2.1 INTRODUCTION

The pricing of natural gas as an energy commodity presents a number of features of historic significance. These historical elements relating to the politics and economics of the development of oil and gas resources are highly significant in their own right. Indeed, natural gas is playing an increasingly important role as an alternative to crude oil and the gasoline and numerous other by-products refined from petroleum. At the same time, a number of nonhistorical components also enter into the pricing of natural gas as an energy commodity. Some of these elements, especially those implicated in environmental pollution, have an intangible connection to gas pricing, although one would be hard-pressed to ferret out its exact contribution to consumers’ expense. Appropriate intervention by the working engineer can do wonders for preserving the environment and all of us living in it from serious harm in the short term and the long term. Nothing including the most precious energy commodity, can have a higher value than human life, which forms the starting point of this chapter. Although natural approaches in general, and their usefulness for addressing environmental problems created by current energy development technologies and approaches in particular, are beyond the scope both of this chapter and of conventional concerns about gas pricing, throughout the rest of this chapter some of the obstacles that have been strewn along and throughout the various paths toward the goal of knowledge-based, all-natural, researched solutions to what some have called “our technological disaster” — solutions that would prove innovative, economically attractive, environmentally appealing, and socially responsible — will be pointed out. The principal goal of this chapter is to examine natural gas energy pricing with the aim of answering the following question: considered from an engineering standpoint, how consistent with their actual potential are the patterns, changes, and trends in the supply of and demand for so-called “nonrenewable” energy commodities?

2.2 ENERGY PRICING, SUPPLY, AND DEMAND

In recent years there has been an increasing recognition that the actual supply and demand for energy commodities diverge significantly from the conventional economic notions and expectations concerning the supply and demand of commodities (Islam and Zatzman, 2004, 2005). Much effort has been expended to define and account for the divergence as an exception relating mainly to the strategic character of energy as a commodity in a globalized marketplace. The problem with an analysis that goes only this far, however, is its failure to explain why current economic theory as a body of theory fails to account for, or predict, the energy exception. Without such comprehension at the level of theory, it becomes difficult, if not impossible, to discover or elucidate any paths that could or might overcome the numerous contradictions and downsides inherent in the present marketing and pricing arrangements in place for energy commodities.

What do such considerations have to do with the price of gas? Consider what happens with the hydrogen sulfide (H2S) stream recovered from the natural gas-processing scenario. The recovered hydrogen sulfide gas stream itself is considered an object of “waste management.” It “may be either vented, flared in waste gas flares or modern smokeless flares, incinerated, or utilized for the production of elemental sulfur or sulfuric acid” (EPA, 1995). Any of the first three options require regulation as potentially hazardous emissions. Again what is being proposed is to burden society with a further problem arising from the original technological decision to “sweeten” the gas as “efficiently” as possible rather than innovate delivery systems that would avert creation in the first place of additional waste management expense. What these waste management expenses actually represent for those selling natural gas is a further cost factored into the final delivered price of the product — to pay for meeting the U.S. Environmental Protection Agency (EPA) standard. (The fourth option, which would not only potentially generate new revenue but do so in a manner that undergirds ongoing production of natural gas with an additional productive purpose as a feedstock generator, is neither discussed nor framed in EPA discussions as part of the planning of natural gas processing.)

If the recovered H2S gas stream is not to be utilized as a feedstock for commercial applications, the gas is usually passed to a tail gas incinerator in which the H2S is oxidized to SO2 and is then passed to the atmosphere out a stack (Mullins, 1975). Future gas engineering projects might want to take note of the fact that smokestack wastes are one of the most endemically costly and health-threatening environmental hazards of modern living and accordingly undertake a waste conversion plan capable of returning a revenue stream that allows the production and transmission costs as well as the delivered price of natural gas either to be reduced or its rate of increase contained. These wastes are especially strongly implicated in the return and increasing occurrence of asthma not only in children, but in many sections of the adult population. In the United States and Canada, the smokestack waste from the Ohio Valley region actually created the well-known problem of “acid rain.” Even as many ingenious methods have been developed to neutralize the quite varied effects of such precipitation on everything from groundwater quality to the health of the southern boreal forest cover of eastern North America in general and its maple and other hardwood tree growth in particular, the geographic region involved takes in the territories of eastern Indiana state, southern Michigan state, and the state of Ohio in the catchment zone of the Ohio Valley; southwestern Ontario and southern and eastern Quebec, in central Canada; northern New York, Vermont, and New Hampshire in the northeastern United States, the catchment area of the St. John River system in Maine, Quebec, and New Brunswick; and the Cobequid Hills of northern Nova Scotia. A careful and reasoned calculation of all the costs and benefits derivable from taking the particulates vented as smokestack waste in this major acid rain-vulnerable zone and recapturing them for production of nanomaterials would likely prove most instructive as well as enlightening on the matter of how inflexible present production, delivery, and pricing arrangements for natural gas actually are.

Science and engineering issues of technological development have become consciously disconnected from rational considerations of the overall aims and needs of human social life, a disconnection that leads to, and feeds, an incoherence that becomes increasingly intolerable in our current “information age,” when information as the building block of useful knowledge and understanding has become available in quantities and detail as never before, but the research and thinking needed to make such a flood of information coherent, comprehensible, and useful remain extremely rare quantities indeed. The working engineer must never forget that there are alternatives, but, remarkably, while the EPA web site generated 5443 “hits” in response to a query for article titles from its libraries that deal with “glycol and natural gas processing,” a request for article titles discussing “glycol substitutes” returned a grand total of 2 “hits.”

In the course of addressing gas-pricing issues in this chapter, some key elements of the massive disinformation attending the entire notion of “renewable” versus “nonrenewable” energy sources will be mentioned. The price mechanism and price formation for these resources as energy commodities do not depend upon mainly or solely upon any of their inherent material characteristics as raw materials, nor on their particular properties as energy sources. Nor do these price mechanisms and price formation depend purely or even mainly upon the conditions limiting or enabling how humanity accesses them. Not the prices themselves, but certainly the processes of energy commodity price formation and associated price movements remain circumscribed to an uncannily large degree by the evolution of energy policy in the context of world-altering developments at the level of international politics and economics as they emerged at the end of World War I. The decisive role of the overall economic system in these price mechanisms and price formation has been influenced greatly by this context, even into our own time. The leading features of this overall economic system have exercised distorting influences over the engineering approaches taken to the development of these resources. Practical as the concerns must be of the working engineer, an essential barrier to humanity achieving a truly functional as well as just solution to our current energy supply-demand conundrum is to be found in this historic legacy.

2.3 SUSTAINABILITY AND THE INCREASING FASCINATION WITH NATURAL GAS

The entire question of the sustainability of economies dependent on fossil fuels as their principal energy source — be it for transportation, for domestic uses such as heating and cooking, or for the provision of electrical power for industrial or domestic markets — is affected and influenced by changes over time in the pricing structure of the production and delivery of these resources. However,...