This post is one of my series of tech talks, describing some of the ways in which fossil fuels are produced. In the current part of the series we are focusing a little more on the procedures that are being used to recover natural gas from formations such as the Barnett, Fayetteville, Marcellus, Haynesville and Woodford shales. In this particular post I am going to concentrate more on the benefits of horizontal drilling through these shale reservoirs, rather than using the more conventional vertical wells that were used historically. This, and the next three posts in the series are likely to be a bit more technically dense than earlier posts, but I am trying to illustrate some of the problems of production, and some of the gains that technology is bringing to help solve some of them. And while the reason for the horizontal wells can be simplified in this graph from Chris McGill, there are a lot of other things that have to be considered in deciding whether or not the horizontal well is going to be worth developing.

Comparative production from a vertical and horizontal natural gas well (Chris McGill).
Notice the gain in production, but much shorter life of the horizontal well.

Yesterday the President of the largest gold mining and production company, Barrick Gold, noted that after ten years of declining production it is time to recognize that the world has seen the peak in gold production. To maintain production ore is being mined with increasingly less gold in it. (The grade of the ore, or metal content, defines whether it is profitable to mine.)

Ore grades have fallen from around 12 grams per tonne in 1950 to nearer 3 grams in the US, Canada, and Australia. South Africa's output has halved since peaking in 1970.

The supply crunch has helped push gold to an all-time high, reaching $1,118 an ounce at one stage yesterday.

Standard economic principles have demonstrated that price is a function of supply and demand. The same is true for the recent  oil prices fluctuations we have witnessed over the last few years, namely the equilibrium between supply and demand. However, the following conundrum has not been resolved: are oil prices high due to greater demand or too little supply? This ambiguity allows for vastly divergent interpretations of the same data and depending on the agenda you are trying to push, will easily support either. 

Lately, the concept of "Peak demand" has been suggested in a multitude of recent articles that unfortunately do not qualify their analysis of the status quo. Some suggest that we are willing to and capable of moving away from oil. Are we?

A few years ago, some analysts lectured us about the effect of oil prices on the creation of new oil supply. Now that this argument has clearly failed, they have decided over night that we don't need oil anymore. In this debate, it is important to distinguish between demand (what you want or need) and consumption (what you get based on your ability to buy). Following this logic, consumption is "satisfied demand". Conversly, we can define the "unsatisfied demand" or "excess demand" that has been suppressed. Below the fold, I'll show that the key driver behind the price increase since 2002 has been excess demand combined with unresponsive supply.

This is Sunday, so this is a "tech talk" about getting fossil fuel out of the ground. While some previous posts have dealt with sandstone and carbonate deposits I’m going to be talking about getting gas out of shale for a couple of weeks, and so, before I started talking about Horizontal Wells, we’d better chat for a minute or so about shale. And when I don’t give an alternate reference for the information, I am likely quoting from the Primer on Natural Gas in Shale, from the Department of Energy.