Background on Natural Gas in the United States

Natural gas is a surprizingly important source of energy in the United States today. It has always enjoyed traditional uses in homes and industries. But it is now emerging as a potentially important fuel for clean vehicles (see chapter 20),and it has already emerged as the most important fuel for new power generation (see chapter 23). Today's interest in gas-fired power generation is quite surprising since power companies were prohibited from investing in gas fired generation only two decades ago. The unexpected rise of natural gas is explained by Flavin and Lenssen (1995).

System dynamics was used by Roger Naill to simulate the life cycle in natural gas exploration. He published his results in 1973, the year in which the Arab oil embargo made the industrialized world aware of the "energy crisis." To some, the energy crisis was an "oil crisis" -- we were too dependent on imported oil. But many experts spoke of an "oil and gas crisis." They feared that the United States was running low on both oil and gas reserves. In the well-known "Harvard Energy Study," Stobaugh and Yergin (1979) described gas policy as a debate over "how to slice a shrinking pie." They cautioned that "it will be a challenge to find enough new gas reserves to maintain production at current levels." Naill held a similar view. He believed that:

The natural gas industry seems to be facing the most imminent crisis of fossil fuel depletion. Although it has been estimated that from 400 to 900 trillion cubic feet of natural gas still remain undiscovered in the United States, proven reserves are falling rapidly. The discovery rate, currently less than the production rate, is decreasing, while the production of natural gas is rising at almost 7 percent per year. (Naill 1973, 215)

Naill simulated gas production and exploration over a time period from 1900 to 2020. The simulations led him to conclude that:

the normal behavior mode is an initial period of unrestricted growth in supply, a transition period when growth is slowed, and finally a decline in supply. This is a natural result of the assumption of a finite amount of initial unproven reserves--at some point in time, growth will be limited by rising costs due to scarcity of the resource ... the time of transition is remarkably insensitive to changes in these [parameter] values. For example, an increase by a factor of two in the actual quantity of initial unproven reserves results in postponing the transition in supply for only ten years (Naill 1973, 248)

The natural gas model was the first of many modeling contributions to support policy making in the US energy sector. Naill and his colleagues developed several models, including

COAL2 (Naill 1977)

FOSSIL2 (used in the 1991 National Energy Strategy), and

IDEAS (AES 1993).

The history of these projects is reported in two articles in the System Dynamics Review (Naill 1992A,B). The first article explains the history of the models' use for policy analysis at the US Department of Energy. The second article describes the results of a simulation search for a cost effective combination of energy policies to mitigate the US contribution to global warming. Although the 1973 gas model is dated relative to FOSSIL2 and IDEAS, it is better suited for student exercises by virtue of its small size and its detailed documentation.