What Is The Future Of Natural Gas Use In The U.S.?

The Kinder Morgan deal will likely make the company the largest natural gas pipeline operator in North America. This comes at a time when more people in the U.S. are becoming reliant on the fuel. For more, Robert Siegel speaks with Daniel Yergin, chairman of IHS Cambridge Energy Associates and author of The Quest: Energy, Security, and the Remaking of the Modern World.

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ROBERT SIEGEL, host: For more on the Kinder Morgan deal and natural gas industry as a whole, we're joined now by Daniel Yergin. He's an energy industry watcher and chairman of IHS Cambridge Energy Research Associates. Welcome to the program once again.

DANIEL YERGIN: Thank you.

SIEGEL: Let's start with the basics here. What exactly does Kinder Morgan do? They're not a production or exploration company, just a pipeline company.

YERGIN: They're a pipeline company. They move natural gas from one part of the country to the other and they move oil products from part to the other. And it's a very basic business.

SIEGEL: Richard Kinder, the CEO we just heard about, has said of the merger that natural gas is going to play an integral role in North America. Is he right? And what's the future of natural gas in this country?

YERGIN: We certainly see that natural gas is going to be a bigger part of our energy future. What's developed since about 2008 has been quite remarkable in the sense that we have much larger supplies. Instead of 10-year supplies as people thought, a hundred-year supply and we're going to see natural gas used more widely in our economy.

SIEGEL: And what is it replacing, coal by and large or other sources?

YERGIN: Mainly, natural gas will be used in electric generation replacing coal. Also, just for new capacity that's needed to deal with growing electricity demand in the country. It has another use, too. It's the partner to renewables. Because when the wind doesn't blow and the sun doesn't shine, you can turn on those natural gas generating machines.

SIEGEL: This is the second big pipeline deal in a short time span. There's another $5.7 billion deal in the works between two other companies. And all this is happening while the price of natural gas is very low. Explain that apparent contradiction to us.

YERGIN: Well, the price of natural gas is very low because the supply buildup has been so big and so fast. But for the pipeline companies, that's not their business. Their business is - they're toll takers. For every MCF of natural gas that goes through a pipeline, they get a toll. So they're really in a related business to natural gas production, but a different business.

SIEGEL: So their business, you're saying, is not measure in the value of the natural gas, but in the cubic meters of natural gas.

YERGIN: Yeah, yeah. Their business is a volume business, how much natural gas passes through their pipeline systems. And the general sense is that we're going to have more and more natural gas, indeed, travelling around the country in pipelines from these new production areas to consumers.

SIEGEL: Well, what do these consolidations mean for the consumer and if indeed the merged company, assuming the merger is approved, would have pipelines all over the entire continental United States, is that a company so big that the Justice Department might look askance at the merger?

YERGIN: Well, certainly this will be reviewed as any merger this size will be. In addition, of course, pipelines are regulated businesses, so they don't exist in a kind of wild free market, in any event. But I think the other part of this is really kind of getting ready for this greater role of natural gas in our whole economy. And one of the things that's going to be required, actually, is the building of new pipelines in these new production areas to move it both to the local consumers, but also to move it into the national market.

SIEGEL: You mentioned natural gas, of course, being a big source of electricity and also being the backup to some of the sustainable energy sources - wind and solar. There are also natural gas powered buses, some smaller vehicles in some countries, you know, China, the taxi fleet might be all powered by natural gas. Do people actually see a role for natural gas as more of a vehicle, a motor fuel in this country?

YERGIN: Yeah, certainly some people are convinced that natural gas will have a very big role in transportation. The most obvious usage of it is in people who run fleets, taxicabs, buses, companies that send out trucks and so forth. And that scenario where there's still a lot of debate. But what is obvious is that natural gas, on an energy basis, is much cheaper than oil. And that, of course, is what's gotten the attention of so many people to think about it as an transportation fuel.

SIEGEL: And when we think about this reassessment of how much natural gas there is, is that all about better detection of what's under the ground? Is it about new methods, like fracking to get at that same natural gas? What has changed so much?

YERGIN: It's a revolution in production technology. People knew there was gas in the shale rock. There just didn't seem to be any way to get it out. And it wasn't until, you know, the last few years that, in large volumes, the code has been cracked. So, really, this expanded vision of natural gas in America's energy future is a result of this revolution in terms of natural gas production using fracking and horizontal drilling.

SIEGEL: Well, Daniel Yergin, thanks for talking with us once again about energy, in this case, natural gas.

YERGIN: Thank you.

SIEGEL: Daniel Yergin is the author of "The Quest: Energy, Security, and the Remaking Of The Modern World."

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Source: http://www.npr.org/2011/10/17/141434059/what-is-the-future-of-natural-gas-use?ft=1&f=1007

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