trade: Potential Futures
will be required.
In a carbon-constrained world, a level playing
M A J O R R E CO M M E N D AT I O N S field — a CO2 emissions price for all fuels
Government-supported research on the without subsidies or other preferential policy
fundamental challenges of unconventional treatment — maximizes the value to society of
the large U.S. natural gas resource.
natural gas development, particularly
shale gas, should be greatly increased
Under a scenario with 50% CO2 reductions to
in scope and scale. In particular, support 2050, using an established model of the global
should be put in place for a comprehensive economy and natural gas cost curves that
and integrated research program to include uncertainty, the principal effects of the
build a system-wide understanding of associated CO2 emissions price are to lower
all subsurface aspects of the U.S. shale energy demand and displace coal with natural
gas in the electricity sector. In effect, gas-fired
resource. In addition, research should be
power sets a competitive benchmark against
pursued to reduce water usage in fracturing
which other technologies must compete in a lower
and to develop cost-effective water carbon environment. A major uncertainty that
recycling technology. could impact this picture in the longer term is
technology development that lowers the costs
A concerted coordinated effort by industry
of alternatives, in particular, renewables,
and government, both state and Federal,
nuclear and CCS.
should be organized so as to minimize the
environmental impacts of shale gas
8 MIT STUDY ON THE FUTURE OF NATURAL GAS

17. A more stringent CO2 reduction of, for exam- Natural gas can make an important
ple, 80% would probably require the complete contribution to GHG reduction in coming
de-carbonization of the power sector. This decades, but investment in low-emission
makes it imperative that the development of
technologies, such as nuclear, CCS and
competing low-carbon technology continues
renewables, should be actively pursued
apace, including CCS for both coal and natural
gas. It would be a significant error of policy to to ensure that a mitigation regime can be
crowd out the development of other, currently sustained in the longer term.
more costly, technologies because of the new
assessment of the natural gas supply. Con- Natural Gas for Electric Power
versely, it would also be a mistake to encourage,
via policy and long-term subsidy, more costly In the U.S., around 30% of natural gas is
technologies to crowd out natural gas in the consumed in the electric power sector. Within
short to medium term, as this could signifi- the power sector, gas-fired power plants play
cantly increase the cost of CO2 reduction. a critical role in the provision of peaking
capacity, due to their inherent ability to respond
The evolution of global natural gas markets is rapidly to changes in demand. In 2009, 23% of
unclear; but under some scenarios, the U.S. the total power generated was from natural gas,
could import 50% or more of its natural gas while natural gas plants represented over 40%
by 2050, despite the significant new resources of the total generating capacity.
created in the last few years. Imports can
prevent natural gas-price inflation in future In a carbon-constrained world, the power
years. sector represents the best opportunity for a
significant increase in natural gas demand, in
M A J O R R E CO M M E N D AT I O N S direct competition with other primary energy
To maximize the value to society of the sources. Displacement of coal-fired power by
gas-fired power over the next 25 to 30 years is
substantial U.S. natural gas resource base,
the most cost-effective way of reducing CO2
U.S. CO2 reduction policy should be designed
emissions in the power sector.
to create a “level playing field,” where all
energy technologies can compete against As a result of the boom in the construction
each other in an open marketplace of gas-fired power plants in the 1990s, there
conditioned by legislated CO2 emissions is a substantial amount of underutilized NGCC
goals. A CO2 price for all fuels without capacity in the U.S. today. In the short term,
displacement of coal-fired power by gas-fired
long-term subsidies or other preferential
power provides an opportunity to reduce CO2
policy treatment is the most effective way
emissions from the power sector by about 20%,
to achieve this result. at a cost of less than $20/ton of CO2 avoided.
In the absence of such policy, interim energy This displacement would use existing generating
capacity, and would, therefore, require little in
policies should attempt to replicate as
the way of incremental capital expenditure for
closely as possible the major consequences
new generation capacity. It would also signifi-
of a “level playing field” approach to carbon- cantly reduce pollutants such as sulfur dioxide
emissions reduction. At least for the near (SO2), nitrous oxide (NOX), particulates and
term, that would entail facilitating energy mercury (Hg).
demand reduction and displacement of
some coal generation with natural gas.
Chapter 1: Overview and Conclusions 9

