Making better use of natural gas
There has been a lot of focus on the natural gas sector over the last few months. Demand was already rising as a result of its increasing importance as a transition fuel, and a recent mix of hurricanes, heatwaves and pipeline issues have complicated supply. Ructions in the crypto sector have added fresh demands and new challenges. The result, naturally, is rising costs. According to Mohamed El-Masri, founder and CEO of PermianChain Technologies, this is the perfect time to look at how we use natural gas globally and see if there are ways to make it more efficient.
The natural gas sector is currently under a lot of scrutiny, with pressure coming on it from a confluence of long-, short- and medium-term issues. Under normal circumstances, any one of these issues would be absorbed and the market would barely react, but the arrival of several challenges all at once is forcing prices up and creating considerable concern across the market. That concern is turning into consumer debate about the future of the global energy mix.
If the energy sector does not find a way to answer the challenges, it could potentially accelerate support for projects to move away from fossil fuels. This will shorten the period of transition, and force oil and gas companies to transform more quickly than they are comfortable with. It could even accelerate their journey down the path to obsolescence. Either way, it is a very real possibility that moving through the transition period too quickly could end up costing the end consumer.
In the long-term, the world is in the process of finding a way to transition away from fossil fuels. Various governments have made a variety of pledges over the last few years, and with the 6th United Nations Climate Change Conference of the Parties (COP26) just around the corner, you can expect plenty more headline grabbing initiatives over the next few months.
Natural gas has been identified as a transition fuel that will help reduce reliance particularly on coal over the next few years. The process has meant gradually increasing demand for natural gas as a fuel over the last few years.
The short-term challenges are more varied, with a confluence of events that have added to the demand for natural gas and resulted in upward price pressure.
It was an exceptionally hot summer in 2021 the northwest of north America. With air conditioning units in the region running far more than in an average year, reserves of natural gas, which are usually replenished during the summer months, were already lower than normal as Canada and the US head into the autumn.
Added to this, Hurricane Ida put much of the Gulf of Mexico’s production offline for the best part of a month from the end of August. In normal circumstances the sector would have the reserves to accommodate this kind of activity without too much difficulty, but it has added to the challenges given other issues swirling around the industry.
Meanwhile Europe and Asia suffered an exceptionally cold winter in 2020/21. This meant that they dipped into global reserves more than usual, an issue that was further compounded by problems with pipelines in Norway and the United Kingdom. Added to this, the UK’s relatively low wind summer means that wind turbines made a lower-than-expected contribution to the county’s national grid, increasing reliance on gas and again causing a draw on rather than a replenishment of reserves.
Medium term impacts
From a medium-term perspective, the oil and gas sector suffered significant challenges during the pandemic, with demand for oil collapsing, recovering and then subsiding once again as the disease ravaged economies around the world. With gas extracted at the same point as oil, activity in the gas sector has been more erratic than at any point in the sector’s more than hundred-year history.
Finally, there is the issue of crypto. In the spring of 2021, the Chinese government clamped down significantly on crypto activity in the country, to all intents and purposes banning any form of crypto other than the digital yuan which is in the process of rolling out.
It is estimated that this means that between 60% and 80% of crypto processing capacity has had to find new homes around the world. As we discussed in our last article, this changes the dynamic in the power sector. In the big scheme of things, it may only be a slight increase in overall demand for power, but given the litany of challenges the sector faces as we near the end of 2021, it is an additional pressure it could do without.
So, what’s the answer?
The free market is coming up with its traditional response to the myriad of issues facing the natural gas sector, which is a polite way of saying that prices are rising, in some places at speed. This is causing considerable consumer stress, and that in turn is likely to lead to pressure on governments.
The issue that people don’t tend to focus on in all this is that there are significant volumes of natural gas that are being wasted each year. This stranded gas comes from small pockets that accompany oil deposits and are often located in remote areas where it would be too expensive to bring to a traditional market. As a result, it is often either flared or released into the atmosphere.
Taken individually it may only seem like trivial amounts, but according to the International Energy Agency (IEA), around 145 bcm of natural gas was flared in 2018. This is roughly equivalent to the annual demand for gas for the continent of Africa. And that is just flaring, if you add in the gas that is simply vented into the air or pushed back into ground, the volume of gas that’s wasted will be far higher.
PermianChain has developed a platform that creates a market for this wasted potential power. We’ve made it simple for oil and gas companies to sell their power to bitcoin and other crypto projects, locating data centres onsite at an extraction project and powering them with stranded gas that would otherwise have been wasted. We can manage the technical side of sourcing and setting up the data centres with our industry partners, or the oil and gas firm can manage it themselves, but we have a viable, growing market of crypto projects that are keen to take advantage of power that would otherwise be wasted.
Taking this route would not solve all of the challenges that the gas sector currently faces, but it is a neat solution to one of the medium-term issues, taking the strain that crypto processing can put on national grids. It would also help oil and gas projects show that they are committed to enhancing their environmental credentials, potentially bolstering flagging community support.
The myriad of issues that have faced the natural gas sector over the last few months are unlikely to be fixed quickly or simply, but the technology exists to alleviate at least one of the symptoms. If you would like to find out more, please get in touch with our support team.
PermianChain Technologies is a pioneer member of the Blockchain Research Institute. PermianChain is investigating ways to harness the power of blockchain technology, data science and artificial intelligence to digitize, tokenize and monetize proven but undeveloped natural resources, starting with oil and gas. The PermianChain, which already has secured oil and gas reserves to be listed on its platform, intends to unlock liquidity to revolutionise the way that oil and gas reserves are funded, produced, bought and sold on a permissioned-access blockchain.