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Gaurav Agnihotri

Gaurav Agnihotri, a Mechanical engineer and an MBA -Marketing from ICFAI (Institute of Chartered Financial Accountants), Mumbai, is a result oriented and a business focused…

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Methane Hydrates – Larger Energy Opportunity Than Shale?

Methane Hydrates – Larger Energy Opportunity Than Shale?

11 March 2011 was a turning point for Japan’s energy sector as the country witnessed the second biggest nuclear disaster in the history of mankind after the 1986-Chernobyl incident. The infamous Fukushima led to the country’s entire nuclear industry to be shut down, resulting in Japan’s gradual shift back to fossil fuels for power generation.

Before the incident, Japan’s 54 nuclear reactors provided more than 30 percent of the country’s electricity requirement. Without nuclear energy, Japan’s domestic energy resources could only meet less than 9 percent of the nation’s energy requirement. 2013 saw the country increase it’s spending on fossil fuel imports by 60 percent when compared to 2010.

Currently, Japan is one of the largest net importers of crude oil, the second largest importer of coal and the largest global importer of liquefied natural gas (LNG). Since Japan imports almost its all of its fossil fuel requirement, it has lost its trade surplus and has become a nation with a rising trade deficit.

(Click to enlarge)

Does Japan have an alternative to fossil fuels?

In order to reduce its dependence on coal, natural gas, LNG and oil, Japan has invested substantially in renewables. The country has even tripled its renewable energy capacity to 25 gigawatts, where solar energy represents around 80 percent of this capacity. Related: Oil Price Plunge Raises Fears for Indebted Shale Companies

However, the Japanese government, under Prime Minister Shinzo Abe, is looking to reduce subsidies on renewables and is planning to restart the country’s nuclear reactors. “Renewable power generation capacity has increased too rapidly,” said a recent report from Institute of Energy Economics in Tokyo. Is Japan’s decision to restart its nuclear reactors and put a curb on renewables justified? Given the potential environmental and health risks it poses, most Japanese citizens are against nuclear power. Can Japan reshape its energy policy without the use of nuclear power?

Methane Hydrate – A “Burnable Ice”

Methane hydrates are crystalline ice that is found in lower sediments of deep sea regions and polar regions that have methane gas trapped within them. When melted, methane hydrates turn into water and methane. Methane hydrates offer a truly massive reservoir of natural gas trapped in ice.

In fact, the deposits of this “burnable ice” are so large, ( Japan has around 746 locations in its coastal waters) they could provide Japan with enough natural gas for the next 100 years at least. And there could be much more methane hydrate deposits in the marine sediments off the Pacific Coast of the country. These are big numbers. Japan has also participated in an international research team that successfully produced methane in Canada’s arctic region.

Methane Hydrate Development Process

Image Source 

Could this subsea ice be Japan’s equivalent of the U.S. shale boom?

The U.S. shale boom changed global energy dynamics thanks to the rapid development and commercialization of the appropriate production technologies related to horizontal drilling and hydraulic fracturing. Even the environmental challenges associated with shale oil and gas were identified and appropriate risk mitigation strategies such as water recycling and others were put in place. Japan’s Methane Hydrate Exploration Program is responsible for evaluating the methane hydrate resources in its Nankai Trough and other areas. According to initial estimates, the cost of extracting methane hydrate is extremely high. Any comparison with the U.S. shale boom at this stage would be premature as more research is needed. Related: Spanish Government To Tax Solar Power

It is cost effective compared to importing LNG?

Since 2001, the Japanese government has spent millions of dollars on research related to methane hydrate. Currently, almost the entirety of Japan’s gas demand is met by its LNG imports, which represent around 37 percent of global LNG demand. However, if the country’s nuclear power plants restart operations this year, these imports will fall. Between the fiscal year 2014-2015, Japan imported a record 89.07 million tonnes of LNG, which put a large dent in Japan’s trade balance. For example, LNG cost Japan $65 billion for just the month of April. On an annual basis, LNG imports cost the country nearly $700 billion.

What impact could it have on the environment?

As it stands, methane hydrates have methane trapped at the bottom of the ocean, frozen in ice. But in alarming fashion, climate change could upset this delicate arrangement. As sea temperatures rise, methane hydrates could begin to melt, unleashing methane on a grand scale. Once released, the methane will turbo charge climate change, accelerating melting, which will further release methane in a frightening feedback loop.

An estimate by the U.S. Geological Survey even reveals that methane hydrates dwarf the amount of carbon contained in all of the world’s other fossil fuels – combined. In short, developing methane hydrates on a large scale would essentially rule out any possibility that the world prevents significant climate change. In spite of this, Japan Oil, Gas and Metals National Corp. and U.S. based National Energy Technology Laboratory signed a memorandum of understanding in November 2014 to perform combined research for developing methane hydrates. Related: OPEC Still Holds All The Cards In Oil Price Game

Global Gas hydrate reserves

Image source

What is the future for methane hydrates?

The amount of energy trapped in methane hydrates is hard to fathom. As such, if methane hydrates were developed, it would have a truly transformational impact on energy markets, arguably even more so than the shale revolution ever did. But the costs, as of right now, are prohibitive. More importantly, given the environmental repercussions, large scale development is hard to justify. And if the world gets serious about limits on greenhouse gases, that would likely eliminate the possibility that methane hydrates have a future as an energy source.

By Gaurav Agnihotri Of Oilprice.com

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