More on Natural Gas

Jerome a Paris has an excellent summary article on natural Gas, with some impressive, though discouraging, graphs of production.  He cites two sources that are worth following up in their own right.  There is a pdf on California by David Maul, which has, in slide 10, the grim picture of the declining life of annual gas discoveries.

He also cites a paper on Texas production that covers much of the story from that part of the world.  Put together they emphasize how hard folks are having to scramble to keep us afloat in natural gas.  With decline rates of up to 45% the supply is critically dependant on new drilling and with smaller and smaller fields being tapped and lasting shorter periods of time, this is not a game with a foreseeable happy ending. (Thanks for the pointer jkissing)
I put here some data on the Russian natural gas production. It is dropping , too:

"Production of natural gas from January to September inclusive was 0.1 percent down on the same period last year, at 465 billion cubic meters. In September 2005, natural gas production dropped 5.2 percent compared with September 2004, and it dropped 2.8 percent from the previous month.

According to Russia's energy ministry, 468.928 billion cubic meters of natural gas were produced in Russia in the first nine months of this year, 0.66 percent more than in the same period of last year."

So not much LNG from Russia in the future, neither for Europe to compensate for the loss of North Sea production.

Russia has very large undeveloped reserves of natural gas in the northern part of the West Siberia basin.  So drops in Russian gas production are likely to have more to do with the political/economic environment in Russia than geology per se (although from the Western consumer perspective, since both are similarly beyond our control, the difference may not much matter).
Why everybody sees the Russian production problems only as political or economic? They have depletion, too. The always optimistic EIA estimates only a 4.5% growth for the natural gas production 2005 - 2010, i.e. less than 1 % a year. This means that the projected Russian production increase is not enough to compensate for likely depletion of the North Sea gas. The latest news confirm this. Russia has unxplored gas fields, so does the US. It is the depletion/exploration relation that matters.

This has direct bearing to the US gas situation because part of the LNG should come from Russia. Where do we have free new gas capacity to provide for the LNG? In the Middle East, mostly. The more likely scenario is the gas-using industry to move out from the US - as it is right now. This might have far deeper economic consequences than oil prices.  

There's no comparison between Russia and the US.  Russia has literally tens of super-giant untouched NG fields.  In the US, we're drilling and fraccing every piece of rock with the faintest smell of methane, and we have a reserves/production ratio of less than a decade.  Russia has proved reserves of 1694 Tcf (as of the end of 2004), which is an R/P of 81 years, while the US has proved reserves of 187 Tcf.
Matt Simmons has said that a lot of untapped natural gas reserves (which tend to be stranded) around the world, including Russia, are unproven. He has said that many fields have not been properly surveyed so the field reserves are estimates in the widest sense of the word. He thinks that the Russian fields in the north of the country will be about a $50 to $ 60 billion project to bring to the market.

This is my gut feeling on the figures given how inaccurate numbers are bandied about as proven fact. Has Russia got large amounts of natural gas? Yes. Is it is large as reported (1694 Tcf)? Probably not. Will all of that total reported reserves of gas, be drilled and supplied to the markets in the East and West? No. That is not to say that Russia has large amounts of natural gas, but will it be feasible to extract the gas and bring it to market?

I have also noticed (probably along with most TOD readers) that USA has had about 9 to 10 years reserves of natural gas for the past several years and it looks like it will have 9 to 10 years reserves in a few years time as well.

Well, if the cost of natural gas gets high enough, demand will drop and the gas fields that have ten years worth of reserves will suddenly have twenty years worth of reserves.
I think the most telling graph is the following:

Because NG was cheap in 2000, a lot of new gas-fired power plants have benn built. It demonstrates that market mechanisms alone are not enough to solve our energy problem. Very often, short term views prevail leading to bad choices.

Another interesting fact about electricity generation is how it is being used. In the US nearly 30% of the electricity consumed is used to perform space cooling (air-conditioning).

In the face of global warming our uses of electricity need to be scrutinized.

See article 'Plugged in to Global Cooling'

   There's a lot of uncertainty unfderlying "global warming". If you doubt me, as you may well do, read the posts on the web site
    The "hockey-stick" diagram, the poster child for the IPCC's claims about global warming, certainly seems to be based on scientific fraud.
Nonsense.  You've been reading too much Exxon funded PR.  Try Real Climate.
I would point out that environmental degradation and the destruction of eco-systems are integrally connected to human behavior.  The ecological systems that sustain life on our planet are and continue to be devastated.  Our fresh water supplies and soil are contaminated, contributing to the loss of plant and animal diversity. High levels of mercury, cyanide,  pesticides, acid rain are all direct consequences of human activity.

