Welcome to Part 2 of this three-part series. Here we will be leaning in hard to the natural gas topic. Part 3 will build off of this essay to lean in, rather hard, into the efficiencies that bitcoin brings to the energy conversation via mining.
More Natural Gas
With greater increases in both utilization, as well as availability, this suggests that transportation and storage demand likely to rise as well. Let’s talk about why there is so much buzz around natgas in general.
If you briefly revisit the chart provided above (Figure 2) you’ll notice that coal still makes up quite a hefty chunk of the United States’ electricity generation. While electricity derived from coal is wildly inefficient (due to its roughly 30% combustion rate), it still provides a reliable source of electricity (by being used to produce ‘syngas’) in emergency scenarios for grids, while also being extremely cheap to acquire and transport. This is a relationship where many coal plants can act as a last line of defense in maintaining supply of electricity for the grid’s demand; commonly referred to as “peaker plants.” Which can be represented by both coal and natural gas power plants.
Natural gas’ availability is not the only reason that coal has fallen out of favor, natgas combusts far more efficiently (92%) than coal whilst producing less GHG emissions (Figure 4). What’s more is the US has transitioned away from coal reliance as North American natural gas provable reserves have only increased since the year 2000 (Figure 5).
Where natural gas and hydrocarbon use for electricity generation in general runs into complications is a bit of a quagmire. But for natural gas specifically these problems range from matters of: lack of investment in infrastructure (such as pipelines and compressor stations) and detours in production increases due to environmental policy. Then there’s the complications & difficulties with transmission infrastructure on the grid.
Let’s talk about these under-investments in natural gas, why do we need to transport/store natural gas, and how do we transport/store it?
At this point, being limited on (if not completely withheld from) infrastructure investment is not a particularly novel problem to the hydrocarbon industry. Conditions have only continually gotten so tight that now the general public is scrambling to understand why. What makes matters worse is that this fragility is not even due to lack of intent, or attempt, from the producers themselves. Nor is it from disinterest by the distribution side (let alone the industry as a whole). The bottlenecks would appear to be largely centered on the shoulders of regulatory bodies. As justification for this view I present this quote from a 2016 American Action Forum post (with emphasis added throughout, and citations adjusted to direct to sources);
“The need for additional natural gas pipeline infrastructure is not isolated to the Northwest and Northeast regions. The federal government’s excessive pipeline regulation has blocked industry from passing economic benefits on to consumers and manufacturers. Natural gas provides a third of all U.S. energy [38% today],[i] 64 percent more than in 2000,[ii] but total gas pipeline mileage has only increased by 15 percent over the same period. [iii] In 2015, a report by the National Association of Manufacturers showed that natural gas provided 57.9 direct, indirect and induced jobs per mile constructed.[iv] In 2015 alone FERC was overseeing 80 major pipeline projects amounting to 6,327 miles of major pipeline projects, many which had been in process for years. Between 2006 and 2016 there have been 52[v] pending natural gas pipeline projects waiting for approval, this pipeline mileage alone would have accounted for over 200,000 U.S. jobs.[vi]”
*It’s also worth noting that [it would appear] the original forum post had some mistakes with their references, as there are some duplicate source hyperlinks.
Where matters get even harder for natural gas producers & distributors, when trying to expand their infrastructure, is the massive gap in understanding and education on the side of the general populace. Public opinion provides a compounding effect to the bottlenecks being produced, and perpetuated, by these regulatory systems.
If the public is led to believe that hydrocarbons are ‘the enemy of the planet’s well-being,’ and are not presented any data that could suggest otherwise, or at the very least discusses the outsized benefits of using hydrocarbons, they are increasingly likely to react in a polarized manner to the expansion of any fossil fuel expansion project. Demonizing the sources of energy that have provided the United States of America with the power to ascend to the position we are in today, and ignoring the benefits of said energy, the electricity, and the oil-derived products that we all rely on aggressively each and every day…is a prominent strategy for failure.
Now, let’s talk about some infrastructure….
Natural Gas Infrastructure
We should probably discuss the reasons why natural gas requires infrastructure expansion to begin with. The more I can help those of you who wish to learn, the better I can describe why bitcoin mining is so useful.
