Friday, May 01, 2009

Swimming in Nat Gas, Prices Hit 7-Year Lows

Supply is up.

Prices are down 75% from the 2008 peak.
WSJ/CADDO PARISH, La. -- A massive natural-gas discovery here in northern Louisiana heralds a big shift in the nation's energy landscape. After an era of declining production, the U.S. is now swimming in natural gas.

Even conservative estimates suggest the Louisiana discovery -- known as the Haynesville Shale, for the dense rock formation that contains the gas -- could hold some 200 trillion cubic feet of natural gas. That's the equivalent of 33 billion barrels of oil, or 18 years' worth of current U.S. oil production. Some industry executives think the field could be several times that size.

Huge new fields also have been found in Texas, Arkansas and Pennsylvania. One industry-backed study estimates the U.S. has more than 2,200 trillion cubic feet of gas waiting to be pumped, enough to satisfy nearly 100 years of current U.S. natural-gas demand.

The discoveries have spurred energy experts and policy makers to start looking to natural gas in their pursuit of a wide range of goals: easing the impact of energy-price spikes, reducing dependence on foreign oil, lowering "greenhouse gas" emissions and speeding the transition to renewable fuels.

Just three years ago, the conventional wisdom was that U.S. natural-gas production was facing permanent decline. U.S. policy makers were resigned to the idea that the country would have to rely more on foreign imports to supply the fuel that heats half of American homes, generates one-fifth of the nation's electricity, and is a key component in plastics, chemicals and fertilizer.

But new technologies and a drilling boom have helped production rise 11% in the past two years (see top chart above, data here). Now there's a glut, which has driven prices down to a six-year low (see bottom chart above) and prompted producers to temporarily cut back drilling and search for new demand.

The natural-gas discoveries come as oil has become harder to find and more expensive to produce. The U.S. is increasingly reliant on supplies imported from the Middle East and other politically unstable regions. In contrast, 98% of the natural gas consumed in the U.S. is produced in North America.


At 5/01/2009 9:31 AM, Anonymous Anonymous said...

...and since natural gas prices are loosely pegged to oil prices, the consumers derive little benefit in the form of price reduction.

At 5/01/2009 9:44 AM, Blogger Chad Williamson said...

One important thing to note is that reserves are dependent upon price. For example, there is a large amount of gas in the Haynesville shale play, but shale gas is only economical when gas prices are around $6 or higher because of the more costly techniques needed to get shale gas out of the ground.

At 5/01/2009 10:39 AM, Anonymous Anonymous said...

I have been of the notion that this county's escape from oil extortion and pollution is via nat gas.

I don't know how its price will be disconnected from oil but my guess is someone will figure out it is better for govt to intervene in that rather than building windfarms, solar arraygs, cap n trade etc.

Generally I don't want govt intervening in anything. Butin this case I would applaud it. US has national security risk in our dependence on oil. We have enviro whacko risk of beggaring ourselves with various silly global warming initiatives.

I accept there's something wrong with my reasoning--not the least of which is that is assumes rationality on the part of a Dem administration and congress. Coal and oil are big players in DC as well. But when the real crunch time arrives, NG is the ticket out.

At 5/01/2009 10:43 AM, Anonymous Rolo Tomasi said...


Natural gas prices only link with oil when supplies are so tight that residual/distillate oil becomes the marginal fuel.

Also, much of the benefit will come in lower electricity costs.

At 5/01/2009 12:32 PM, Anonymous Anonymous said...

North America in general, and the U.S. in particular, is awash in energy resources. There are trillions of dollars of potential royalties to the government and more affordable energy for consumers lying dormant only because of leftists pathologies concerning the environment and the energy companies. It is their religious embrace of the junk science of anthropogenic global warming and their hatred of capitalism which has driven the search for resources to countries like Saudi Arabia, Iran, Venezuela and Nigeria. This has resulted in the enriching of sadistic tyrants and contributed to the deaths of millions of people. The OPEC cartel is propped up by leftist environmental policies.

Only time will tell how the American people will react once they get the bill for the indulgence of this leftist mental disorder. The rest of the world has already been paying for it in blood.

At 5/01/2009 1:11 PM, Anonymous gettingrational said...

I am pleased to see that the shiny new garbage, recycling and yard trucks are powered by natural gas in Seattle. PACCAR is also ramping up production of natural gas powered trucks. Short range trucks are a very good type of vehicle for natural gas. The distribution system does not have to stretch out and be dispersed for thousands of miles.

At 5/01/2009 2:56 PM, Anonymous Cromagnum said...

Crap and Tax, oops i mean Cap and Trade will evaporate the savings derived from increased supply. And then some.

I do not expect a lowered electricity bill, rather a 30-60% hike in my monthly bill. And that goes directly to TOTUS, because he needs to pay for the UAW Bailout and the Socialization / Collectivization of the Economy.

Most of the electricity is made from coal, which will become as industrially extinct as Asbestos and Freon are now.

Simple Economics:
Elec Co-Gen plants are 2 types:
Continious 24/7 - Usually Coal
Intermittent - Usually Gas

Get rid of coal, then all burn gas. Demand skyrockets, as well as taxes.

At 5/01/2009 9:47 PM, Anonymous Anonymous said...

Natural gas is truly an unrealized resource in the US. The absolute abundance of this fuel here in our country, the fact that it is 1/6th the cost of oil (measured in btu's), and the fact that carbon emissions from natural gas are much lower than either oil or coal, makes it inevitable that we will move in this direction. The sooner we do this, the sooner we will stop exporting our wealth as we inport petroleum.


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