US Natural Gas Potential has been Overrated

[alaskat]

Very difficult to come up with 'reserves in place' for NG, usually an educated guess! Shale has always been overrated, when NG quadruples in price it will be viable to produce some areas at a profit, shale, both oil and gas are generally very slow producers, so do not be looking for shale production to save us! Alaska will help some , when the NG pipeline comes on line.

[Satori]

the debate is talking an ugly turn

with stuff like this going on
it definitely makes me think shale gas is OVERRATED

http://blogs.ft.com/energy-source/2009/11/03/shale-gas-row-gets-nasty/

[Xenopus]

Yes, there's a lot of disagreement on this. But everyone agrees the environmental effects of shale drilling are horrible. And we're sitting right on top of Marcellus shale, so it certainly wouldn't break my heart if they decided it was not worth pursuing.

[Alecia]

Those NG commercials are really.frickin.annoying. Almost as bad as the HFCS ones.

[TheDignityofStruggle]

Never believe the hype.  There is always a caveat.  Regardless of these production decline rates, I never could quite fathom how we would be completely swapping oil for NG in an economy that was suffocating.

[gasman]

Yes, there's a lot of disagreement on this. But everyone agrees the environmental effects of shale drilling are horrible. And we're sitting right on top of Marcellus shale, so it certainly wouldn't break my heart if they decided it was not worth pursuing.

Unconventional gas relies heavily on frac-ing (fracking). I watched this this documentary on the impact of the process and I honestly must say it made me sick. It paints a sincerely horrifying look at the consequences of the chemicals that are pumped in the ground along with the water that makes up "frac-ing fluid". The trailer does not even do the documentary justice in terms of how fucking sad and eye-opening it is. Certainly gives one pause if you are planning on buying that doomstead without the mineral rights to the land.

^{http://www.splitestate.com/}

<a href="http://www.youtube.com/v/bvT4PycSAPk&amp;ap=%2526fmt%3D18&amp;rel=0" target="_blank">http://www.youtube.com/v/bvT4PycSAPk&amp;ap=%2526fmt%3D18&amp;rel=0</a>

I am in the natural gas distribution side of the business, and I have avoided posting too much industry specific details of what my perceptions are for a number of reasons.

Let me just say that I don't think that some of the best, biggest and brightest entities on the gas distribution side of things would not have spent a mint on LNG receiving terminals and re-gassification plants if they thought tight or shale gas would solve future supply problems. I am not saying that LNG is 'the" solution, just that it wouldn't be ready to go into play if other unconventional gas was the solution. 

[gasman]

Here is an NPR story on the impact from drilling the Barnett Shale.

^{http://www.npr.org/templates/story/story.php?storyId=120043996&sc=emaf}

[shaleoh2]

Here is an NPR story on the impact from drilling the Barnett Shale.

^{http://www.npr.org/templates/story/story.php?storyId=120043996&sc=emaf}

i love your avatar: so i will definitely read your linky now

[shaleoh2]

A crucial point can be this: Pressure on the world’s oil supply chains will keep building so long as the global economy keeps expanding. Any global economic growth at all necessitates more and more oil every year. And from this relationship a very big myth needs to be straightened. A global economic  recession   will not cause the world to consume less oil than it already does; it will merely cause a slowdown in the rate at which our consumption is growing.


One of two things are required for oil consumption to drop below 86 million barrels per day: a worldwide economic   contraction       where GDP actually shrinks (something that has not happened since World War II), or a tipping point that jolts the way energy is produced and consumed (something that has not happened since the 1970’s)---use less energy more efficiently and do the research on ways to do so.


Lowering speed limits, lighter/smaller vehicles, more fuel efficient motors,


Would public initiatives urging consumers and companies to turn off their lights and use mass transit thwart the coming oil tipping point?
        Answer: 
   These measures may not completely thwart the coming tipping point, but they would certainly soften it.

           
           Turning lights off would reduce electrical power consumption in the United States. But remember that only 3 percent of electricity consumed originates from oil. Coal, nuclear, hydro and natural gas are the backbone of power generation. So by turning your lights off you are saving those primary commodities without much impact on oil consumption.

           
            Using more mass transit, however, would have a far greater impact on reducing oil consumption and softening a tipping point. Over 50 percent of the nation’s oil consumption goes to moving cars, SUVs, pickup trucks and minivans. Each one of those vehicles travels an average 12,000 miles per year, consuming about 5,700 gallons of gasoline annually.

