US Energy Groups Act On Natural Gas Demand

By Sheila McNulty in Houston  - Thursday 9/15/2011

US energy companies are converting rigs and trucks to run on natural gas, building fuelling stations and launching educational campaigns to increase demand for the domestic fuel that has flooded the market on the back of the shale boom. With technological advances enabling gas production from shale rock, estimates of US supplies of natural gas have risen from 30 to 100 years’ worth, at current usage rates, with the US market now oversupplied.

US energy firms rush into shale oil projects Prices have been hovering at about $4 per million British thermal units, down sharply from 2008’s record of $13.69 per mBtu, and the industry believes they could remain at that level for several years.

To jump-start demand, Chesapeake Energy, the second-biggest natural gas producer in the US, is converting 100 of its own rigs, all its hydraulic fracturing equipment and almost 5,000 of its fleet vehicles to run on natural gas. Taylor Shinn, Chesapeake’s senior director of corporate development, said the company was not going to stand by and wait for US demand to catch up with supply.

“This is not a technology problem,” Mr Shinn said. “We’re not waiting on an enhanced battery to make this product viable as a transportation fuel. What we’re waiting on is for economies of scale to develop.” Chesapeake has pledged to redirect about 1-2 per cent of its forecast annual drilling budget away from efforts to increase natural gas supply towards projects to stimulate natural gas demand. Over the next 10 years, Chesapeake expects to commit $1bn towards investments to build crucial fuelling infrastructure and bringing gas-to-liquids fuels to market.

Chesapeake said converting the company’s medium and light-duty trucks to natural gas would reduce fuel costs by up to $20m a year. Converting drilling rigs and fracturing equipment would cut diesel fuel consumption by about 350,000 gallons a day, saving the company about $230m annually. “The market needs a catalyst,” Mr Shinn said. “We felt it was a critical time for us to step up and provide that leadership for the benefit of our company and our country.” ConocoPhillips also this week launched a campaign to promote the use of natural gas – now 40 per cent of its production – and a nationwide educational campaign.
Jim Mulva, ConocoPhillips’ chief executive, said using the country’s natural gas should be a very important part of US energy policy.
“It’s a big job creator,” Mr Mulva said. He noted that natural gas sustains 2.8m US jobs, directly and indirectly, with gas being extracted from shale fields in at least 15 states, including New York, Ohio and Pennsylvania – key election states.

“We believe that as the US enters the election campaign season, energy policy will be a key point of debate,” he said. “Hopefully, the debate will centre on using energy development, particularly of natural gas, to drive job creation.” Other companies are installing natural gas fuelling stations across the country. US Steel, for example, has one for its vehicles, including a natural-gas fuelled tractor, at a plant in Pennsylvania. The industry notes that such companies can save as much as $2 a gallon compared with diesel.