18. Natural gas-fired power generation provides the END USE GAS DEMAND
major source of backup to intermittent renew-
able supplies in most U.S. markets. If policy In the U.S., around 32% of all natural gas
support continues to increase the supply of consumption is in the Industrial sector, where
intermittent power, then, in the absence of its primary uses are for boiler fuel and process
affordable utility-scale storage options, addi- heat; and 35% of use is in the Residential and
tional natural gas capacity will be needed to Commercial sectors, where its primary applica-
provide system reliability. In some markets, tion is space heating. Only 0.15% of natural gas
existing regulation does not provide the is used as a vehicle transportation fuel.
appropriate incentives to build incremental
capacity with low load factors, and regulatory Industrial, Commercial and Residential
changes may be required.
Within the Industrial sector, there are opportu-
In the short term, where a rapid increase in nities for improved efficiency of the Industrial
renewable generation occurs without any boiler fleet, replacing less-efficient natural gas
adjustment to the rest of the system, increased boilers with high-efficiency, or super-high
renewable power displaces gas-fired power efficiency boilers with conversion efficiencies up
generation and thus reduces demand for to 94%. There are also opportunities to improve
natural gas in the power sector. In the longer the efficiency of natural gas use in process
term, where the overall system can adjust heating and to reduce process heating require-
through plant retirements and new construc- ments through changes in process technologies
tion, increased renewables displace baseload and material substitutions.
generation. This could mean displacement of
coal, nuclear or NGCC generation, depending Our analysis suggests that conversion of
on the region and policy scenario under coal-fired boilers in the Industrial sector to
consideration. For example, in the 50% CO2 high-efficiency gas boilers could provide a
reduction scenario described earlier, where cost-effective option for compliance with new
gas-fired generation drives out coal generation, hazardous air pollutant reductions and create
increased renewable penetration as a result of significant CO2 reduction opportunities at
cost reduction or government policy will modest cost, with a potential to increase natural
reduce natural gas generation on a nearly gas demand by up to 0.9 Tcf/year.
one-for-one basis.
Natural gas and natural gas liquids (NGLs) are
M A J O R R E CO M M E N D AT I O N S a principal feedstock in the chemicals industry
The displacement of coal generation with and a growing source of hydrogen production
NGCC generation should be pursued as for petroleum refining. Our analysis of selected
the most practical near-term option for cases indicates that a robust domestic market
for natural gas and NGLs will improve the
significantly reducing CO2 emissions from
competitiveness of manufacturing industries
power generation.
dependent on these inputs.
In the event of a significant penetration
of intermittent renewable production in Natural gas has significant advantages in the
the generation technology mix, policy and Residential and Commercial sectors due in part
regulatory measures should be developed to its cleanliness and life cycle energy efficiency.
to facilitate adequate levels of investment However, understanding the comparative
in natural gas generation capacity to ensure cost-effectiveness and CO2 impacts of different
energy options is complex. Comparison of
system reliability and efficiency.
10 MIT STUDY ON THE FUTURE OF NATURAL GAS

19. end use or “site” energy efficiencies can be Transportation
misleading, since it does not take into account
full system energy use and emissions (such as The ample domestic supply of natural gas has
the efficiency and emissions of electricity stimulated interest in its use in transportation.
generation). However, quantitatively account- There are multiple drivers: the oil-natural gas
ing for the full system impacts from the “source” price spread on an energy basis generally favors
can be challenging, requiring a complex natural gas, and today that spread is at histori-
end-to-end, full fuel cycle (FFC) analysis that cally high levels; an opportunity to lessen oil
is not generally available to the consumer dependence in favor of a domestically supplied
or to the policy maker. fuel, including natural gas-derived liquid fuels
with modest changes in vehicle and/or infra-
Consumer and policy maker choices are further structure requirements and reduced CO2
complicated by the influence of local climatic emissions in direct use of natural gas.
conditions and regional energy markets. The
primary energy mix of the regional generation Compressed natural gas (CNG) offers a signifi-
mix fundamentally affects “site versus source” cant opportunity in U.S. heavy-duty vehicles
energy and emissions comparisons. And the used for short-range operation (buses, garbage
local climate has a major influence on the best trucks, delivery trucks), where payback times
choice of heating and cooling systems, particu- are around three years or less and infrastructure
larly the appropriate use of modern space issues do not impede development. However,
conditioning technologies such as heat pumps. for light passenger vehicles, even at 2010
Consumer information currently available to oil-natural gas price differentials, high incre-
consumers does not facilitate well-informed mental costs of CNG vehicles lead to long
decision making. payback times for the average driver, so signifi-
cant penetration of CNG into the passenger
Expanded use of combined heat and power fleet is unlikely in the short term. Payback
(CHP) has considerable potential in the Indus- periods could be reduced significantly if the
trial and large Commercial sectors. However, cost of conversion from gasoline to CNG could
cost, complexity and the inherent difficulty of be reduced to the levels experienced in other
balancing heat and power loads at a very small parts of the world such as Europe.
scale make residential CHP a much more
difficult proposition. LNG has been considered as a transport fuel,
particularly in the long-haul trucking sector.
M A J O R R E CO M M E N D AT I O N S However, as a result of operational and infra-
Improved energy efficiency metrics, which structure considerations as well as high incre-
mental costs and an adverse impact on resale
allow consumers to accurately compare
value, LNG does not appear to be an attractive
direct fuel and electricity end uses on a full
option for general use. There may be an
fuel cycle basis, should be developed. opportunity for LNG in the rapidly expanding
Over time, these metrics should be tailored segment of hub-to-hub trucking operations,
where infrastructure and operational challenges
to account for geographical variations in the
can be overcome.
sources of electric power supply and local
climate conditions.
Chapter 1: Overview and Conclusions 11