           
             The reality is that parking a car and switching to mass transit comprises a major lifestyle shift for most people. And it’s considerably harder over the past 15 years, since there has been a major demographic migration to the suburbs, where mass transit doesn’t even exist in many cases.

           
                So a proactive exodus to mass transit is not likely under the current circumstances. It will take much higher fuel prices and government policies for people to adopt such measures. That’s when you’ll know the tipping point has arrived.


Why are gasoline prices lower in the United States than in other parts of the industrialized world?
         Answer:
The reason is simple: taxation. In places like Europe and Japan the governments have long instituted a heavy layer of taxation on gasoline to influence people’s lifestyle choices. Europe runs a lot on diesel also as a less expense.  It’s worked. People in such nations drive smaller cars and make heavier use of mass transit. The medicine has been tough over the past 20 years, but today such nations are less dependent on oil and less affected by oil price movements.

[shaleoh2]

Tipping Point:   A tipping point    is when we realize that the ways and means by which we harness energy must undergo change. While consumers and governments often complain about the high oil prices realized by OPEC and the independent oil companies, they fail to recognize that producers and suppliers need to secure a price that supports the future cost of doing business.



These contentious attempts by candle makers and oil merchants of New England to control their industry resemble the conflicts between producers, suppliers, and consumers in our energy industry today, 200 years later. In fact, it was only a matter of time before something had to give in the whale industry.



Since the dawn of the modern era, our hunt for fuel has been a frantic one, catalyzed by the insatiable needs of our energy-hungry world. If the psychologist Abraham Maslow could append on his theory of the Hierarchy of Needs, he would do well to include energy, along with such basics as food, water, and shelter, as a primary need that must be fulfilled before other, higher needs get our attention. Energy is the underlying force that has shaped our history and built our modern world, even as it makes our society work.



We live in an age when technological change is rapid and seems to touch every aspect of our lives. But the energy industry, the pace of radical change, is slowing, not speeding up.


Since the industrial age, we have made only five large-scale  “alternative”    substitutions – from wood to coal to whale oil to crude oil to natural gas to nuclear power. The only radical innovation in the entire twentieth century was nuclear power, a source of energy that most people, especially Americans, prefer not to rely on. At present there is nothing radically new on the horizon, no magic bullet that can topple the compelling utility of a primary energy source like oil.   Any truly novel solutions we do come up with will take decades to implement. Nothing is as simple as screwing in a new burner anymore.



Radically new energy substitutes to help rebalance will not come at us from outside the evolutionary cycle, as say rock oil did in 1859 and nuclear power did in 1957. Indeed, to mitigate our current oil dependency, we will have to find rebalancing solutions that come form the confines of the known energy supply chains, and yes, form within the ruts of the established evolutionary cycle.



In our thirst for whale oil,   {back to the point}    or instance, the great sperm whales were nearly slaughtered to extinction. As the whaleships  traveled longer distances in search of a more elusive catch, there must have been a sense among the experienced whalemen that and end was coming. Eventually, the resource that had once seemed so abundant could no longer be found in sufficient quantities to light the world. Somewhere, the last whale oil lamp was lit,  {and very fortunately for the whale}    and a new energy era began.  [thus a tipping point]



When do we know that things have reached a tipping point for fuel? A tipping point occurs when a primary fuel or an associated supply chain becomes substantially disadvantaged relative to other energy supply sources in a nation’s energy mix, or relative to the emergence of a completely new supply chain. Upon reaching a tipping point, governments, industries, and individuals take proactive measures to mitigate the imbalance caused by that break point, and rebalancing ensures.

That explanation sounds academic, but think of it this way: your body needs vitamin C. You get your daily dose by eating oranges, apples, and peaches. Let’s say the price of oranges started rising quickly due to sudden frost in Florida. Oranges become a substantially disadvantaged source of vitamin C. After the price of oranges rise above your threshold price point, you will probably buy more apples to compensate your vitamin needs, or substitute peaches to meet your vitamin needs, or substitute peaches even though you may need to eat a great number of apples or peaches to meet your vitamin C needs. If this happens, we can say the oranges have reached a tip point where it was necessary to take a different course of action to continue t afford the vitamin C you need.