My passion for the environment is not solely based on my love of nature.  It is based on a selfish desire to live my life in a world free of man made contaminants that are poisoning us and the rest of the life we share our planet with.  My world view is based on the premiss that everything in our universe is interconnected.   We all know that trees and other plants do convert carbon dioxide into oxygen. Deforestation and poisoning of the soil and water diminish the ecosystems ability to process all of the excess carbon dioxide we have been spewing into the atmosphere.  I know this is an overly simplified version of the reality.  The reality is much more complex......
This line of thinking is enough for me to believe in Global climate change.  Am I making to many assumptions?  Are my observations faulty?  

I am an artist not a scientist.  My beliefs and opinions are grounded in personal observation, study and intuition.  This line of thinking is enough for me to believe in Global climate change.  

How about 173 deg f gametime temps at Texas Stadium for CowBoy Games!
That graph is very telling and very disturbing.

The low price of NG was not the only reason utilities went with gas turbine generators when adding addtional generating capacity - the other reasons being lower relative capital costs, minimal air emissions problems, and short construction lead times relative to coal-fired plants. Overall, the economics were quite favorable, and from a purely economic standpoint they were the right decisions at the time.

However, look at the pickle we are now in regarding tight NG supplies. This is a perfect example of how short-term economic decisions don't always lead to the long-term correct decision.  The 'market' can only be trusted to handle the short-term, not the long-term.

They didn't seem like bad choices at the time.  Those new power plants were likely built at least partly as a result of the dot-com boom.  The Internet explosion resulted in a surge in electricity demand.  Not so much for the home PCs, but for the massive server farms that power sites like eBay and Amazon.  The Internet, along with air-conditioning, are the big changes in energy use.  (IMO, this is a classic example of "diminishing returns," or at least the hidden costs of technology.  The Internet has given us a way to save energy: telecommuting.  But how much energy does it take to keep the Internet up and running?)

And until about 2000, the energy industry truly believed that we had hundreds of years worth of natural gas.  They knew about depletion, and after what happened with oil, they surely knew it would happen with natural gas as well...but they honestly believed that it was decades, even centuries distant.  

That's what I find really scary.  They didn't see it coming, even with the best technology money could buy, and more info that we have about any other area on earth.  If they didn't see the peaks for U.S. oil or North American gas until they hit them, why should we believe them when they say we have hundreds of years worth of coal left...or that Saudi Arabia has hundreds of years worth of oil?

BTW, originally they had lots more natural gas fired power plants planned.  They were cancelled, at a cost of millions, when they realized they wouldn't have any fuel for them.

I'd like to see data showing that the Internet is responsible for significant electrical energy use increases.  I'm pretty skeptical.  I'm betting it would barely show up compared to other uses of energy, such as the huge numbers of air-conditioned homes and businesses - and that's even if you include the server farms.  But I'll keep an open mind!
Of course, server farms must be massively air-conditioned, because those computers throw off a lot of heat, and will fry if you let it get too warm.  (My office didn't have air-conditioning until we started using a lot of computers.  They were willing to let us sweat, but the computers need to be coddled.) Some large server farms have their own power plants.  

Some links: ch

Exodus' Bay Area operations consume 12 megawatts of electricity -- as much as 12,000 houses. And data farms typically rely on diesel backup generators in case of a blackout, which generate more pollution than most power plants.

A giant server farm can suck up as much energy as a steel mill. Seattle, Austin, and Phoenix are all experiencing over ten percent growth in power demand annually.

Twenty-seven or more Internet ``server farms'' proposed for the area could consume nearly as much electricity as Seattle and greatly magnify Northwest energy problems within two years.

Their problem seems to have been in part who they listened to.  If you believed CERA,

Nevertheless, CERA expects supply to begin to show year-over-year increases in the United States toward the end of 2000, and in Canada supply growth is at last expected to be evident this spring.

CERA does believe that there is the gas supply potential to meet the challenges of increased demand from power generation at a price that would not discourage that market development. It is very important to avoid short-term government intervention in the market that would discourage investment in supply.

On the other hand, had they listened to Matt Simmons, they'd have known that depletion was a big issue, and a rather unlikely explosion in the rig count was required to match demand, and that therefore prices were likely to rise a lot.  Just as they did.

"They didn't seem like bad choices at the time."

Depends on what horse you were riding.

Clinton/Gore made NG-fueled generators a campaign plank in '91.  Wall Street jumped on it because NG/CCGT and dereg looked like a fast buck.  The environmentalists signed off because it looked better than coal and nuclear.  So long as there was plenty of cheap gas, it did have appeal I will grant.