20. Energy density, ease of use and infrastructure U.S. production profiles, with supplies generally
considerations make liquid fuels that are stable shifting from offshore Gulf of Mexico back to
at room temperature a compelling choice in the onshore; shifts in U.S. population, generally
Transportation sector. The chemical conversion from the Northeast and Midwest to the South
of natural gas to liquid fuels could provide an and West and growth in global LNG markets,
attractive alternative to CNG. Several pathways driven by price differences between regional
are possible, with different options yielding markets.
different outcomes in terms of total system CO2
emissions and cost. Conversion of natural gas The system generally responds well to market
to methanol, as widely practiced in the chemi- signals. Changing patterns of supply and
cals industry, could provide a cost-effective demand have led to a significant increase in
route to manufacturing an alternative, or infrastructure development over the past few
supplement, to gasoline, while keeping CO2 years with West to East expansions dominating
emissions at roughly the same level. Gasoline pipeline capacity additions. Infrastructure
engines can be modified to run on methanol limitations can temporarily constrain produc-
at modest cost. tion in emerging production areas such as the
Marcellus shale — but infrastructure capacity
M A J O R R E CO M M E N D AT I O N S expansions are planned or underway. Demand
The U.S. government should consider increases and shifts in consumption and
production are expected to require around
revision to its policies related to CNG
$210 billion in infrastructure investment over
vehicles, including how aftermarket CNG
the next 20 years.
conversions are certified, with a view to
reducing up-front costs and facilitating Much of the U.S. pipeline infrastructure is
CNG-gasoline capacity. old — around 25% of U.S. natural gas pipelines
are 50 years old or older — and recent incidents
The U.S. government should implement an
demonstrate that pipeline safety issues are a
open fuel standard that requires automobile cause for concern. The Department of Trans-
manufacturers to provide tri-flex fuel portation (DOT) regulates natural gas pipeline
(gasoline, ethanol and methanol) operation safety and has required integrity management
in light-duty vehicles. Support for methanol programs for transmission and distribution
fueling infrastructure should also be pipelines. The DOT also supports a small
pipeline safety research program, which seems
considered.
inadequate given the size and age of the pipe-
line infrastructure.
Infrastructure
Increased use of natural gas for power genera-
tion has important implications for both
The continental U.S. has a vast, mature and
natural gas and electric infrastructures, includ-
robust natural gas infrastructure, which
ing natural gas storage. Historically, injections
includes: over 300,000 miles of transmission
and withdrawals from natural gas storage have
lines; numerous natural gas-gathering systems;
been seasonal. Increased use of natural gas for
storage sites; processing plants; distribution
power generation may require new high-
pipelines and LNG import terminals.
deliverability natural gas storage to meet more
variable needs associated with power generation.
Several trends are having an impact on natural
gas infrastructure. These include changes in
12 MIT STUDY ON THE FUTURE OF NATURAL GAS