The term “disadvantaged” has further meaning. The first thing that comes to mind when we think about fuel being disadvantaged is price. It becomes too expensive. Disadvantaged actually encompasses a broad set of possibilities, however, A fuel becomes “disadvantaged when:


1 – It becomes too expensive relative to substitutes – Price reaches a point where companies and individuals start actively seeking alternative ways of producing the same end work;


2 – Its utility to consumers becomes compromised --- uh um One example would be when society realizes that a fuel has become too dirty to continue using. Like when the fact that nobody wanted to build more nuclear power plants in the United States largely due to storage concerns for the by-product radioactive waste, {in some opinions} and the fear of disasters like Chernobyl and Three Mile Island; therefore, despite other attractive aspects of using uranium, its utility as a fuel is severely compromised, or “disadvantaged” in the eyes of the public;


3 – its secure supply can no loner be guaranteed – If a fuel can’t be available when people want to use it, then it is not of much use, especially if there are alternative ways of doing the work. Society will often pay huge premiums for security of supply. Wars in the twentieth century {yes, that’s us} demonstrated that nations that guard the interests of their society’s energy addictions are prepared to use military force;


4 -- It becomes a strategic military liability as with the history of the 33 percent advantage of using oil over, and instead of coal. A military is the least likely institution to compromise on a disadvantaged fuel.



Each nations citizens, corporations, and governments react to a tipping point in different ways, because each nation’s energy mix provides different opportunities for substitution, and each nation has a capacity to assert influence over its populous, or conduct war to secure more supply. NO one is afraid of Luxembourg going to war in the Middle East if its crude oil supply is too tight, but it’s not inconceivable for a nation like China to mandate that every urban vehicle be fitted with diesel or hybrid engines.  



Remember, it’s not necessary to play the evolutionary cycle sequentially in time; what’s important is understanding the dynamics, anticipating the changes, and predetermining the most likely outcomes. Look for the next best substitute to the disadvantaged fuel, because it will gain most in relative value. Right now since there are no “magic bullets,  coal,   natural gas,   and uranium all  look like  high – value winners. Oh yeas, and also, don’t forget the very tiny percentage that is the renewable supply chain too.


Liquefied Natural Gas, coal, uranium, and renewable energy sources will all gather value as light sweet crude oil becomes progressively encumbered by pressure and an ultimate tipping point. Nonconventional sources of petroleum products like oil sands and shales will also remain at the fore. So playing this investment space does require foresight   and monitoring of many  “pressure gauges.”


After the tipping point the emphasis changes. Consumption growth for the disadvantaged fuel levels off.  Nations, companies, and individuals try to rid themselves of the dependency. The value of the energy resource asset peaks and starts declining.   The emphasis now shifting to rebalancing solutions and other substitute resources. Things are changing, however,   hope is still there of money to be made.


We are dependent on this multitrillion dollar global infrastructure as much as we are dependent on the petroleum that feeds the entire supply chain. Is it any wonder that   influential nations   of our world have, over the past 100 years, sought to secure and control the commodity that underpins our society??


The next tipping point could just occur on the   DEMAND SIDE, bringing changes to the way we work, live and survive. Most importantly, magic bullet could come from outside the energy complex, from places we least expect – as in life after the oil crash –  

[shaleoh2]

Low cost, large scale geological reserves of natural gas in what are called 'shale
plays' are being unlocked across North America. It’s Economics 101 in action: the
application of new process technologies is making it easy for vast quantities of
lower cost natural gas to enter our pipelines. This development has sparked a
renaissance within the natural gas business, and the availability of large quantities
of cheap, clean fuel carries profound implications for society. In the not-toodistant
future, It has been said that the belief is that natural gas will constitute a much larger share of North
America’s energy diet.  BACK TO ALBERTA AGAIN.



The term tipping point to describe both the pressures that force the displacement of an incumbent energy source and the subsequent “rebalancing”  is  very  trying  for  a new energy paradigm. An important catalyst for the end of energy overconsumption is a  conviction that the world is currently in the midst of a   point  of prodigious significance where oil, "the gold standard of energy utility"  will see its market preeminence undermined.