From my position inside the nuclear utility business, I always saw it as a short term fix - a sugar rush.  I argued with management when the rush began back in the early '90s about it all blowing up in our faces and it did.  My former employer is just now getting out of bankrupcy.

Mr. Maul's powerpoint needs to be understood within the context of California politics.  Arnold is behind LNG terminals but the guys at the California Energy Commission (CEC) where Maul works are not about to give Schwartzenegger any support or ammunition.  The CEC has been living in a dream world since birth and has yet to understand or recognize the energy needs of the state.  Note that there is hardly any mention of Alberta or its depletion rates - we get about a quarter of our gas there.

The Rockies do offer hope for a big gas resource for us but Clinton locked most of it up and what's left is being drawn to the East - Kinder Morgan has announced a big new pipeline for Wyoming to Chicago to tap into the gas that California has been thinking was for us - another point Maul ignores.

It sure seems obvious to me that California needs a bunch (4?) new reactors and we needed to start last year.  And that's in addition to Arnold's LNG terminals.

Here's my take on California's energy situation:

Whatever has happened to the high expectations of gashydrates? Ik recall a test drilling site called Malik 2002 which produced gas for a few days or so before being capped. Anybody knows if it is still believed that massive amounts of gas can be exploited from gas hydrates?

Gas hydrates are a pipedream.  Despite the large volume of methane trapped in these deposits, no one knows how to get it out.  

Gas is easy to produce because if you put a piece of pipe with holes in it through a permeable rock formation with gas in it, and you keep a lower pressure in the pipe than in the formation, the gas will flow into and up that pipe.  

Now lets look at gas hydrates. They are a solid in the ground.  They occur in commonly non-permeable, mud-rich formations.  To produce them you first have to figure out how to convert them in-situ from a solid into a gas which involves a wholesale change of the pressure and temperature conditions in the ground, then you need to get them to flow through impermeable layers to a wellbore.

Or else you can try to mine them.  Your choice.

There are also potentially very large reserves in geopressured brines along the Gulf Coast. I was involved in some systems analysis for producing such gas when I was in graduate school back in the mid-1970s. The major problem was the disposal of the brine after extracting the methane. It appeared at that time that the heat energy in the brine was sufficient to support reinjection into the original aquifer. Actually, the project started out looking at the geothermal potential of the brines, but the problem of disposal led us to the conclusion that the best net-energy result was to focus on the methane. It looked very expensive relative to gas prices at that time: the brines are typically highly corrosive (and toxic) and so equipment wasn't going to last very long. Materials science has made lots of progress since then, and production from the brines may be easier than producing from hydrates. Anyone know the current state of the art?
What gets me about the depletion graphic posted above is how much steeper the decline rates get over time within a window of relatively few years.

Are the latter discoveries just smaller, or are they being extracted that much faster and more efficiently.

Is this sort of picture characteristic of a region that is overall in the tail of its overall production?


To some extent this is an optical illusion, as you are building on successively declining wedges.  Each successive wedge may have a slightly steeper slope than the previous one, but it is hard to tell that unless you looked at each of them individually.
But that increasing slope is basically the average decline of everything discovered before this year (ie roughly the FIP decline in oil terms), and the fact it's increasing so rapidly does suggest the endgame is not too far off, absent rule-breaking change).
UK natural gas prices have tripled in 10 days
to the equivalent of $19 per million British termal units.
Make that $22 a million BTU's
    Provide source of your info of UK gas price, please.
This article says $25.83 equivalent for Dec.
if you don't want all your searches and access logs compiled by a cookie which doesn't expire until 2038, and then saved indefinitely by Google, then Scrooge is the answer.  
Two questions:

We live in Michigan.  Are LNG imports only for those who live by the ocean?  Or is the US just one big pipeline?

Is LNG more costly than NG from the Gulf?  

I guess that is three questions.