21. M A J O R R E CO M M E N D AT I O N S M A J O R R E CO M M E N D AT I O N S
Analysis of the infrastructure demands The EPA and the U.S. Department of Energy
associated with potential shift from coal to (DOE) should co-lead a new effort to review,
gas-fired power should be undertaken. and update as appropriate, the methane
emission factors associated with natural
Pipeline safety technologies should be
gas production, transmission, storage
included in natural gas RD&D programs.
and distribution. The review should have
broad-based stakeholder involvement and
END USE EMISSIONS VERSUS should seek to reach a consensus on the
SYSTEM-WIDE EMISSIONS appropriate methodology for estimating
methane emissions rates. The analysis
When comparing GHG emissions for different
should, to the extent possible: (a) reflect
energy sources, attention should be paid to the
actual emissions measurements; (b) address
entire system. In particular, the potential for
leakage of small amounts of methane in the fugitive emissions for coal and oil as well as
production, treatment and distribution of coal, natural gas; and (c) reflect the potential for
oil and natural gas has an effect on the total cost-effective actions to prevent fugitive
GHG impact of each fuel type. The modeling emissions and venting of methane.
analysis in Chapter 3 addresses the system-wide
impact, incorporating methane leakage from
coal, oil and natural gas production, processing MARKETS AND GEOPOLITICS
and transmission. In Chapter 5 we do not
attempt to present detailed full-system account- The physical characteristics of natural gas,
ing of CO2 (equivalent) emissions for various which create a strong dependence on pipeline
end uses, although we do refer to its potential transportation systems, have led to local
impact in specific instances. markets for natural gas – in contrast to the
global markets for oil.
The CO2 equivalence of methane is conven-
tionally based on a Global Warming Potential There are three distinct regional gas markets:
(GWP)3 intended to capture the fact that each North America, Europe and Asia, with more
GHG has different radiative effects on climate localized markets elsewhere. The U.S. gas
and different lifetimes in the atmosphere. market is mature and sophisticated, and
In our considerations, we follow the standard functions well, with a robust spot market.
Intergovernmental Panel on Climate Change Within the U.S. market, the price of oil, (which
(IPCC) and EPA definition that has been widely is set globally) compared to the price of natural
employed for 20 years. Several recently published gas (which is set regionally) is very important
life cycle emissions analyses do not appear to be in determining market share when there is the
comprehensive, use common assumptions or opportunity for substitution. Over the last
recognize the progress made by producers to decade or so, when oil prices have been high,
reduce methane emissions, often to economic the ratio of the benchmark West Texas Inter-
benefit. We believe that a lot more work is mediate oil price to the Henry Hub natural gas
required in this area before a common under- price has been consistently higher than any of
standing can be reached. Further discussion the standard rules of thumb.
can be found in Appendix 1A.
Chapter 1: Overview and Conclusions 13

22. International natural gas markets are in the
early stages of integration, with many impedi- pipelines and pipeline routes is intense in
ments to further development. While increased key regions.
LNG trade has started to connect these mar-
kets, they remain largely distinct with respect
to supply patterns, pricing and contract struc- ability of the natural gas infrastructure.
tures, and market regulation. If a more inte-
grated market evolves, with nations pursuing M A J O R R E CO M M E N D AT I O N S
gas production and trade on an economic basis, The U.S. should pursue policies that
there will be rising trade among the current
encourage the development of an efficient
regional markets and the U.S. could become
and integrated global gas market with
a substantial net importer of LNG in future
decades. transparency and diversity of supply.
Natural gas issues should be fully integrated
Greater international market liquidity would
into the U.S. energy and security agenda,
be beneficial to U.S. interests. U.S. prices for
and a number of domestic and foreign
natural gas would be lower than under current
regional markets, leading to more gas use in the policy measure should be taken, including:
U.S. Greater market liquidity would also
contribute to security by enhancing diversity
conduct of U.S. foreign policy, which will
of global supply and resilience to supply
require multiagency coordination with
disruptions for the U.S. and its allies. These
factors ameliorate security concerns about leadership from the Executive Office of
import dependence. the President;
As a result of the significant concentration of
Energy Agency (IEA) to place more atten-
conventional gas resources globally, policy and
geopolitics play a major role in the develop- tion on natural gas and to incorporate the
ment of global supply and market structures. large emerging markets (such as China,
Consequently, since natural gas is likely to play India and Brazil) into the IEA process as
a greater role around the world, natural gas integral participants;
issues will appear more frequently on the U.S.
energy and security agenda. Some of the
specific security concerns are: expansion of unconventional resources;
and
of allies, could constrain U.S. foreign policy
options, especially in light of the unique cyber-security as the global gas delivery
American international security system becomes more extended and
responsibilities. interconnected.
impediments to the development of
transparent markets.
14 MIT STUDY ON THE FUTURE OF NATURAL GAS

