No Cornucopia of Gas

Guest post by David Archibald

It would be churlish to not share Ric Werne’s joy over a lower gas bill. That said, I believe his post “Cheap Natural Gas, but wait – there’s more” is misleading. Let’s see what the charts say. First of all, the natural gas price itself:

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Figure 1: Energy Information Administration (EIA) Henry Hub Spot Prices

The natural gas price bottomed in April this year at just under $2.00/MMBtu and is now $3.40/MMBtu. That is an increase of 70% from the low. More is needed because the average price to give a 10% rate of return in $4.50/MCF (1 MMBtu is very close to 1 MCF) as shown in Figure 2.

clip_image004Figure 2: US Shale Supply Cost Curve

Most of potential US shale gas production is uneconomic at the current price. So why are shale gas wells still being drilled? A lot of acreage is “held by production” in which a well on the lease has to be brought into production in a certain period or otherwise it goes back to the mineral lease owner. The number of rigs drilling for gas is now down to one third of what it was at the peak four years ago.

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Figure 3: US Rig Count 1987 – 2012

There were about 700 drilling rigs operating in the US a decade ago. That has almost tripled with most of the rigs looking for oil. So with the number of rigs drilling for gas continuing to drop, that will eventually be reflected in natural gas production. How that works is illustrated by Figure 4.

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Figure 4: Steepening Decline Curves in Natural Gas Production

Back in 2000, the wells in production had a 23% decline over the following year. Now the decline rate is 32%. The treadmill has speeded up. To get a longer term perspective, let’s go back to the gas price.

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Figure 5: US Natural Gas Price 1987 – 2012

Traditionally, the US natural gas price traded in line with the No 2 Fuel Oil price in energy equivalent terms, so the gas price tracked along with the oil price. If that still held true and with a barrel of oil being equivalent to 6,000 cubic feet of gas, the current oil price of $89.92/bbl would equate to $15/MCF. As shown in Figure 5, as the oil price started rising last decade, the gas price rose along with it until the “Shale Gale” hit. The relationship between gas production, gas price and rig count is shown in the Figure 6.

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Figure 6: US Natural Gas Production, Gas Price and Rig Count 1987 – 2012

Rig count and gas price are closely coupled. There is a considerable lag from drilling to production. Drilling activity started rising in 2000 but production declined to 2005. Conventional gas production has continued to decline and the rise in production over the last six years has been due to shale gas.

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Figure 7: Rig Count versus Gas Price 2005 – 2012

If we plot gas price relative to rig count, there is a strong correlation. All this is telling us is that higher gas prices draw in more rigs. It is a lagging indicator, like carbon dioxide in climate. High gas prices are the seed of their own destruction.

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Figure 8: Production and Gas Price 2005 – 2012

Figure 8 has some predictive ability. For gas prices to rise to the price at which US shale gas on average is economic, production has to fall to about 1,700 billion cubic feet per month from the current level of about 2,000 billion cubic feet per month.

I expect prices and production to seesaw until an equilibrium is reached. Excluding the effect of liquids content, the US shale gas industry will be characterised by profitless prosperity – the majority of players will eventually get a 10%-odd rate of return on being in the business.

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Steve R

Not sure if the point you are making is that prices will be rising or that supplies of gas are limited. The headline doesn’t seem to match the concision.

They probably can’t stop drilling. Investors put a lot of money into them on the basis of fracking enhanced production which dropping off and while production is a bit high, they need more activity to keep the money invested in.

Matt

I don’t see either a point or a conclusion.
There is nothing in this post that shows that existing shale gas wells are un-profitable. As long as they are bringing in more than their operating costs in revenue they will be profitable and have a positive ROI.
A positive ROI < 10% does not make something uneconomical. To be uneconomical ROI must be less than or equal to 0

I haven’t read this too closely, the dog is expecting a walk, but one quick note:
One thing to keep in mind is that oil wells often produce a lot of natural gas. I suspect that’s especially true with oil shales, but that’s getting well beyond my expertise. US oil production has started increasing and will continue, so estimates of the collateral natural gas should be added to any oil discussion.

Coach Springer

Yes, by all means. There is hope for the fossilf fuel is evil crowd and they will use it. Just add to the costs of production.

