<DrumBeat: November 9, 2006 The Oil Drum DrumBeat: November 10, 2006>

179 comments on The North American Red Queen: Our Natural Gas Treadmill

Comments can no longer be added to this story.

| Show without comments | PDF version

oilmanbob on November 9, 2006 - 12:44pm Permalink | Subthread | Comments top
Nate, this is a great post and a subject that needs to be addressed at length by our society. However, I'm not as discouraged by the gas situation as many folks. I'd like to take issue with a few points:
  Devon's horizontal well program is primarily in the Barnett shale. When George Mitchell figured this booger out, shale gas was generally uneconomic as well as the gas from coal bed methane. Therefore, horizonatal wells in non-conventional gas are recovering gas that would otherwise not be produced, not increasing the depletion rate of existing fields.
  Second, the increase in land drilling depths over the last 25 years has in effect doubled the amount of gas-prone sediments to be explored. Most gas is found at deeper depths than oil in conventional reservoirs, and many promising trends have not been explored sufficently at depth to rule out their gas potential. How many coastward salt domes have been explored for deep Yegua and Wilcox gas?Woodbine/  Also, and I'm not a good enough earth scientist to answer this one, does the sub-salt structural trend exist on onshore domes? Is anybody running 3D seismic on these structures? Nobody has really stepped into the Major's shoes in onshore exploration and most of the independents that are left are focused on "sure things" like Cotton Valley/Bossier and unconventional gas.
  I have no doubt that future gas will be expensive in the US, but I'm sure not willing to give up.
Bob Ebersole, aka oilmanbob
Comments can no longer be added to this story.
westexas on November 9, 2006 - 12:52pm Permalink | Subthread | Parent | Comments top
Bob makes an important point that I have made before, which is the rising fortunes of the energy producers versus the declining fortunes of the energy consumers--especically past the various peaks.  Post-peak doesn't mean the end of new reserves.  It just means that we can't replace the large, old fields.  The problem is when the angry soccer moms start rioting at the gates of the mansions of the energy producers.  

I've thought for a long time that ExxonMobil is a bigger threat to the US oil and gas industry than is Nancy Pelosi--because ExxonMobil is out there promising "Trillions of Barrels" of remaining oil reserves, plus vast natural gas reserves.  When those alleged "reserves" don't show up as production, the public--and Congress--are going to be in a very ugly and vindictive mood.

Comments can no longer be added to this story.
toilforoil on November 9, 2006 - 2:48pm Permalink | Subthread | Parent | Comments top
Westexas:  I'm not sure that I can share your viewpoint that passing peak production increases the welfare of fossil energy producers (to whom, I believe you refer) vis a vis consumers.

For the producer, the important ratio is that between production cost and sale price (profit).  Declining EROEI, barring significant and cheap technological advance, implies rising cost of production.  Rising energy production costs do not lead to more disposable income among consumers (individuals, institutions, non-energy sector industry), but to less (in the aggregate) as economic activity shifts to energy production.

At the same time, government facing the loss of revenue from individuals and non-energy sector industry negatively affected by rising energy costs, will be looking to make up the difference.  Pelosi's position to which you referred yesterday is just one expression of this inevitable tendency.

NATE:  Thanks for the post and the links.  Just a small comment about residents of the Bulkley Valley.  They don't need natural gas for heating, etc., but can use wood.  The key is in the technology.  Hi-efficiency pellet and chip furnaces produce very few emissions.  The last time I was up in that country, in the 1970's, the bee-hive burner was common and air pollution often horrible.  I believe that the bee-hive burner is only an industrial relic today.  In fact, I suspect that if every houshold, business etc changed from gas to bio-mass air pollution levels could still be reduced, as long as through incentive or regulation the wood burners (fireplaces, inefficient stoves) currently in use were shutdown.

Currently, wood pellets are shipped from the Ridley Terminal in Prince Rupert by the container load.

There is also of course geo-exchange.

Comments can no longer be added to this story.
Nate Hagens on November 9, 2006 - 3:07pm Permalink | Subthread | Parent | Comments top
I agree with that - a good friend is engaging the populace their to switch over to clean burning efficient wood stoves. But most people still use NG. IF everyone switches in next 5-8 years then I agree with you. Right now if everyone burned wood it would be a problem.