Rick DeZeeuw

Increasingly fuel travels all around the country by pipeline, but the amounts that will come by LNG will likely not be more than about 15% of demand, even after all the facilities are in place, and we are a fair way from that at present.  Thus we are all vulnerable to drops in production from any of he current sources.
The fond hope is that future supplies of ng, which will come by lng because north america is no longer able to meet demand, will be cheaper than domestic prices. However, this may be a mirage, both because of the high cost of the lng infrastructure needed to bring lng here, and also because the high price of oil is persuading those with the resource to convert ng to liquid fuels. As this value is around $9/mcf (today), and the infrastructure required to convert is probably less expensive than that required to deliver lng, it seems future lng supplies will not be cheap, except when compared with doing without.
LNG being cheap is a dream also because other countries around the world are in the same boat with their own supplies in decline, also oil in decline, so there will be great competition for the LNG as it is developed over the years.
At one time we in michigan had a huge underground gas storage facility. Maybe we still do. Michigan would buy most of its NG supply in the summer when prices were low. Katrina caused prices to rise much sooner than usual which hit the CSM and MichCon hard. Retail prices are regulated here so it may take awhile before consumers feel the pinch.
What a disaster - there is no free lunch. Not passing along costs to consumers mean they don't cut back in response to the high price paid by the utility, so the utility goes bust. How does this benefit the consumer?
The utilities are experiencing a short term deficit.
eventually they will convince the regulators to grant them a surcharge to make them profitable again.
Michigan is a gas producing state. You have large amounts of tight shale that produces gas in small quantities from each hole drilled by each rig. This shale extends to New York. You may wind up exporting gas to Texas twenty years from now.
From my Michigan local energy company's website, it says that we produce 15 billion cubic feet and we purchase 230 billion cubic feet.  That is means that only 6% of the current gas used comes from Michigan.  Consumers is not the only energy company in Michigan though.

Consumers Energy Natural Gas Operation Statistics

Total Gas Customers  1.6 million
Residential (# of homes)  1.5 million
Commercial 110,000
Industrial 10,000
Counties Served (see Service Territory Map) 44

Annual Gas Deliveries  245 billion cubic feet
Purchased from supplier pipelines  230 billion cubic feet
Purchased and produced in Michigan  15 billion cubic feet

Record 24-hour sendout (Jan. 18-19, 1994) 3,184 million cubic feet

Average Annual Residential Use  109,000 cubic feet

Pipeline Distribution  24,000 miles
Pipeline Transmission and Storage  1,800 miles
Storage Field (working capability)  130 billion cubic feet


Michigan gas is both conventional and tight shale. The tight shale is everywhere so if you drill and get low yield, it makes up for the low yield by the zero transportation cost. It is not significant, yet, because the price of conventional gas will stay at it's low level for several years more.
Re: The View from the Left Coast

Did folks here go all the way through Maul's pdf document? from which I quote a bit --

Slides 6,7 -- West likely to have a moderate winter
Slide 11 -- California has ample surplus infrastructure capacity for this winter
Slide 14 -- California inventories are high
Slide 15
  • NG fundamentals don't appear to support current market prices
  • Other drivers have been used to explain current market price levels
  • California is planning to pay higher prices
Slide 21 -- Fundamentals: Western supply, demand, and infrastructure look good and don't support current level of market prices

Here's a link again to that NY Times article Chilly forecast on natural gas.
High prices are inflicting pain across the country, hitting hard at utilities in the Rocky Mountain states, grain elevators in the Midwest and chemical manufacturers along the Gulf Coast. Announcements of job losses in energy-intensive industries are mounting.

For instance, Lyondell Chemical of Houston said last month that it was shutting a plant in Lake Charles, Louisiana, eliminating about 280 jobs. The reason was higher energy costs, the company said, though it also cited damage from Hurricane Rita.

Other companies unable to pass all their higher natural gas costs to customers are starting to announce big losses. For example, CMS Energy, Michigan's largest natural gas utility, reported a $263 million loss this month.
California is not mentioned but depending on the weather, shortages elsewhere are possible. We're about to get hammered in the Rocky Mountains, the Northeast, the Southeast and the Midwest but not in sunny California. There weren't any hurricanes out there! Supplies are ample. It's not their fault but they're paying the price. It's every state for itself.
Slides 6,7 -- West likely to have a moderate winter

The part I have trouble with is the next bullet point on slide 6 says "Snowfalls have started early...".  Now, I don't know much about weather forecasting, but I would not think "Moderate Winter" would go with "Early Snow".

You'd be surprised. Moderate winter means cloudy weather to keep that nice warm wet marine air from losing it's heat to space during those starfull winter nights. Those clouds run smack into the Sierras and build sixty foot snow drifts in a week.
Lots of snow means lots of hydroelectricity when it melts in the spring and summer. We had a very wet winter last year, too. Huge spring flowerburst in the Mojave Desert after that wet winter.
On the other hand it didn't snow worth a damn last year in the Oregon, Washington, British Columbia, Idaho Columbia river basin and they are hurting a little for hydroelectricity. California imports electricity from the Pacific Northwest, so it evened out.
From the texas paper at the beginning of the thread:
"Clearly the industry will need higher prices if it is going to sustain production with new drilling."
But, the US has already made the switch from 50% of rigs looking for gas to 90%. There are no idle rigs - if you are lucky enough to get one coming off lease it is because you outbid somebody else. Higher prices may come, but the higher prices will not result in much more production.