LearDog

While there is indeed a lot of commitment drilling and trickle production going on, there is also the volume of associated gas that comes with the new Tight Liquids plays (Eagle Ford and Bakken). The liquids production will also continue to affect gas supply.

eugene w landy

What nonesense. Oil and gas are eventually interchangeable. You cant have $85 oil and $3 gas.So production doesnt have to fall for gas to rise. Gas will rise because its much cheaper on an energy equivalent basis.

FergalR

Typo in the title; it should read “Cornucopia of Gas”.

Nick P

Matt says: “A positive ROI < 10% does not make something uneconomical. To be uneconomical ROI must be less than or equal to 0"
Just to be pedantic: it's uneconomical if the ROI is less than the risk-free rate of return in the economy (which is near 0% right now because of federal reserve actions).

I think you need to be more specific about ‘Rig Count’.
In Fig 3, you make clear that you can separate out Gas Rigs and Oil Rigs in the count.
Figure 7 only makes sense if your Rig Count is Gas Rigs. looking at the data, it probably is, but it should say so. I would also color or shape the points based before or after 1/1/2008.
Figure 7 and 8 work better if Gas Price is on the same axis.
It might be interesting to plot Gas Rig Count against the 1 year Gas Futures price.
On Fig 5, plot 1 year Gas Future price as a separate series on the Gas Price (Henry Hub Spot).

Ian W

This is called ‘Market Forces 101’. The gas became more plentiful so the price dropped as did the huge profits. Eventually, the price drops far enough and supplies seem secure enough more people purchase the gas or build gas fired generating facilities. This takes time. Therefore, initially there is a slight glut and prices fall, then the elastic demand bounces back and prices rise. Then eventually the base load power generation starts using the gas and the price starts to stabilize.
This is nothing to do with the quantity of gas still in the ‘shale’ waiting to be frac’ed. There is also an international aspect which is larger in other continents where ‘conventional’ natural gas suppliers have been trying to force the price up, and now have the ground fracked away from under them. Their response to more supply will be to try to keep in the market and drop their prices making fracking less attractive – although not unprofitable. Again this will reach a balance point and has nothing to do with the amount of gas available.

wsbriggs

David is correct, but then starts excluding the liquids from the equation. That/s precisely what’s got people so excited about Eagle-Ford and several other plays, there’s a lot of paraffin holding liquids along with the gas. There is so much, that the gas is almost free.
We need to be careful when talking about energy production. The qualities of the well contents are critical – there’s a reason why Brent crude has a premium over Saudi, or West Texas Intermediate, and that’s the content. With gas it’s the same thing. All gas wells are not the same, thus the cost of production versus sale price varies a lot. Gas only plays are uninteresting, gas and liquids, much more interesting.
The Bakken Shale and others are oil plays, not gas. Since we import oil, this will have a much larger impact on our energy consumption than the gas has. We all can see what cheap gas has done, imagine the impact of much cheaper oil due to vast supplies. We’ll go through the shale oil, then take that technology and work through the tar sands. Baring political interference, there will be reasonably priced oil for hundreds of years.
That having been said, I’d prefer to use oil in recyclable products and get my power from electricity via low residue fission reactions. Directly generated inexpensive electricity is way more helpful than other types. I don’t see solar, geothermal, tidal, hydroelectric, wind, or any other currently existing technology delivering anywhere near the clean, safe, energy as LRFR for anywhere near the price.

Matt C

Figure 4 is the key. The US is gambling very heavily on natural gas. I see a very dangerous cost increase in the near future and with the shackles we’ve put on the coal industry, expect to see significant, economy crippling increases in the price of electricity. Solar and wind will not save us. Hug a coal or uranium miner.

John Garrett

Dear Mr. Archibold,
I am delighted to see this article. As a professional energy industry investment researcher and lifelong student of energy and investing, my antennæ are extremely sensitive to instances of “Extraordinary Popular Delusions and The Madness of Crowds.”
Thanks to blaring media and Wall Street, it has become a universally accepted “truth” that natural gas supply in the U.S. is now infinite, inexpensive and unlimited.
The experience of a lifetime has taught me that when everybody believes something to be true, it’s time to be wary and proceed cautiously because ” ’tain’t necessarily so.”