23. RD&D While natural gas can provide a cost-effective
bridge to a low carbon future, it is vital that
There are numerous RD&D opportunities to efforts continue to improve the cost and
address key objectives for natural gas supply, efficiency of low or zero carbon technologies
delivery and end use: for the longer term. This will require sustained
RD&D and subsidies of limited duration to
encourage early deployment.
development as an important contributor to
the public good; M A J O R R E CO M M E N D AT I O N S
The Administration and Congress should
support RD&D focused on environmentally
natural gas production, delivery and use;
responsible domestic natural gas supply.
This should entail both a renewed
applications for public policy purposes, such DOE program, weighted towards basic
as emissions reductions and diminished oil research, and a complementary industry-
dependence; led program, weighted towards applied
research, development and demonstration,
that is funded through an assured funding
infrastructure;
stream tied to energy production, delivery
- and use. The scope of the program should
sion and end-use so as to use the resource be broad, from supply to end-use.
most effectively.
Support should be provided through RD&D,
and targeted subsidies of limited duration,
Historically, RD&D funding in the natural gas
industry has come from a variety of sources, for low-emission technologies that have the
including private industry, the DOE, and prospect of competing in the long run. This
private/public partnerships. In tandem with would include renewables, carbon capture
limited tax credits, this combination of support and sequestration for both coal and gas
played a major role in development of uncon- generation, and nuclear power.
ventional gas. It has also contributed to more
efficient end-use, for example in the develop-
ment of high-efficiency gas turbines.
Today government funded RD&D for natural
gas is at very low levels. The elimination of
rate-payer funded RD&D has not been com-
pensated by increased DOE appropriations
or by a commensurate new revenue stream
outside the appropriations process. The total
public and public-private funding for natural
gas research is down substantially from its peak
and is more limited in scope, even as natural
gas takes a more prominent role in a carbon-
constrained world.
Chapter 1: Overview and Conclusions 15

24. CONCLUSION
Over the past few years, the U.S. has developed
an important new natural gas resource that
fundamentally enhances the nation’s long-term
gas supply outlook. Given an appropriate
regulatory environment, which seeks to place
all lower carbon energy sources on a level
competitive playing field, domestic supplies
of natural gas can play a very significant role
in reducing U.S. CO2 emissions, particularly
in the electric power sector. This lowest cost
strategy of CO2 reduction allows time for the
continued development of more cost-effective
low or zero carbon energy technology for the
longer term, when gas itself is no longer
sufficiently low carbon to meet more stringent
CO2 reduction targets. The newly realized
abundance of low cost gas provides an enor-
mous potential benefit to the nation, providing
a cost effective bridge to a secure and low
carbon future. It is critical that the additional
time created by this new resource is spent
wisely, in creating lower cost technology
options for the longer term, and thereby
ensuring that the natural gas bridge has
a safe landing place in a low carbon future.
NOTES EIA 2009 Annual Energy Review, Figure 45.
2
Global-warming potential (GWP) is a relative
3
1
One quadrillion Btu (or “quad”) is 1015 or measure of how much heat a given greenhouse gas
1,000,000,000,000,000 British thermal units. Since traps in the atmosphere.
one standard cubic foot of gas is approximately
1,000 Btu, then 1 quad is approximately 1 Tcf
of gas.
16 MIT STUDY ON THE FUTURE OF NATURAL GAS

