1.1 What Is Natural Gas?

Natural gas is a subcategory of petroleum that is a naturally occurring, complex mixture of hydrocarbons, with a minor amount of inorganic compounds. Geologists and chemists agree that petroleum originates from plants and animal remains that accumulate on the sea/lake floor along with the sediments that form sedimentary rocks. The processes by which the parent organic material is converted into petroleum are not understood. The contributing factors are thought to be bacterial action; shearing pressure during compaction, heat, and natural distillation at depth; possible addition of hydrogen from deep-seated sources; presence of catalysts; and time (Allison and Palmer 1980).

Table 1-1 shows composition of a typical natural gas. It indicates that methane is a major component of the gas mixture. The inorganic compounds nitrogen, carbon dioxide, and hydrogen sulfide are not desirable because they are not combustible and cause corrosion and other problems in gas production and processing systems. Depending upon gas composition, especially the content of inorganic compounds, the heating value of natural gas usually varies from 700 Btu/scf to 1,600 Btu/scf.

Natural gas accumulations in geological traps can be classified as reservoir, field, or pool. A reservoir is a porous and permeable underground formation containing an individual bank of hydrocarbons confined by impermeable rock or water barriers and is characterized by a single natural pressure system. A field is an area that consists of one or more reservoirs all related to the same structural feature. A pool contains one or more reservoirs in isolated structures. Wells in the same field can be classified as gas wells, condensate wells, and oil wells. Gas wells are wells with producing gas-oil-ratio (GOR) being greater than 100,000 scf/stb; condensate wells are those with producing GOR being less than 100,000 scf/stb but greater than 5,000 scf/stb; and wells with producing GOR being less than 5,000 scf/stb are classified as oil wells.

Because natural gas is petroleum in a gaseous state, it is always accompanied by oil that is liquid petroleum. There are three types of natural gases: nonassociated gas, associated gas, and gas condensate. Nonassociated gas is from reservoirs with minimal oil. Associated gas is the gas dissolved in oil under natural conditions in the oil reservoir. Gas condensate refers to gas with high content of liquid hydrocarbon at reduced pressures and temperatures.

1.2 Utilization of Natural Gas

Natural gas is one of the major fossil energy sources. When one standard cubic feet of natural gas is combusted, it generates 700 Btu to 1,600 Btu of heat, depending upon gas composition. Natural gas provided close to 24 percent of U.S. energy sources over the three-year period 2000–02. Natural gas is used as a source of energy in all sectors of the economy. Figure 1-1 shows that during the three-year period 2000–02, natural gas consumption was equitably distributed across all sectors of the U.S. economy (except transportation).

1.3 Natural Gas Industry

Natural gas was once a by-product of crude oil production. Since its discovery in the United States in Fredonia, New York, in 1821, natural gas has been used as fuel in areas immediately surrounding the gas fields. In the early years of the natural gas industry, when gas accompanied crude oil, it had to find a market or be flared; in the absence of effective conservation practices, oil-well gas was often flared in huge quantities. Consequently, gas production at that time was often short-lived, and gas could be purchased as low as 1 or 2 cents per 1,000 cu ft in the field (Ikoku 1984).

The consumption of natural gas in all end-use classifications (residential, commercial, industrial, and power generation) has increased rapidly since World War II. This growth has resulted from several factors, including development of new markets, replacement of coal as fuel for providing space and industrial process heat, use of natural gas in making petrochemicals and fertilizers, and strong demand for low-sulfur fuels.

The rapidly growing energy demands of Western Europe, Japan, and the United States could not be satisfied without importing gas from far fields. Natural gas, liquefied by a refrigeration cycle, can now be transported efficiently and rapidly across the oceans of the world by insulated tankers. The use of refrigeration to liquefy natural gas, and hence reduce its volume to the point where it becomes economically attractive to transport across oceans by tanker, was first attempted on a small scale in Hungary in 1934 and later used in the United States for moving gas in liquid form from the gas fields in Louisiana up the Mississippi River to Chicago in 1951 (Ikoku 1984).

The first use of a similar process on a large scale outside the United States was the liquefaction by a refrigerative cycle of some of the gas from the Hassi R’Mel gas field in Algeria and the export from 1964 onward of the resultant liquefied natural gas (LNG) by specially designed insulated tankers to Britain and France. Natural gas is in this way reduced to about one six-hundredth of its original volume and the nonmethane components are largely eliminated. At the receiving terminals, the LNG is reconverted to a gaseous state by passage through a regasifying plant, whence it can be fed as required into the normal gas distribution grid of the importing country. Alternatively, it can be stored for future use in insulated tanks or subsurface storages. Apart from its obvious applications as a storable and transportable form of natural gas, LNG has many applications in its own right, particularly as a nonpolluting fuel for aircraft and ground vehicles. Current production from conventional sources is not sufficient to satisfy all demands for natural gas.

1.4 Natural Gas Reserves

Two terms are frequently used to express natural gas reserves: proved reserves and potential resources. Proved reserves are those quantities of gas that have been found by the drill. They can be proved by known reservoir characteristics such as production data, pressure relationships, and other data, so that volumes of gas can be determined with reasonable accuracy. Potential resources constitute those quantities of natural gas that are believed to exist in various rocks of the Earth’s crust but have not yet been found by the drill. They are future supplies beyond the proved reserves.

Different methodologies have been used in arriving at estimates of the future potential of natural gas. Some estimates were based on growth curves, extrapolations of past production, exploratory footage drilled, and discovery rates. Empirical models of gas discoveries and production have also been developed and converted to mathematical models. Future gas supplies as a ratio of the amount of oil to be discovered is a method that has been used also. Another approach is a volumetric appraisal of the potential undrilled areas. Different limiting assumptions have been made, such as drilling depths, water depths in offshore areas, economics, and technological factors.

There has been a huge disparity between “proven” reserves and potential reserves. Even in the case of the highly mature and exploited United States, depending upon information sources, the potential remaining gas reserve estimates vary from 650 Tcf to 5,000 Tcf (Economides et al. 2001). Proved natural gas reserves in 2000 were about 1,050 Tcf in the United States and 170 Tcf in Canada. On the global scale, it is more difficult to give a good estimate of natural gas reserves. Unlike oil reserves that are mostly (80 percent) found in Organization of Petroleum Exporting Countries (OPEC), major natural gas reserves are found in the former Soviet...