Signs of tippng point pressures are legion and include: the triple digit crude oil prices reached in 2008, accelerated economic growth in the populous BRIC countries, widening prevalence of legislative and fiscal measures to address assumed anthropogenic climate change, energy independence policymaking in support of renewable energy and the energy-price influenced global recession.

Historical analogues to the current  point are the shift from wood to coal with the industrial revolution and from coal to oil during the World War I. The current rebalancing of the energy mix is substantively different from historical precedents.    

With the possible exception of natural gas,    there are still no other energy sources with adequate utility to take significant market share from oil, let alone supplant it. The rebalancing underway will be effected only in part by an increase of supply from alternative sources. The cross-fertilization of information, communication and energy technologies may  promise dramatic improvement in conservation practices and energy efficiency. Telepresence technology, smart grid networks, Skype telephony and virtualization software as potential "new innovations" could dramatically change energy needs by reconfiguring the ways people live, work  and   possibly continue.

[shaleoh2]

2005
If every new car sold in the U.S. were a hybrid, starting today,
gasoline consumption in the country would finally
start to go down -- in about 10 years.


January 28, 2006
Invest in oil stocks and buy a hybrid vehicle? ??

[shaleoh2]

I'M CONFUSED  (PART I)  HMMMM/?

Date: September 28, 2009

Pop quiz: Worldwide, what’s the fastest growing primary fuel on a per capita basis?


It should come as no surprise to hear the answer is coal. Cheap and scalable, the ubiquitous black stuff is the first menu choice of nearly all industrializing economies with a growing consumption appetite. That was easy; how about the second fastest growing fuel?


You may be inclined to think the answer is crude oil, but it’s not. Think natural gas, which is on a nice uptrend right behind coal. In fact, in most regions of the world except North America there is broad acceptance for greater natural gas use in their energy over usage . So, what’s our issue?


The per capita consumption trends of each primary fuel that spans 1965 to 2008. First look at oil − though it’s the dominant fuel in our energy hunger (the typical earthling consumes an average 4.5 barrels of oil per year), the trend line has been quite stagnant and actually fell in 2008. At first blush, it’s easy to attribute the downtick in personal oil consumption to high prices followed by the credit crisis, but those factors were omnipresent for coal and natural gas too. Much insight can be distilled out, but for now the thing to note is that consumption of coal and natural gas is growing faster than population growth, independent of price and extreme business cycles.


Inspection of regional data shows that one of the few places in the world where natural gas consumption is stagnant is North America. The peoples of Asia, South America, the Middle East, and several European countries are all using more natural gas in their energy recipes as a clean-burning, scalable, efficient and abundant fuel. Yes, it’s true that there are concerns about the geopolitics of supply, primarily emanating out of Russia, but the reality is that there is an almost unlimited quantity of inexpensive natural gas globally. LNG trade is increasing every year and on top of that it’s only a matter of time before the global proliferation of shale gas technologies will diversify gas reserves and expand productive capacity to satisfy the world’s needs for many decades if not centuries.


Growth of natural gas in emerging transportation markets is intriguing and should even make oil guys wake up and smell the H2S. For example, the growth rate of natural gas vehicles (NGVs) in Asia is quite remarkable and on an exponential up trend. Last year, the Asian NGV fleet grew to 4.5 million vehicles. That doesn’t sound like much, but consider that it was only 3.0 million in 2007.


Also consider Pakistan where two million NGVs now compose a third of that country’s vehicle fleet. Of course, few are interested in Pakistan, because it’s ONLY 175 million people. Sure, China and India are the big markets to watch, but there too the numbers of NGVs are rising quickly. For example, in China, last year’s growth was 48% with 1.1% of all vehicles now being NGVs. It’s doesn’t sound like much yet, but the growth of NGVs is far faster than petroleum power, and is accelerating. We hear a lot about how oil demand will soar when hundreds of millions of people trade in their donkeys and bicycles for cars. It’s all valid concern and even we have done the math to show the looming, unsustainable trend. Nevertheless, don’t assume all these new drivers are going to be pumping gasoline. Increasingly, natural gas nozzles are being used to mobilize the millions of people getting their first driver’s license.


We often get asked if emerging economies like China and India are “leapfrogging” the rigid energy template we have built and cemented in North America. To a degree the answer is “yes”, though the leap is not as sexy as the telecom business where anxious consumers are going straight to cell phones and bypassing the need for anachronistic land lines.