Doug

I get really tired of two types of chicken littles: The peak oil crowd and the catastrophic AGW crowd. Fortunately, while the peak oil people continue to bluster themselves blue in the face, the industry just keeps finding more production, and the costs of the new applications keeps coming down. Sure, gas is not profittable at $2.00 an mcf, but where it once took $8.00 gas to make a profit from a horizontal shale well with multi stage fracs, it now takes $4.00. Thoses idle rigs will drive down drilling costs and lower those numbers some more. But wait-there’s more-
The liquid rich plays such as Eagle Ford and Utica produce at very high gas to liquid ratios. There will be pressure on the gas market with associated gas sold as a virtual by-product.
But wait-there’s more. Staggering quantities of gas are being found all over the world–the NW shelf of Australia, Mozambique, Turkmenistan. These are huge finds which can and will support huge LNG facilities. Then there is the fact that while organic rich shales are all over the world, there has been very limited production from them outside of the US. That will be changing soon. The world wide gas market will be well supplied, and the threat of our domestic gas price being driven up due to exports is over blown.
If only the the CAGW people could be proven wrong so quickly and thoroughly.

G. Karst

Can someone explain the intense feeling of schadenfreude. I feel, when I begin to hear of shortages and price increases due to self inflicted scarcity.
http://www.bbc.co.uk/news/world-us-canada-19853740
It all seems so much “reaping what you sow”… I guess. GK

Chilli

Have the price graphs been adjusted for inflation? Especially important in the age of currency debasement via ‘quantitative easing’ ( aka money printing ). The graphs suggest the dollar cost of natural gas today is the same as it was in 1987. But today’s dollar would only be worth 50cents in 1987.

wayne

This is why the Saudis know very well that the real price of oil is just about $35 boe. With a thousand years of gas reserves in place guess what? You do the math.

A lot of base load coal power has been supplanted by gas – coal down from 52%
to 33% of power produced in the U.S. last time I saw any stats. Also one of reasons CO2 down 7%
last few years. Short sighted, now that fast reactors (Generation 4 reactors) are beginning to reach the stage of commercial deployment, beginning with Russia’s Rosatom and their BREST version (one of five architectures being developed by multi-nation consortiums). In essence, a fast reactor has no fuel supply concerns, now or ever. And the fuel costs for running such a reactor are practically zilch. Since these reactors are inherently safe, can burn our nuclear wastes,
producing easily handled wastes, are a barrier against proliferation,and have proven more reliable and cost effective than conventional reactors, utilities would find these very attractive alternatives to either coal or gas for their base load power. I predict that they will have the option of buying these BREST reactors within 5 to 7 years. It would be helpful to have an administration intelligent enough to get behind this technology in a PR, educational fashion, to convince the public of its many advantages.

Guest post by David Archibald

It would be churlish to not share Ric Werne’s [sic] joy over a lower gas bill. That said, I believe his post “Cheap Natural Gas, but wait – there’s more” is misleading.

Misleading? I certain never intend to mislead except maybe an occasional troll. Misinformed, might be a better word, after all I’m a bit pusher, not a BTU pusher.
Lessee, from each section:
2012 FPO price $0.6919/therm. Fact, though I think I recycled the letter. BTW, that’s $6.92 per MMBtu, so the local utility sure isn’t getting any of that current $3.40/MMBtu. At some point another 50% drop just isn’t like that first 50% drop from 2009’s $1.2835/therm.
New businesses and jobs in the US? Well, if “500,000 New US Jobs By 2025” doesn’t happen, I’ll go visit Pierre. It’s only a few months’ job creation, but those jobs should spawn more jobs too.
Exporting LNG? danj said we’re exporting LNG now.
Domestic trucks running on LNG? I confess I haven’t seen either truck nor filling station, but New Hampshire is not on the major trucking routes. It doesn’t even get cold enough here to not need refrigeration to make LNG. But you knew that.
That leaves that Harvard discussion paper. While it’s focus is on oil (the title is Oil: The Next Revolution, it does make a number of references to the gas industry. In fact, given all the different plays it mentions, that’s likely the best example of a cornucopia of oil and gas fields in North America.
Thanks for hunting down better graphs of things like the US Natural Gas price. I would have but kept finding more topics to mention.
Oh – “If we plot gas price relative to rig count, there is a strong correlation.” A correlation of R^2 = 0.6083 is strong? Maybe you need to smooth the price curve a bit, but that would be misleading. 🙂

