Does Japan's Recent Discovery Change the Global Energy Game?


Earlier this month, Japanese researchers made a major discovery in the deep waters off that nation's coast, helping them move closer to tapping vast natural gas deposits trapped in ice hundreds of feet below the seabed.

On March 12, Japan Oil, Gas & Metals National Corp. announced that it successfully extracted gas from methane hydrate deposits some 1,000 feet below the seabed in the waters of the Pacific some 50 miles south of central Japan's Atsumi Peninsula.

The discovery has been hailed as a major breakthrough - one that could be a game changer not only for Japan and its dire energy situation, but also for the world's energy security. Let's take a closer look at what exactly methane hydrates are and how they might impact the future of global energy.

A primer on methane hydrates
According to the U.S. Department of Energy (DOE), methane hydrate is "a cage-like lattice of ice inside of which are trapped molecules of methane, the chief constituent of natural gas. If methane hydrate is either warmed or depressurized, it will revert back to water and natural gas."

Methane hydrate deposits, which may be several hundred meters thick according to the DOE, are typically found in two major locations - underneath Arctic permafrost and below the ocean floor. Not only are these deposits thought to be mind-bogglingly vast, but the amount of natural gas they may contain could be equally inconceivable.

Methane hydrate deposits' size and energy content
Estimates of how much gas hydrate resources there are around the world vary from 10,000 trillion cubic feet of natural gas to more than 100,000 trillion cubic feet. By comparison, proved reserves of natural gas and natural gas liquids in the U.S. were a little over 300 trillion cubic feet as of year-end 2010, according to EIA estimates.

According to the DOE, one cubic meter of gas hydrate can release 164 cubic meters of natural gas when brought to the Earth's surface. That means that global gas hydrate deposits could contain more than two times as much carbon as global coal, oil, and natural gas reserves put together, according to the U.S. Geological Survey.

A game changer for Japan?
If costs can be brought down to make methane hydrate extraction technology economically viable, it could be a major boon for Japan, a country whose already alarming energy import bill continues to get worse. Currently, the island nation relies on foreign markets for all of its oil and gas and is actively seeking ways to reduce its dependence on crude oil imports from the Middle East.

The tragic Tōhoku earthquake and tsunami, which struck in March 2011, led to the largest nuclear disaster since Chernobyl and virtually eliminated nuclear energy as an energy source for the country. The nuclear meltdown and related crises - known collectively as the Fukushima Daiichi crisis - have caused a sharp rise in the nation's energy imports, resulting in a nearly 7 trillion yen record trade deficit last year.

And with the recent weakening of the yen, Japan's costs for importing liquefied natural gas (LNG) and crude oil have soared further, offsetting the brief improvement in industrial competitiveness brought about by a cheaper currency.

But the new discovery may help gradually reverse this trend. That's because Japan's offshore deposits of methane hydrate could be large enough to supply its energy needs for roughly 100 years, according to Japan Oil, Gas & Minerals.

Opportunities for energy companies
With Japan currently paying nearly $17 per MMBtu of imported natural gas - more than four times what Americans pay - several U.S. energy companies are working hard to obtain LNG export licenses that would allow them to ship gas to Japan and other markets where it fetches a higher price.

Currently, Cheniere Energy is the only company to have received a permit to export LNG out of the lower U.S., though ExxonMobil , ConocoPhillips , BP , and TransCanada have said they're moving forward with a major LNG export project in Alaska that would allow them to ship LNG to Japan and other Asian markets. The project, which will require building a massive pipeline and liquefaction facility, is expected to cost as much as $65 billion and take more than a decade to construct, the companies said last year.

Cheniere, which lucked out early when it received an export permit back in 2011, is currently seeking federal approval to boost annual gas export capacity from its Sabine Pass terminal in Louisiana by a whopping 9 million metric tons.

Meanwhile, other companies, such as Sempra Energy and Dominion Resources, are anxiously waiting for the U.S. Department of Energy to lift the moratorium on further LNG export approvals, as the department studies how LNG exports might impact natural gas prices and the U.S. economy.

Environmental uncertainties
Despite Japan's promising test results, major hurdles and uncertainties for the future of gas hydrate extraction technology remain. Since the technique is still in its infancy, very little is known about its impact on the environment.

In a recent report, the USGS wrote: "Hydrates store immense amounts of methane, with major implications for energy resources and climate, but the natural controls on hydrates and their impacts on the environment are very poorly understood."

When drilling for frozen gas, producers will need to find an effective and reliable way to avoid releasing large quantities of methane from gas hydrates into the ocean and the atmosphere. This is because methane traps much more heat than even carbon dioxide and is far worse for the environment than other greenhouse gases.

Final thoughts
Until researchers can bring costs down sufficiently and get a much better understanding of gas hydrate extraction's environmental impact, Japan's new breakthrough is unlikely to see large-scale commercial application any time soon.

However, with the island nation continuing to pay a fortune for its natural gas imports, the incentive for Japanese researchers to overcome these hurdles is huge. If they manage to make the technology economically viable sooner than expected, it would be a net positive not only for Japan's energy security, but also for the entire world's.

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