What has happened is that over time, industrial use has dropped, partly because of the high price of

Theoretically, we have a very large amount of resources of many kinds available oil, natural gas, coal, uranium, gold, fresh water. There is a relatively small amount of high quality, inexpensive-to-extract resources, and we tend to extract those first. From there, we move to lower quality resources that are more expensive to extract. The question comes: How do we reach limits for the extraction of any of the resources?
I recently explained what I think is happening with oil, as we are extracting lower and lower quality resources, in my article Oil Limits, Recession, and Bumping Against the Growth Ceiling . High oil prices are squeezing the economy, leading to recession. I think this squeeze may ultimately lead to serious financial problems and reduced oil production.
Shale gas is very low on the resource triangle light weight travel accessories for natural gas, at least according to Stephen Holditch , in a paper authored light weight travel accessories under the Distinguished light weight travel accessories Author Series light weight travel accessories of the Society of Petroleum Engineers. It has even lower permeability (measured in millidarcies or md) than tight gas or coal bed methane.
It seems to me that in the United States we are, or will soon be, reaching a different kind of squeeze at the bottom of the triangle for natural gas the squeeze of too low prices for shale gas producers to be profitable. light weight travel accessories If, somehow, natural gas prices do manage to rise sufficiently for the majority of shale gas producers to be profitable, the higher prices are likely to add to the oil s high price squeeze on the economy that I noted in my earlier post .
In this post, I will explain what I see as happening with US natural gas supply and prices, and how this fits in with the natural gas supply controversy we have been reading about in the press recently.
As we move toward more and more difficult to extract natural gas, located in less advantageous locations (next to cities, for example, as compared to in a location with few neighbors) I would expect light weight travel accessories the cost of extraction to get higher. This higher cost may relate to indirect costs related to extra precautions for protecting the environment in sensitive locations as well as direct costs of extraction.
We know that if we look at US natural gas extraction, light weight travel accessories the cost per foot drilled rose more than four-fold between 2000 and 2007 (Figure 3), based on EIA data. At least part of the reason for this increase in cost is the greater use of fracking, light weight travel accessories which is very expensive.
In Figure 3, the amounts shown are averages for all types of natural gas wells drilled, including those that use little fracking as well as those that use a lot. Shale gas wells use a great deal of fracking, so would be expected to have higher costs than the average per foot drilled. (This is not complete proof that shale gas costs are higher, of course. If the fracked shale gas wells are extremely efficient, the benefit of the new wells could theoretically offset their higher cost.)
2. Part of the current shale gas controversy relates to how high the price of natural gas needs to be for shale gas to be profitable; part of the controversy relates to how much natural light weight travel accessories gas can be extracted from a given acreage.
There is a great deal of estimation that goes into figuring how profitable shale gas production will be. When a well is drilled, the producer hopes it will continue to produce natural gas for a very long time 30 or 40 years. One question is whether wells will really last that long, and continue to produce enough natural gas to remain economic. Another is whether it is possible to extrapolate favorable results for a few small areas to the entire acreage. It could be that the shale gas is concentrated light weight travel accessories in sweet spots, and these are drilled first.
A recent analysis by Art Berman light weight travel accessories and Lynn Pittinger is given in this recent Oil Drum post . According to their calculations, reserves in the aggregate appear to be overstated by more than 100% (suggesting that there is less than half as much natural gas per acre recoverable as what most operators are expecting), and the price needs to be more than double today s price, for shale gas to be profitable.
With oil prices, we are used to oil prices rising, as oil gets harder and harder to extract. light weight travel accessories This occurs because there is an international market for oil, and so a shortage of oil leads to higher prices for oil, enabling the extraction of lower quality resources (at least until recession sets in, and lowers price, in my view).
Natural gas prices rise when there is a local shortage (1973-1983 and 2000-2008). But once the amount of gas extracted exceeds the amount that the market requires, prices drop sharply. Prices have been low, roughly in the $4 per thousand cubic feet (abbreviated mcf, where M is the Roman numeral for thousand) range, for about three years now since late 2008. These low prices are what one would expect when there is an oversupply of natural gas.