gregole

Thanks for the stats and facts David. I have been following the latest energy boom and another thing to keep in mind is economic contribution to individuals – increased employment for workers, engineers, geologists, et al, as well as increased personal wealth generation for investors, land owners, municipalities et al.
http://www.aei-ideas.org/2012/10/amazing-north-dakota-energy-facts/
It is all good. Compare to the pathetic contribution to our economy and energy generation as promoted by our current federal administration under Chu and Obama – investing public monies in nonsense like Solyndra while preventing energy extraction and slowing and stopping pipeline and infrastructure development (Keystone).

Richard lewis

… can’t wait for the methane hydrate wells to come in. The world is afloat on a sea of methane.

Jeff L

The data presented here strongly supports is that there are strong & visible market forces between supply & demand at play in the natural gas market. The market was initially (in the mid 2000s) under supplied, prices were high so drilling increased to match that demand. Then, the market became over-supplied (late 2000s , partially due to the overall recession, partially due improved technology chasing shale gas plays) & prices fell in reaction to over supply. So, the drilling slowed down to reduce supply & get supply back in line with demand & now prices are responding to that by coming back up again. This is a beautiful & classic case of economics 101.
As such, the data argues there is no real constraint on the supply side of the equation at this point in time – the industry can supply what ever the economy demands. It is really the demand side of the equation driving the boat & the supply side simply reacts to that. Thus, the title of the article should drop the “No” & simply be “cornucopia of gas” because the data present suggests we currently can supply any amount of gas the demand the economy currently has.

pochas

If the ITER folks can meet their goal, (500 MW ouput for 50 MW input) the long-term future becomes a little less certain.

The fracking revolution (or more precisly the revolution in horizontal drilling + fracking) deserves to be an 11th chapter in the excellent book, The Doomsday Myth: 10,000 Years of Economic Crisis I first read this book back in 1985. It is a great rejoinder to the Club of Rome’s thesis. The authors, Texas A&M professors Charles Maurice and Charles Smithson, describe 10 episodes in human history where we were running out of a precious resource. Changes in “price” and “technology” quenched each crisis. Some chapters I remember:
Flint for arrow heads.
Bronze (my favorite, see below), we learn to work iron.
Greeks changed ship construction because of a shortage of wood.
We were running out of trees for heating. Enter coal.
We were running out of trees for railroads. Enter better engineering and creosote.
We were running out of oil (from whales). Come Pennsylvania.
Rubber from trees.
Running out of food. Green revolution.
1970’s oil crisis. Let price rise. Drill in deeper waters, far away places, build tankers.
The Bronze story, as I said was my favorite. At the end of the Bronze Age, iron was a known metal, but it was quite expensive. Archeologist have found silver rings with iron wire as orimentation, like we use diamonds. Bronze is a mix of copper and tin. Copper was local to Greece, but tin needed to be imported. The Phonecian pirates put a crimp in tin shipments for about 80 years. In that time the price of Bronze went up, Bronze recycling became common place, and metal smiths looked for alternatives. They found ways to smelt and work iron. In those 80 years, the price of iron relative to bronze dropped by a factor of 10,000. Thus began the Iron Age.
The book is a good read. Free Minds and Free Markets when combined give off great power.