Historically, the evolution of energy use for an emerging economy went like this: first begin by damming up all your rivers for hydroelectric power, then quickly migrate to coal for scale. Then, as your population starts becoming wealthier, use oil to boost your society into the world of mobility and modern amenities. Finally, as the limitations of those compelling fuels are reached, and cleaning up the environment becomes a high priority, branch out into nuclear power, natural gas and renewables.


Today, the data coming out of emerging economies is showing that hydroelectric power and coal are still the big booster fuels for bringing electricity to people and taking them out of poverty. However, natural gas is playing a much bigger role in a society’s energy evolution, much earlier than it used to. It seems that developing societies are figuring out that in ground transportation, natural gas is a viable, scalable substitute for petroleum. In power generation they understand that natural gas is clean, efficient, reliable, scalable, secure and affordable.


Why then are we in North America having such difficulty moving to more natural gas, when it has such compelling utility that others around the world are recognizing? Why, when we’re not impoverished, are we stuck on rehashing old energy paradigms, tantamount to refurbishing typewriters when the world is moving onto word processors? Of course, much of the answer lies in the fact that mature societies don’t like change and entrenched incumbents like coal and oil are very difficult to displace. Fair enough, that’s human nature and business 101; but maybe a larger part of the problem is that most people can’t even answer a simple pop quiz.    HHMMMM/?

[shaleoh2]

Date: September 21, 2009    ( I'M really CONFUSED PART II )


No birthday party is complete without balloons. Beyond livening up the venue with ornamental colour, balloons are meant to be popped. Kids love the festivity and it’s all in good fun. Also, balloons can be blown up, pinched tight at the stem, and then let go to rocket around the room in a spastic rush of air. That’s fun too, until someone loses an eye as your mother may point out; or unless you think of it in terms of the natural gas business.


It hasn’t been much of party watching shrinking natural gas sales and producing companies on the brink of bankruptcy, but in a twisted way the party may just be beginning.

Like watching an airborne balloon deflate, Canada’s conventional natural gas production is declining rapidly. Just this year we’ve lost about 1.0 Bcf/d of production (not including production that’s been shut in). Since peaking in 2006 at well over 16 Bcf/d, volumes are now down 16% or 2.5 Bcf/d.

By now everyone should know that much of the incentive to drill for natural gas in the Western Canadian Sedimentary Basin (nearly all in  Alberta)     has dried up due to high costs followed by low prices that have plagued the domestic industry for close to three years now. The dynamic is simple: if the rigs aren’t out drilling at a certain pace, the physics of the rocks take over and natural gas reserves start declining. This dynamic is irrefutable and one of the few variables that the financial markets can count on as being predictable.


But Canada’s situation is not unique. Production is now declining rapidly in high-cost, conventional geological regimes in the United States too. Back in August of 2008, the rig count in conventional US regions dropped precipitously from 800 to 200. That’s when the fingers let go of the American balloon. The “blow down” hasn’t been too noticeable up until now, because the aggressive growth of prolific, low-cost shale gas has been able to backfill what was being lost in the conventional regions. Behind the scenes it’s been an almost seamless substitution of a high cost product with a low-cost substitute, all facilitated by new technology applied on a large scale.


In fact, this gas-for-gas substitution is nothing new. Natural gas production from the US Gulf of Mexico has been on a steep decline since 2001, dropping from 14 Bcf/d back then down to about 7.0 Bcf/d this year. During that time period growing unconventional gas volumes from the onshore Barnett Shale in Texas backfilled the blow down in the Gulf almost one-for-one. But now shale gas regions have a challenge that is twice the size of the Gulf of Mexico: backfilling the 30 Bcf/d of conventional onshore production that’s now declining by an estimated 17% per year.


The billion dollar question for 2010 is whether or not unconventional gas production in now-legendary plays like the Barnett, Haynesville, Fayetteville, Woodford, Marcellus and even Canada’s Montney, to name a few, will be able to collectively respond fast enough to offset estimated conventional declines in 2010 of 5.0 Bcf/d in the US, plus another 1.0 Bcf/d in Canada. Theoretically it’s possible, but nobody likes to talk theory at a party.

Indeed, there are many practical constraints to boosting near term production including thin cash flows, stretched balance sheets, impatient bankers, tightened service industry capacity, and the strained logistics of mobilizing oilfield equipment once the price signals are convincing enough for E&P companies to spend money again.