The reason why prices drop when there is even a small oversupply of natural gas is because natural gas is difficult to store and transport. Once available storage light weight travel accessories space is full, there is no place to put the extra natural gas, and so prices can go to $0. Also, it is impossible to ship natural gas to buyers elsewhere in the world unless pipelines or liquified natural gas (LNG) facilities have been built in advance.
Furthermore, shipping natural gas is expensive. For example, one estimate for shipping light weight travel accessories natural gas by pipeline from Alaska to the 48 states was $2/mcf. If the selling price in the $48 states is only $4/mcf, the high shipping cost means that a producer in Alaska must produce gas for less than $2 /mcf, in order to make a profit, something that would be virtually impossible for most producers to do. Thus, high shipping costs can make long-distrance transport not feasible, unless a high price can be guaranteed in the receiving location, over the long term.
4. There is an un-level playing field in the cost of production of natural gas. The way costs are allocated, some producers can produce natural gas for practically nothing, while the cost of production light weight travel accessories is much higher for producers who must fully cover their true costs of production.
With oil, where there is a well-developed international market, we often hear, The Easy Oil is Gone. Oil companies sought out the cheap-to-extract oil first, and it is generally not available for new extraction. There may be some oil companies that are still extracting cheap oil, but if those companies want to find new resources, they pretty much have to go after expensive-to-extract oil.
With natural gas, the situation is different. Natural gas can be produced (1) virtually on its own, as with most shale gas production, or (2) almost as a bi-product of the extraction light weight travel accessories of oil in an oil field, or of natural gas liquids, in liquids-rich fields . When natural gas is produced light weight travel accessories as a bi-product, producers are often happy with a very low price, since the high price of the oil or natural gas liquids makes extraction profitable overall. Thus, some of today s natural gas producers are happy with a $4/ mcf price.
The price of natural gas now is around $4 /mcf, which is low in relationship to the price of oil. The usual conversion factor (based on equivalent heat energy) makes $ 4 /mcf gas is equivalent to $24 barrel oil, but in my view this is too low. Natural gas is harder to transport and has more distribution costs after it is extracted, so $4 gas is probably more equivalent to $40 barrel oil. But if West Teas Intermediate oil is at $85 a barrel light weight travel accessories and Brent is at $110 / barrel, the US natural gas price is still very low in comparison, no matter what conversion is used.
The United light weight travel accessories States Geological Surveys (USGS) recently light weight travel accessories issued a report on the Marcellus Shale (covering a large part of Pennsylvania, New York, West Virginia, and Tennessee). The USGS said that based on its evaluation , the Marcellus Shale has 89 trillion cubic feet of mean undiscovered natural gas resources. These resources light weight travel accessories are estimated to be technically recoverable, using currently available technology, but without consideration of price or accessibility or regulatory issues. Actual recoveries are expected to be lower, because some gas will be inaccessible, and because prices may not rise to a high enough level for some extraction.
The new USGS estimate is much higher than its previous estimate of 2 trillion cubic feet of mean undiscoverable resources, but it is not as high as the US Energy Information Administration (EIA) has been using in its estimates of resources available. The EIA had been using information from industry sources to base it future production estimates on. It is now saying that it will use the new USGS estimates in its model, light weight travel accessories and will sharply downgrade its estimates.
Some estimates in newspapers have claimed that the United States has 100 years of natural gas available. These estimates are based on reports of the Potential Gas Committee and the American Clean Skies Foundation . The Potential Gas Committee gives an estimate of recoverable resources for the Atlantic Region of 353 trillion cubic feet . This is about four times as much as the current USGS estimates for the Marcellus Shale, which would appear to cover a similar region.
We can t know without actually doing the extraction light weight travel accessories how the amounts will actually work out, but this comparison indicates the range of estimates that researchers evaluating resources are coming up with.
What has happened is that over time, industrial use has dropped, partly because of the high price of natural gas in this country, and partly because manufacturing has been moving overseas, where labor is cheaper. Electrical use has risen to offset declining industrial use. Residential and commercial use (both of which are mostly space heating and water heating) have remained light weight travel accessories virtually flat. Vehicular use of natural gas is so small as to be invisible.
Electrical use is probably the easiest way to add use of natural gas, since building gas-fired power plants is relatively quick and inexpensive, and since co