Bright Hopes for the Blue Flame

By RICHARD WOODBURY HOUSTON

Imagine a fuel that is clean burning, easy to produce and sells for far less than petroleum. The U.S. has a generous supply of just such a fuel: natural gas, also known as methane. Neglected during the 1980s because of abundant supplies of cheap crude, gas has suddenly become an attractive alternative again. With the Middle East crisis pushing petroleum prices to $30 per bbl., energy experts and environmentalists have begun urging greater development of natural gas to wean the U.S. from its heavy dependency on crude oil.

The U.S. has enough natural gas in the ground to last 60 years at the current rate of consumption. Right now the fuel supplies about 24% of daily U.S. energy use, vs. 42% for petroleum products. Only a modest increase in gas production would be needed to replace the 750,000 bbl. a day of interrupted oil supply from Iraq and Kuwait. Gas already has many applications: heating, cooking and generating electricity. But energy experts are working on new ways in which the fuel could replace oil and gasoline, most notably in powering vehicles. Predicts Michel Halbouty, a Houston wildcatter: "Gas will be the nation's key energy supplier. We have lots of it, and there's a load more to be found."

Sometimes discovered in conjunction with crude, natural gas -- a colorless mixture of methane and other hydrocarbons -- was long considered worthless and burned off at the wellhead. In the postwar years, its price was so tightly regulated by the Federal Government that producers were discouraged from searching for the fuel. After prices were deregulated in the 1980s, the low cost of petroleum helped keep gas prices depressed. Wholesale natural gas sells for about $1.50 per 1,000 cu. ft., the equivalent of $9 per bbl. for oil. Observes T. Boone Pickens, a major oil-and-gas producer: "At that price, there's no way that exploration will ever start again."

Now a combination of environmental concerns and escalating oil prices is heating up interest. The biggest problem will be getting the fuel to market. With natural-gas demand up 16% from 1986 to 1989, the 1.2 million-mile network of pipelines that haul gas from the fields to users is inadequate. Much of the current system is geared to serving old Rust Belt users, while the greatest need for increased supply is on the East and West coasts. But construction plans have been stalled by environmental opposition -- ironic considering the good safety record of the transmission companies -- as well as the lumbering federal bureaucracy. Complains Theodore Eck, chief economist of Amoco, owner of the largest U.S. natural-gas reserves: "The endless hearings and harassment and bureaucratic red tape are excessive."

! The Federal Energy Regulatory Commission, which oversees the industry, is pondering proposals for 35 major construction projects. According to industry estimates, these pipelines could displace about 900,000 bbl. of oil a day. Most bitterly debated is the Iroquois pipeline, a 370-mile-long conduit that would bring Canadian gas to six Northeastern states. A coalition of environmentalists, heating-oil dealers and U.S. gas producers is fighting the project. But last week an administrative-law judge supported FERC's preliminary approval of the pipeline.

Gas demand could escalate rapidly in the next decade, especially in areas of heavy pollution. "Natural gas has the lowest carbon dioxide emissions of any of the fossil fuels," notes James MacKenzie, a senior associate at the World Resources Institute, an environmental group. More natural gas could be used for electrical generation, mainly to replace coal. "Power plants can switch fuels and cut their emissions of sulfur instantly with relatively inexpensive changes in equipment," says MacKenzie. The most untapped market is transportation. More than 30,000 cars and trucks in the U.S. run on natural gas, and automakers have shown increasing interest in the technology. Last week General Motors and Tecogen Inc. of Waltham, Mass., unveiled a natural- gas-powered school bus. The GMC truck division plans to build 1,000 natural-gas-fired pickup trucks to be marketed in Texas, California and Colorado early next year.

As oil becomes more expensive, the most alluring aspect of natural gas will be its relatively low price. For heating purposes, gas currently costs about $5.50 per million BTUs, vs. $9 for oil. For powering vehicles, natural gas costs the equivalent of about 70 cents per gal., in contrast to the current $1.25 average for regular unleaded gasoline. If the current enthusiasm for natural gas leads to better delivery of the fuel and a wider array of uses, once neglected methane could be a popular fuel of the future.

CHART: TREASURE BELOW

Largest estimated natural gas reserves, in trillions of cubic feet

U.S.S.R. 1,500

IRAN 500

ABU DHABI 183

SAUDI ARABIA 181

U.S. 165

CREDIT: [TMFONT 1 d #666666 d {Source: Oil & Gas Journal}]

With reporting by Elaine Shannon/Washington and Dennis Wyss/San Francisco