In the long term, beyond 2010, shale gas and other largescale nonconventional gas plays will be increasingly dominant and able to offset conventional production declines. But that’s the long term. Next year, it’s quite possible that only half of the expected 6.0 Bcf/d of conventional losses in North America will be replenished. It’s a scenario that speaks to benchmark continental prices rising above $US 6.00/MMBtu again, all else being equal.

This coming winter will be interesting. A combination of colder-than-average temperatures, a gradual recovery in industrial demand and the gravitational pull of declining conventional production have a very good chance of collectively tightening up the oversupply that the natural gas industry has been living with for over a year. We give this near-term scenario at least even odds, and in part that’s why natural gas prices have been rallying recently. After all, nobody wants to miss the party.

[shaleoh2]

Clear Trend in a Fuzzy Marketplace
Date: October 19, 2009


Amidst all the negative publicity surrounding the Alberta oil sands,    the quiet reality is that production from the world’s second largest oil reserves has been on the rise lately.   Beyond the environmental issues that provoke activists to play Spiderman on upgraders, the political and economic dynamics with this significant ramp up in volume is of major consequence to Canada, the United States and the outlook for world oil prices over the next couple of years. Curiously, greater supply doesn’t mean lower prices.


Production Jumps in 2009

During 2009, oil sands output from Alberta jumped to 1.4 million barrels a day, up from an average 1.2 million barrels produced during most of 2007 and 2008. All of the incremental growth heads south to the United States, where it is readily being refined into various petroleum products. In fact, Canadian exports of crude oil to the United States, oil sands plus conventional, is now at a record level of 2.1 MMB/d.


You might ask, “ How is this pipeline push from Canada possible when US oil demand has dropped by some 2.0 MMB/d over the course of the Great Recession?” Unless it’s being stockpiled, oil sands must be taking market share away from other purveyors of oil to the United States. In fact, US imports of oil from Canada, Mexico and Venezuela, shows the latter to be the case.


A Classic Substitution


What’s really happening is a substitution. Production from Mexico and Venezuela has been declining due to lack of investment, political issues and inefficient exploration and production practices.  Canada’s remarkable backfill to the Latin American decline, which helps in part to explain how it is that the United States can absorb extra oil from Canada at the same time as their consumption has receded.


There are many contentious issues, political, economical, and environmental  especially considering that  of Canadian natural gas. Controversial consequences provide plenty of legitimate fodder for being a price bull going into 2010.


Recalling Expectations


Back in March of last year, well before the credit crisis and the Great Recession, when oil prices were accelerating toward $150/B, there was an expectation built into global supply forecasts that Alberta’s oil sands would grow to directly or indirectly contribute between 15% and 20% of the world’s go-forward, incremental oil demand. Those lofty expectations were not surprising back then, given that Canada was one of only a handful of non-OPEC countries that was meaningfully expanding its output.


Now, emerging economies are recovering quickly, China’s oil imports are at record levels again, and the question reemerges:


“Where will the world’s incremental oil needs come from?”


All else being equal, this question will amplify when OPEC spare capacity starts being called upon again, likely in the latter part of next year. Clearly, if Mexico doesn’t reverse its downward production trend, then the oil sands won’t be contributing much to the world’s net supply needs.

Here’s another thing: 18 months ago there was enough capital (and hype) in Alberta to suggest that output from the oil sands could achieve 3.0 MMB/d by 2015. The Great Recession put an end to that dream and by our estimates oil sands output is not likely to exceed much beyond 2.0 MMB/d by the middle of next decade.


Clear Trend in a Fuzzy Marketplace

Global oil markets are very complicated with a lot of fuzzy, moving parts on both the supply and demand side. But one fact that wasn’t fuzzy in oil markets before the credit crisis erupted was that the Canadian oil sands were going to be a significant net contributor to the world’s oil needs next decade. Now we’re seeing that there will be a third less coming than we originally thought, and that all the growth in oil production from the northern flanks of North America is being diverted to a spigot that’s draining at the southern end.


The price of crude oil handily pushed through $75/B again last week; it wants to go higher, and will. Oil market bulls can point to structural change in North America’s crude supply as yet another indicator that price is not likely to go down the drain soon.