There are two possible issues with the blog.
1) Technological change is happening very fast in the oil industry. In the last 5 years, the length of “horizontal” productive “leg” of wells has gone up by at least 50% (longer horizontals mean more gas produced per well and lower cost). The completion technology is improving tremendously (lowers the cost of producing a unit of hydrocarbons a barrel of oil or mcf of natural gas). Frac companies continue to compete by developing the best method of fracing a well for the least cost. I believe that frac effectiveness as measured by the resultant gas production has improved 10 to 50 percent over the last 5 years depending on the basin. There are a few other technologies that have been developed. Some of them have increased the speed that a drilling rig can drill such that the average rig in the United States now drills quite a bit faster than it did even 5 years ago. Other technologies have improved the ability to log the well while drilling. In other words, a drilling rig can determine much information about the composition of the rock while they are drilling. Other technologies have been developed to determine how effective a well frac is working while the well is being frac’d from the surface. This helps them determine if any changes need to be made almost real time. I’ve only mentioned the highlights of the changes in technology.
2) Initially, after fracking a well, the well produces back the frac fluid (cleaning up) then begins producing. After a couple weeks to a month after a well is fracked, the well will probably be able to produce at it’s maximum rate. If the well is produced at the maximum rate, the amount of hydrocarbons will decline fairly rapidly initially with a hyperbolic decline curve which will likely transition over time to an exponential decline. After about 2 or 3 years, the well will be producing at a low rate. After which time, the well will decline much more slowly until eventually, after 10 to 30 years, the well will not be producing sufficient hydrocarbons to pay the cost of operating the well. It will have reached it’s economic limit and will be plugged and abandoned. But some wells are not produced at the maximum rate. There is a lot of evidence that ultimately wells in some basins will produce more hydrocarbons if they are produced initially at a much lower rate than they are capable of. The slower production prevents both natural fractures and induced fractures from the frac treatment within the rock from closing as the gas pressure in the reserve declines. This allows hydrocarbons from farther away to move towards the well bore. But once the fractures close, hydrocarbons from farther away have difficulty moving towards the well. Another reason to produce at a much slower rate is because natural gas prices are low and many operators think the prices will increase in the future. Changing the production regime in order to increase ultimate production or to produce slower due to low current gas prices possibly have biased some of the gas production curves above.
Finally, due to how new drilling large numbers of wells in shale really is, and due to initial hyperbolic decline rates of new wells, companies have to continue to drill many wells to keep up with the declines of older wells and increase production. However, if they maintain drilling long enough, many of the older wells are in a slower exponential decline and the overall decline rate of the wells a company has will be less.

Matt

@Nick P.
There is no such thing as risk free ROI. Even government bonds cary risk. The risk may be very small, but it is non-zero.

RockyRoad

wsbriggs says:
October 6, 2012 at 7:40 am

That having been said, I’d prefer to use oil in recyclable products and get my power from electricity via low residue fission reactions. Directly generated inexpensive electricity is way more helpful than other types. I don’t see solar, geothermal, tidal, hydroelectric, wind, or any other currently existing technology delivering anywhere near the clean, safe, energy as LRFR for anywhere near the price.

Another up-and-coming technology is LENR, for which there has been two patents recently awarded, the first from the US Patent Office:
http://www.e-catworld.com/2012/09/does-george-miley-have-the-first-uspto-awarded-patent-for-cold-fusion/
And the second from the Patent Office of China:
http://andrearossiecat.com/andrea-rossi/granted-patents-for-lenr-related-works
It is disturbing that the US Patent Office rejected this patent application, giving some lame excuses why it couldn’t be accepted. However, their opposition won’t stop world-wide acceptance and utilization of this paradigm-shifting energy technology, which has the promise to exceed all others.

Ever since construction crashed here in California I’ve been trading for a living and the first thing I learned (and the tuition was expensive) was that price generally has very little to do with fundamentals when talking about periods less than a year or so. The saying “The market can remain irrational longer than you can stay solvent” exists simply because fundamentals matter so little when trading the market.
The natural gas market isn’t something I trade but a quick look at the futures chart suggests to me that while we’ve been in an uptrend since April the longer term trend is actually down. In fact, just earlier this week on Tuesday that the market hit a price target for the uptrend and also hit a price where I would expect prices to turn back down. The price target for the next move down is $1.169/MMBtu.
http://i81.photobucket.com/albums/j201/bobbyj0708/NaturalGasFutures.png
Will this happen? I don’t know. A break above $3.8/MMBtu and all bets are off but it will be interesting to see how it plays out. Regardless, my point is that looking at price trends over shorter periods and attributing them to fundamentals isn’t the correct way of projecting future prices.

DR

NG prices are going up, no two ways about it. The euphoria has ended.
The EPA is going to crack down on fracking which will cause NG prices to skyrocket, and since ObaMao has effectively killed the coal industry, consumers will pay this COLD winter.
.

