Methane Hydrates and the Potential Natural Gas Boom

Methane hydrates, which are natural gas molecules trapped in ice, offer a potentially abundant source of natural gas widely distributed across the globe. Assuming the extraction technology can be mastered, methane hydrates could offer traditionally resource-poor countries greater energy security.

Analysis

The so-called shale gas revolution has changed the face of the energy industry in the United States. Natural gas production in the United States is at an all-time high. Proposals for, and the actual construction of, liquefied natural gas export terminals in the United States have replaced plans for liquefied natural gas import terminals. But shale gas deposits as a proportion of global natural gas supplies may seem minor in comparison to methane hydrates.

Methane hydrates form at a specific range of low temperatures and high pressures. They occur in the Artic permafrost and along continental slopes, typically at water depths greater than 500 meters (1,640 feet). Once considered only a hindrance to conventional extraction, emerging technologies to tap methane hydrates mean they now have the potential to alter the global energy outlook. Estimates for total methane hydrate gas in place are rough, but range anywhere from 3,000 trillion cubic meters to more than 140,000 trillion cubic meters, the large range illustrating the uncertainty of the estimate. By comparison, combined global technically recoverable conventional natural and shale gas reserves total roughly 640 trillion cubic meters. (In 2011, global natural gas consumption stood at approximately 3.4 trillion cubic meters.)

Despite the promise of methane hydrates, the technology for their extraction is still under development, and potential risks have not been neutralized. These include the uncontrolled release of natural gas formerly trapped in ice, which could result in large amounts of the greenhouse gas methane entering the atmosphere. They also include the possibility of destabilizing the ocean floor, leading to underwater landslides and subsequently the possible sinking of drilling rigs.

Drilling likely will be required to access the natural gas in the hydrates. A number of drilling techniques could be used to destabilize the equilibrium of the hydrates and release natural gas. These include thermal injections, which involve increasing temperatures, often by injecting steam, to dissociate the gas. They also include depressurization, or reducing the pressure of the formation to release the gas. Finally, and perhaps most promising, is carbon dioxide injection. In this process, carbon dioxide essentially replaces the natural gas within the hydrate, allowing for the release of natural gas and the capture of carbon dioxide.

Research programs focused on methane hydrate detection and extraction can be found in numerous nations, including Japan, South Korea, India, China, Norway, the United Kingdom, Germany, the United States, Canada, Russia, New Zealand, Brazil and Chile. Much of the initial research has been highly collaborative, with the government and private companies from the United States playing a prominent role.

Most of these research programs are in the exploratory, experimental and laboratory phases, with expeditions seeking samples to determine the extent of deposits so as to direct further research. Last year, however, Japan completed a successful field test in Alaska in collaboration with Norway and ConocoPhillips, successfully producing natural gas through controlled dissociation via carbon dioxide injections. In recent weeks, Japan has also begun offshore production tests in the Nankai Trough off the coast of central Honshu.

Despite these recent advances, commercial production is still unlikely for at least 10 to 15 years. Japan believes that commercial production will be possible by 2018, while the U.S. Geological Survey estimates that countries with the "political will" to pursue methane hydrates could see production by around 2025. Though expensive compared to conventional methods of recovering natural gas, the estimated cost of methane hydrate extraction is similar to other unconventional sources, such as shale gas. The International Energy Agency estimates that once developed, it will cost between $4.70-$8.60 to extract 1 million British thermal units of methane hydrates. The same studies estimate conventional costs as low as $0.50 per 1 million British thermal units. Developmental and capital costs are likely to be high, since the deposits are in difficult, harsh locations (e.g., Artic or deepwater environments) and depending on their location, new fields could also mean additional capital costs from infrastructure development.

Methane hydrates are widely distributed throughout the globe, including locations that do not have substantial conventional natural gas reserves. Deposits have been discovered off the coasts of Japan, India, South Korea and Chile, in the Gulf of Mexico and off the southeastern coast of the United States. Potential reserves also exist in the Artic permafrost of Alaska, Canada and Russia. Their widespread distribution means traditionally resource-poor countries could now have access to domestic sources of energy.

Methane hydrate estimates throughout Asia are still being determined through further exploration, but initial median estimates place Japan's reserves at 6 trillion cubic meters, China's at 5 trillion cubic meters and India's at 26 trillion cubic meters. Japan was the first nation to establish a methane hydrate program, which it founded in 1995. India formed its national program in 1997, and China and South Korea followed suit later. Since 2006, China, India and South Korea have all led exploratory expeditions that included conducting seismic studies and retrieving core samples to determine the composition of possible reserves. 

Japan continues to lead the field, as shown by its recent offshore production testing. Though technically advanced, Japan lacks many natural resources and so must import the majority of its energy supply. In 2011, it consumed 123 billion cubic meters of natural gas, of which 117 billion cubic meters were imported. Developing a domestic source of energy could restore some of the energy security lost when Japan ceased the majority of its nuclear power production. Japan's imperative to secure energy supplies combined with its technical capabilities may allow it to push forward despite the high economic cost.

While initial offshore exploration has occurred near the coast, often within a given country's exclusive economic zone, future exploration will likely continue offshore. This exploration could happen in contentious waters, especially in East Asia. As technology continues to advance, a new dimension to pre-existing territorial frictions could emerge as nations switch from competing for potential resources to actual resources. Exploration for this resource is a tool competing nations could use to claim sovereignty over disputed waters. Whether or not the technical hurdles of extracting methane hydrates are overcome, short- and medium-term exploration efforts could help countries in their attempts to establish a presence in international or disputed waters. Japan's lead in the development of methane hydrate extraction could give it an edge in the competition for future resources in the region.

Natural Gas Europe is pleased to provide this article in cooperation with Stratfor. For more visit http://www.stratfor.com/