25. Chapter 2: Supply
INTRODUCTION AND CONTEXT Thermogenic1 natural gas, which is formed by
the application, over geological time, of enormous
In this chapter, we discuss various aspects of heat and pressure to buried organic matter,
natural gas supply: how much natural gas exists exists under pressure in porous rock formations
in the world; at what rate can it be produced thousands of feet below the surface of the earth.
and what it will cost to develop. Following the It exists in two primary forms: “associated gas” is
introduction and definitions, we look at produc- formed in conjunction with oil, and is generally
tion history, resource volumes and supply costs released from the oil as it is recovered from the
for natural gas — first from a global perspective, reservoir to the surface — as a general rule the
and then focusing in more detail on the U.S., gas is treated as a by-product of the oil produc-
paying particular attention to the prospects for tion process; in contrast, “non-associated gas” is
shale gas. We then discuss the science and found in reservoirs that do not contain oil, and is
technology of unconventional gas, the environ- developed as the primary product. While associ-
mental impacts of shale gas development and ated gas is an important source, the majority of
finally the prospects for methane hydrates. gas production is non-associated; 89% of the gas
produced in the U.S. is non-associated.
NATURAL GAS AND THE
RECOVERY PROCESS Non-associated gas is recovered from the forma-
tion by an expansion process. Wells drilled into
The primary chemical component of natural gas the gas reservoir allow the highly compressed
is methane, the simplest and lightest hydrocar- gas to expand through the wells in a controlled
bon molecule, comprised of four hydrogen (H) manner, to be captured, treated and transported
atoms bound to a single carbon (C) atom. In at the surface. This expansion process generally
chemical notation, this is expressed as CH4 leads to high recovery factors from conventional,
(the symbol for methane). Natural gas may good-quality gas reservoirs. If, for example, the
also contain small proportions of heavier average pressure in a gas reservoir is reduced
hydrocarbons: ethane (C2H6); propane (C3H8) from an initial 5,000 pounds per square inch
and butane (C4H10); these heavier components (psi) to 1,000 psi over the lifetime of the field,
are often extracted from the producing stream then approximately 80% of the Gas Initially In
and marketed separately as natural gas liquids Place (GIIP) will be recovered. This is in contrast
(NGL). In the gas industry, the term “wet gas” to oil, where recovery factors of 30% to 40% are
is used to refer to natural gas in its raw unpro- more typical.
cessed state, while “dry gas” refers to natural gas
from which the heavier components have been Gas is found in a variety of subsurface locations,
extracted. with a gradation of quality as illustrated in the
resource triangle in Figure 2.1.
Chapter 2: Supply 17

26. Figure 2.1 GIIP as a Pyramid in Volume and Quality. Conventional reservoirs are at the
top of the pyramid. They are of higher quality because they have high permeability
and require less technology for development and production. The unconventional
reservoirs lie below the conventional reservoirs in this pyramid. They are more
abundant in terms of GIIP but are currently assessed as recoverable resources — and
commercially developed — primarily in North America. They have lower permeability,
require advanced technology for production and typically yield lower recovery factors
than conventional reservoirs.
Increasing Technology/Decreasing Recovery Factor
Conventional
Resources High-Quality
Reservoirs
Low-Quality
Reservoirs
Unconventional
Resources Tight Gas
Sands
Coal Bed
Methane Shale Gas
Methane Hydrates
Volume
Adapted from Holditch 2006
Conventional resources exist in discrete, sandstone formations, coal beds (coal bed
well-defined subsurface accumulations (reser- methane or CBM) and shale formations.
voirs), with permeability2 values greater than Unconventional resource accumulations tend
a specified lower limit. Such conventional to be distributed over a larger area than con-
gas resources can usually be developed using ventional accumulations and usually require
vertical wells, and generally yield the high advanced technology such as horizontal wells
recovery factors described above. or artificial stimulation in order to be economi-
cally productive; recovery factors are much
By contrast, unconventional resources are lower — typically of the order of 15% to 30%
found in accumulations where permeability is of GIIP. The various resource types are shown
low. Such accumulations include “tight” schematically in Figure 2.2.
18 MIT STUDY ON THE FUTURE OF NATURAL GAS

27. Figure 2.2 Illustration of Various Types of Gas Resource
Schematic geology of natural gas resource
Land surface
Conventional
non-associated Coal bed methane
gas
Conventional
associated gas
Seal Oil
Sandstone Tight sand
gas
Gas-rich shale
Source: U.S. Energy Information Administration
RESOURCE DEFINITIONS Gas resources are an economic concept — a function
of many variables, in particular the cost of exploration,
The complex cross-dependencies between
geology, technology and economics mean that
production and transportation relative to the price
the use of unambiguous terminology is critical of sale to users.
when discussing natural gas supply. In this
study, the term “resource” will refer to the sum Figure 2.3 illustrates how proved reserves,
of all gas volumes expected to be recoverable in reserve growth and undiscovered resources
the future, given specific technological and combine to form the “technically recoverable
economic conditions. The resource can be resource,” that is, the total volume of natural
disaggregated into a number of sub-categories; gas that could be recovered in the future,
specifically, “proved reserves,” “reserve growth” using today’s technology, ignoring economic
(via further development of known fields) and constraints.
“undiscovered resources,” which represent gas
volumes that are expected to be discovered in
the future via the exploration process.
Chapter 2: Supply 19