Winter Hawk

Figure 4, Steepening Decline Curves in Natural Gas Production is a compilation of only shale gas reservoirs, conventional gas reservoirs, or all gas reservoirs? Does it imply that gas wells completed in 2000 had initial annual declines of only 23% compared to 32% presently, due to variance between conventional and shale reservoir plays, or fracking technology? What are units of the left hand scale?
Each individual gas well has a unique rate of decline. By combining all U.S. conventional and shale gas production into one decline graph, is David attempting to illustrate shale gas reservoirs dominate the present volume of gas produced, but have a shorter life span? This was an asumption from “the treadmill is speeding up.”

Billy

The sky is falling! The sky is falling!
We need more research on the compulsive need for academics to worry about everyone else’s problems. Real or imagined.

Mike McMillan

Nick P says: October 6, 2012 at 7:02 am
Matt says: “A positive ROI < 10% does not make something uneconomical. To be uneconomical ROI must be less than or equal to 0"
Just to be pedantic: it's uneconomical if the ROI is less than the risk-free rate of return in the economy (which is near 0% right now because of federal reserve actions).

Fed Reserve actions in printing money have driven the risk-free return on investment negative due to the inevitable inflation.

pochas says October 6, 2012 at 9:03 am
If the ITER folks can meet their goal, (500 MW ouput for 50 MW input) the long-term future becomes a little less certain.

500 MW thermal; figures to be what – somewhere around 200 MWe (electrical) then? The size of a good-sized ‘peaker’ electrical plant.
1 MW (thermal) ECAT COP minimum of 6 (for safety reasons; assures positive control) and these devices are in production stage and can be installed at or on any given industrial site (property) … should be a boon to those users who need to bulk-heat water for industrial purposes until the hot ECAT allows direct generation of electricity with 600C steam generation in the future, and again in any local industrial location without special imposing ‘nuclear’ regulations.
.

Don’t tell me you rather want nuclear

Steve R

1. Mineral Leases generally are for a specific period of time. If the company that leased the rights does not drill, the lease expires and the mineral rights holder is free to sign with someone else. But many of the leases made were relatively cheap, made at time when no one had a clue how much gas was there. If they are not drilled now, the leases will be expensive to re-aquire. Bottom line-it favors drilling even though prices are low.
2. Natural gas is not convenient to store much less so than oil anyway. It needs to move to market quickly for it to be profitable. Same could be said of oil, but much less so. Bottom line-spot gas prices can fluctuate wildly.
3. At present, nat gas operators are drowning in their own success. Rig counts are falling, finally, which is good for prices, and eventually demand will pick up as new and clever uses of the resource are developed.
4. Contrary to the headline title, there really is a cornucopia of gas. If a clever way can be developed to utilize it as a transportation fuel we will be looking at a HUGE improvement to our nations balance sheet. But we need something more clever than compressed or liquified gas tanks for our vehicles. Maybe a smart chemical engineer can figure a way to combine coal + methane to make a high quality refinery feedstock about the weight of iso-octane?

RockyRoad says:
October 6, 2012 at 9:23 am

Another up-and-coming technology is LENR, for which there has been two patents recently awarded, the first from the US Patent Office:
http://www.e-catworld.com/2012/09/does-george-miley-have-the-first-uspto-awarded-patent-for-cold-fusion/
And the second from the Patent Office of China:
http://andrearossiecat.com/andrea-rossi/granted-patents-for-lenr-related-works
It is disturbing that the US Patent Office rejected this patent application, giving some lame excuses why it couldn’t be accepted.

I don’t want to hijack this post, and I’m sure Anthony would wish we’d not talk about LENR, but the impression I got was that the patent didn’t disclose the invention in adequate detail. At least, from the discussion I saw, I couldn’t figure out what it was disclosing.
I’m not surprised Rossi has gotten distracted with the hot CAT, but he’s kept numbers close to his chest, so not yet time to mention it here except in passing. Interesting things in the works on many fronts.