Infrastructure expansion is necessary as the demand for natgas has only consistently increased in the last 20 years. As more is demanded; supply needs to be capable of meeting said demand. Otherwise prices increase and the laws of basic economics take hold – this is where we encounter our problems. When there is plenty of supply to meet demand, but the infrastructure to allow the supply to meet said demand is lacking, it effectively constrains the attempts at meeting demand. Providing a synthetic shortage of supply.
In order for natgas to be supplied it has to be transported (duh). Or, the demand has to come to the source. Considering how businesses and residents are likely not keen on moving their homes & business locations to reside directly on an oil field, we have to look at transportation.
Delivery of natural gas to-market really has only two options: (1) send it via pipelines, when that’s not viable; (2) process it into liquid natural gas (LNG) for safe & economic transportation. From there it can be gasified at a proper facility (often at a port) and then sent-on through pipelines to its inland destination(s).
First, let’s look at the amount of work that is necessary in order to yield LNG. In order to achieve liquefaction natural gas (arriving in its gaseous state) has to be filtered of; accompanying gasses (which can include; ethane, propane, butane, pentane, sulfur, helium, and hydrogen sulfide), dust, and “slug” (a mixture of water and condensate). After those impurities are filtered out, natgas is further filtered with removal of carbon dioxide and then followed by another round of water removal (water needs to be aggressively extracted in order to avoid ice formation in the freezing process). Once that is completed we continue with further filtration still by removing heavy hydrocarbons via propane-cooling (-31°F) and then finally super-cooled down to -260°F for liquefaction.
Mind you that once this process is completed, if it isn’t being done at a land-based facility and sent out via pipelines, that means it’s going by sea. Which entails reliance on the heavily insulated, pressurized storage that is required to house this product for transport (not to mention the fuel of the transport vessel for the commute across vast expanses of ocean).
Now, let’s take a look at those pipelines.
The commute via pipelines sounds simple but it's not as basic and straightforward as: build the pipes, fill the pipes, and everybody is happy. When pushing any material through a distribution system that involves flow (whether it’s natgas, water, or electricity) there is a basic dynamic of diffusion (as mentioned above) across the spectrum. Sending gaseous natural gas through pipelines requires compressor stations to essentially ‘recharge’ the pressure within the pipe system’s environment itself; resulting in flow, which carries the gas further down the pipeline.
These compressor stations need to be positioned anywhere from 40 to 100 miles apart in order to maintain proper flow parameters (which depend on a multitude of factors such as changes in elevation, environmental conditions, etc.).
These pipeline systems are extremely valuable, the compressor stations are extremely valuable, the pumping stations, the maintenance of all of the above…we’ve been failing across the board.
In a report produced by the Iowa Law Review (ILR) in 2015, the ILR looked at the challenges ahead for US infrastructure of oil and gas and had this to say on pipeline expansion in the US, which still holds relevance (interjection added);
“A report prepared for a pipeline trade association estimated ‘the U.S. and Canada will need 28,900 to 61,900 miles of additional natural gas pipeline by 2030,’ which ‘will require an investment of $108 to $163 billion [in 2015’s dollars] in pipeline assets’ and will include new pipeline and compression stations.”
So, How Have We Done?
Before continuing, the first question is: ‘where do we stand on this need?’ This is where we get a break in the storm that is bad news — we’ve kept up on natgas pipelines. Well… at least with regards to the numbers recommended by the ILR in 2015.
Let’s take a look at the following charts…
As you can see, we’ve produced about ~94,000 miles of gas pipelines (an overshoot of the recommendation by the ILR of about 50%).
So… my question for the reader is:
If in 2015 demand called for 62,000 miles of pipeline infrastructure, and our exports have pulled a ~300% increase since that time, and natgas exported via pipeline in 2021 accounted for 46% of the total — according to EIA — are we still keeping up with the necessary infrastructure investment?
“In 2021, total annual U.S. natural gas exports were 6.65 Tcf—the highest on record, and the United States has been an annual net exporter of natural gas since 2017.”
Deduce from that information whatever you will.
Now that we’ve briefly touched on the complications and difficulties afforded, we can get back to our small little niche that we are interested in focusing on; associated gas flaring from oil production and where bitcoin mining fits in.
Part One of this series can be found here.
Part Three of this series can be found here.
Great nat gas primer. Thanks, Mike!