By the way - the vast majority of pellets being made in BC (and now they have enormous capacity due to pine beetle killing of pine trees), goes to europe. I dont think many residents there use pellets - though it would seem to make sense to do so.

Comments can no longer be added to this story.
obdacher on November 9, 2006 - 4:48pm Permalink | Subthread | Parent | Comments top
Net of taxes the pellet price here in Austria is higher than the heating oil price, with taxes it is about 80% of the cost of heating oil. The Austrian paper and lumber industry is resource constrained, a big reason for the wood pellet price increases over the last year. The new craze are heat pumps, at least in new homes with high insulating standards. The heating load  of a modern house  typically is less than 250 Watt per degree Kelvin. These miniscule loads make ovens or central heating with oil, gas  or wood pellets uneconomical. The electricity cost for a heat pump at the moment is about half the wood pellet cost for the season.
Comments can no longer be added to this story.
sf on November 9, 2006 - 4:44pm Permalink | Subthread | Parent | Comments top
So what is the slope of the demand curve?  Doomers say is it flat.  Tilroilfoil and others say it is fairly steep.  I'd like to see a few graphs--probably sector by sector--putting some numbers on the impacts of price on quantity demanded.  
Comments can no longer be added to this story.
mw on November 9, 2006 - 1:33pm Permalink | Subthread | Parent | Comments top
Just a reminder here in case not covered -- EnCana, one of the largest NG producers, this week announced they were cutting back their "production-growth targets" by half; moving from a long-standing 10% annual growth rate to 5% a year.

The announcement focussed on drilling in particular.

Cited reason - "Inefficiency has crept into the business as a result of having so much activity ramp up in such a short period of time."

But also:

EnCana has identified 43,000 potential drilling targets on its properties. If it sought to grow at 10 percent per year it would need to drill 6,000 wells a year, running through its inventory in seven years.

The lower growth rate would reduce annual drilling to 4,000 wells a year, a level EnCana said would mean it could operate on its existing lands for a decade before needing to add new prospects.

Perhaps they'd rather hang on to some of those targets and deliver more of the stuff later, in a declining resource envrionment.

Or maybe they are just too busy building their new billion dollar office tower in Calgary ;-O

Comments can no longer be added to this story.
oilmanbob on November 9, 2006 - 2:07pm Permalink | Subthread | Parent | Comments top
Or, maybe they can't raise the money. Oil operators are like real estate developers in that they drill when they have financing, not when its most profitable. EnCana has been hot and heavy in unconventional gas, and I have guessed they have some big hedge funds backing them. Could be their results combined with low prices are cutting in to their drilling budgets. How many of their "locations" are in the Woodford-Barnett shale? How many are in doubtfull areas like their Culberson-Hudspeth county lease blocks, or their blocks in the western part of the Newark Barnett Shale field?
  How has their projected production matched up with their results? These guys are better promoters than I am, but investors generally get discouraged when the production and prices are not up to snuff.
Comments can no longer be added to this story.
mjacobspaj on November 9, 2006 - 3:11pm Permalink | Subthread | Parent | Comments top
Aren't natural gas prices down significantly in the past year?

Could this have anything to do with slowing of drilling activity?

Comments can no longer be added to this story.
oilmanbob on November 9, 2006 - 3:51pm Permalink | Subthread | Parent | Comments top
Gas prices are roughly half of what they were a year ago, when they rose to $14/mcf post-Katrina and post Enron/Dynegy/El Paso manipulation. But they are still 300% of the year 2000 gas prices.
Comments can no longer be added to this story.
mw on November 10, 2006 - 2:59pm Permalink | Subthread | Parent | Comments top
EnCana doesn't need hedge fund money to support operations; few, if any, of the big ones do. You are talking about a company that is literally spewing $$ and heavy cash flow.

They are one of the largest land holders (last I checked, which was about a year ago, the largest land holders in oil sands) plus made some smart moves in unconventional gas in years gone by. They were considering converting to an income trust this year (now put on hold by the Canadian govt decisions announced Oct 31st).

Seems to support "we've got the resource, why race to pump it out when costs are high, when we can wait, and still produce huge profits".

Comments can no longer be added to this story.

179 comments on The North American Red Queen: Our Natural Gas Treadmill

Comments can no longer be added to this story.

| Show without comments | PDF version