Steve R

Oh. And regarding the eventual 10% return on investment…this is probably about right, once the risks involved in a particular play are ironed out, the E&P companies are free to spin off the reserves using a Master Limited Partnership structure or similar entity with a pass-thru taxable structure. These kind of investments are very tax efficient and can be a very lucrative means to develop low risk resources.

pochas

_Jim says:
October 6, 2012 at 11:17 am
“1 MW (thermal) ECAT COP minimum of 6 (for safety reasons; assures positive control) and these devices are in production stage and can be installed at or on any given industrial site (property) … should be a boon to those users who need to bulk-heat water for industrial purposes until the hot ECAT allows direct generation of electricity with 600C steam generation in the future, and again in any local industrial location without special imposing ‘nuclear’ regulations.”
I’m still in the wait-and-see stage with ECAT. Violates too many of my firmly held superstitions as re room temperature nuclear reactions. I put the putative energy gain to the device outputting low quality steam (steam with entrained water), which would inflate any energy measurement based on steam flow. With ECAT, calorimetry is unacceptably rudimentary.

bones

Winter Hawk: Leaving aside the question of units for Fig. 4, I believe that the increasing decline rates of existing wells reflects the increasing portion of gas production from shale reservoirs. They generally decline by 60-70% from their initial rates during their first year. A predictable result is that a cessation of drilling would be followed by a rapid decline. We saw this with the oil price collapse in 1986. Companies with production from tight, high initial decline rate wells could maintain stable production year after year as long as they could keep drilling new wells. That ended with the price collapse and many bankruptcies quickly followed. Oil production from the Bakken formation may be maintained at its present 600-700 thousand barrels per day as long as new drilling continues, but if oil prices drop below about $70 per barrel, there will be a rapid decline.

Resourceguy

Okay, this is a better energy post than most I’ve seen at this site. There is a problem though in the misrepresentation of the accelerated rate of decline in gas wells compared to 10 years ago in Figure 4. This and productivity improvements in the drilling process are ignored. These issues add up to a problem for the average reader but thankfully the summary of the post is basically correct in that the gas glut will be with us for some time in combination with volatility and less than stellar rates of return for investors. I suppose those lowered expectations for investor return now reflect the low risk of drilling in shale plays. On the issue of accelerated decline rate of wells, keep in mind that the production profile of the median shale gas well has shifted up at all points on the profile compared to the early stages of shale gas extraction plays. Longer laterals of wells and more frac stages in the average well and cost reductions for the average gas well including average days to complete a well suggest movement in the break even point and ROR for wells. The supply issue for shale gas wells is that there may be some large rates of decline in the first six months of production but the long-run production in the flatter part of the profile is still interesting and does not represent a crossing of the old and new profile curves. The conclusion for the non-expert is that the initial decline rates of enhanced shale gas wells does not mean they will go quickly into dormant, non-productive status. While the many uses of cheap gas will expand demand in areas including LNG exports, accelerated conversion from coal base load electricity to gas base load, and other consumption changes, we will be seeing generally low gas prices and abundant supply for some more years than producers would like. There are a lot of shut in wells and a lot of long-life wells that only the industry appears to understand at this point. Meanwhile the oil shale drilling is pushing more byproduct gas onto the market and this will get worse as pipelines are added to new oil shale-producing regions. These are complicated topics for web posts but I think David got to the same basic assessment of the commodity space.

Curiousgeorge

Not all natgas is found in the US. A lot of it is in various war zones, and influences strategic moves by countries around the world, including the US, China, Russia, etc. The TAPI natgas pipeline for example is a very big deal. This route is in direct competition with one proposed from Iran to supply the same market (India, Pakistan). Let’s not be too provincial, hey?
Quote:
Turkmenistan’s natural gas reserves are the fourth largest in the world according to energy giant BP, behind Russia, Iran and Qatar. The reclusive Central Asian nation is far from alone, however, in hoping to capitalize on this fact. Numerous outsiders including, but not limited to Russia, India, Pakistan, Turkey, China, the US all hold interests in the nation’s vast hydrocarbon stores. Some seek direct access to the reserves for energy purposes, while others’ interests are more subtle and strategic. We’re going to try to break down these competing interests into country-specific narratives to flesh out the importance and complexity of the game developing in and around Turkmenistan.
More: http://www.businessinsider.com/everyones-competing-for-access-to-this-countrys-natural-gas-reserves-2012-10

