The Oil Drum

The first question asked by those hearing about fuel depletion is usually: "How high will prices go?". The attitude is almost always that one will just have to pay up, as the fuel is essential. This is of course a recipe for extremely high prices, but just how prices will vary as the depletion process unfolds remains to be seen.

We already have an example of a (nearly) isolated market that has definitely gone over the top of production, and that is the North American natural gas market. Production peaked several years ago, and a slow decline has begun, in spite of record drilling. This phenomenon has occurred at very close to the same time for almost all the major basins on the continent. If we look at the NYMEX wellhead gas price for the last 75 years, we can see that the price was very low indeed until about the time of the first production peak in 1970, and then rose to an reasonably steady $2US per thousand cubic feet, which held until about 1999. During this period, it was relatively easy to meet any production shortfall by drilling new deposits. (One thousand cubic feet of gas has very close to one million BTU of heating energy, which is also close to one gigaJoule.)