BTW, the paper shows current wells are producing a total of around 1bcf. My largest E&P investment is gmxrw. This small gas company is drilling in Texas' Cotton Valley "tight sands" just as fast as they can. Their results are around 1.1bcf/well, quite consistent with the paper.
They are desperately trying to find another rig or two as they try to take advantage of current high prices. Their jv partner may have located one short term, which they will share. Rigs are tough to find.

The graph is only discouraging if you don't have any investments in oil and natural gas. I get very happy when I see stuff like this.
My only question is, why has the price of gas fallen 70% from last winter's peak if the supply situation is so dire? I am a true blue believer in peak oil and peak energy but I am wondering why (in at least the short term) supply is apparently so plentiful, at least in the US. I mean, right now the near term futures are priced at $4.78 per million BTU, and last December the price peaked at $15.77. Talk about a price collapse...
My only question is, why has the price of gas fallen 70% from last winter's peak if the supply situation is so dire? I am a true blue believer in peak oil and peak energy but I am wondering why (in at least the short term) supply is apparently so plentiful, at least in the US. I mean, right now the near term futures are priced at $4.78 per million BTU, and last December the price peaked at $15.77. Talk about a price collapse...
Am I the only one that noticed that this presentation was over a year old?!?!

How is CA natural gas storage for this winter and what are the weather outlooks for the country?


Here in my area of Texas we have quite a bit of natural gas development underway. One of the rigs is within walking distance from my house and is quite a sight to see. It was a rig brought in from Kuwait. It lights up the night sky pretty good too. It's not producing anything yet, but should come online sometime next year around Feb or March. It's not the only one in the area either, quite a few are popping up. They are exploiting whats called the Barnett Shale. It's non conventional and costs twice as much as regular natural gas extraction does. So I guess it's come to that point now, where we rely on the unconventional sources of energy. They are saying it should be producing for atleast 20 years.
Are there data available for individual Oil and Gas companies on:
(a) reserves
(b) depleion
(c) cost of replacement ?
Each company publishes its reserves at year end, and this data is also usually noted on the (Yahoo finance) profile page for each stock. Depletion is just one year's reserves less the previous year, plus reserve additions, if any, and this change is shown in the year end statement (see the "headlines" page).

Cost of replacement is somewhat murkier, and grows as all reserve assets grow with climbing resource price and/or higher finding costs (drilling rig rental rates are near all-time highs, much to the delight of drilling service companies and their stockholders). Companies do report what they paid for reserve additions, or the cost to increase their "organically grown", or those found "through the drill bit" on existing properties, also found on the year-end statement and, for assets purchased during the year, in the quarterly statement.

Most companies use the calendar year, and these will announce the latest reserve and production changes between mid-january and end-march. For resource investors, this is the most exciting time of year as the investors critically compare their stocks against others.

What about alternative sources of natural gas like coal bed methane?  What are the depletion rates for that source?  Wyoming and Montana has vast coal resources, perhaps that could help us to keep treading water for a short time.
Wyoming and Montana and New Mexico and Alabama have lots and lots of coal bed methane. Which has salt water in it that needs to be pumped out so the methane will desorb, which pisses off the farmers big time.
The only place in America that has the ability to absorb lots of salt water in the creeks without pissing off the farmers in Alaska. Which has plenty of conventional natural gas.
Pissing off the farmers is putting it mildly. It really constitutes destroying our ability to feed ourselves just to keep living our current and unsustainable lifestyle a few more years.
Check out this comment from the Natural Gas Vehicle coalition:

The level of natural gas reserves varies over time - downward when natural gas is consumed and upward when new natural gas reserves are identified. For the past decade, U.S. proven reserves have ranged from 165 to 170 trillion cubic feet (Tcf) -- although, in 2000, reserves increased to 177 Tcf. It is important to note that reserve levels are greater today than they were a decade ago despite the fact that 185 Tcf of gas has been consumed. Some naysayers still point to the fact that the U.S. used approximately 22.5 Tcf of gas in 2000, and argue, therefore, that if we only have 185 Tcf of reserves, we " only have a 8 or 9 years supply of natural gas left."

This is nonsense. It is similar to saying that we only have a 10-day supply of hamburger left. The level of natural gas reserves is critical to ensuring the balance of supply and demand in the very short term, but is irrelevant to any discussion of long-term supply.

Why would they state this??