Something of possible interest:
http://usatoday30.usatoday.com/money/industries/energy/2011-04-05-methane-microbes-coal.htm
Also, I have seen multiple comments on several blogs about LENR. So far as I can tell, it’s a scam, not science. It’s kind of like climate change rhetoric–just hang in there another year and this thing will REALLY work out, we know it will.

kadaka (KD Knoebel)

From pochas on October 6, 2012 at 9:03 am:

If the ITER folks can meet their goal, (500 MW ouput for 50 MW input)…

Please do not write such things, as the cat perched on my shoulder gets frightened by the resulting laughter and will dig her claws in for support, even through my jacket. Ouch.

Por favor, mods and Anthony; a little leeway for a mild divergence from the present topic?

pochas says October 6, 2012 at 12:06 pm

I’m still in the wait-and …

Someone needs to ‘man up’ and write a review here on this subject; a LOT has happened the lasts couple of years on this subject including several formidable demonstrations (with actual ‘production’ grade/deliverable hardware) and a couple of actual USPTO patent grants.
Although this may not be the thread for it, I feel I must make mention of at least this item by Professor Emeritus (of physics) George H. Miley from the University of Illinois at Urbana–Champaign who reveals a working device at about the 17:55 point in the video below … he begins his report at the 5:30 point; the his slide materials can be seen in a pdf file here:

The reason I make mention of this is, I think a good many ppl are going to be caught with their (figurative) pants down on this subject; VERY little to no reporting of progress makes it into the popular press and sometimes what ‘appears’ on a variety of websites (e.g. New Energy Times, PESN etc) sometimes seems just too good to be true (if not outright outlandish) and puts many ‘off’ to further reading and investigation …
So as not to gum up this thread further, I make reference to a couple postings here:
http://wattsupwiththat.com/2012/10/02/a-review-of-thorium-energy-cheaper-than-coal-by-robert-hargraves/#comment-1102323
.

wayne

I haven’t heard any mention that — this according to what I have read and a few well hands I’ve personally spent some lengthy discussions with — drilling one well today is equivalent to drilling three or even more wells a few years ago with the new technology. Where is that multiplicity played into this articles assumptions and graphs?

Jeremy

Completely disagree. There is a cornucopia of gas at $6 per MCF in the US. We probably have at least 600 years of coal and as much as 1,000 years of natural gas. There is also absolutely no shortage of Oil at current prices – supply is practically unlimited and mainly constrained by various governments (rentier states) & heavy taxes & higher extraction costs. This is merely what we know to be accessible.
There is no more really cheap oil or gas because these fuels are essential for modern economies and demand is increasing globally even if it has stabilized in stagnant Western economies.
The peak oil doomsayers are no better than the CAGW crowd – it is total BS.

JamesD

The natural gas industry is a classic Austrian boom-bust. Until you understand that, drawing any conclusions is dangerous. The natural gas boom was caused by 2 things. First, the technological breakthrough of combining horizontal drilling with the ancient technology of fracking was a very real, massive break through. The second cause was the Federal reserve lowering interest rates to 0.25%. This kicked off the boom, whereby companies borrowed heavily and caused the massive increase in production. Prices dropped to the point that we reached a SOLVENCY problem where the well could not pay back the PRINCIPLE. This is how the market corrected the over supply. Once this price was reached, we have the classic Austrian Bust. That is where we are today. As far as decline rates, I would not draw conclusions there. When you are bankrupt, you don’t have the money to perform work overs or enhanced recovery projects. You just milk the cash instead.

Surely all this tells us is that Shale Gas is not the final answer.
When gas prices soared to painful levels, innovation brought us Shale Gas, and pulled gas prices back down.
So it would be fascinating to see if it is possible to predict how much price pain is required to trigger new innovation.
That way, when the pain point is reached, and if the new innovation is not forthcoming, then we might have a problem.

There is a planned $12 Billion LNG plant on the coast of British Columbia, for export of natural gas to Asian markets. How will that affect prices?
http://www.bcbusinessonline.ca/energy-and-resources/shell-proposes-natural-gas-plant-kitimat