Of rigs and pipelines

A year ago the perception of a problem with oil supply was much less evident than today.  While Saudi Arabia had a plan to increase production, it was using only some 30-odd drilling rigs, and the debate over its capabilities was not being widely discussed.  Now that Aramco has committed to an increased level of production, they have also had to increase their drilling fleet to a target of around 100 rigs.  (From Baker Hughes it is currently about 46 onshore and 6 offshore ). Because drilling rigs are made of special steels and require some sophistication in manufacture they are built in only a few places, and there is a growing lead-time on getting a new one.  Thus demand for existing rigs is high, and rental costs are going up.  This is impacting the US supply.  Platts has just noted that since other places are now offering longer-term rentals, the US market is beginning to lose out.
"It's a very serious problem," said McNease, adding that he expected 15-20 Gulf of Mexico jack-ups to move elsewhere by the end of next year, based on contract negotiations already under way.  Of those on his migration list, McNease said seven would likely depart by this summer.

     "Rigs will continue to leave the Gulf of Mexico unless people offer longer contracts," said McNease, noting that jack-ups could now command terms of two to five years in the Middle East. "The national oil companies are offering longer terms to lure these rigs there," he said.

McNease is the CEO of Rowan, and he noted that rig shortages would likely continue through the next two years.  He was mainly addressing the shallow off-shore jack-up rigs of which he said there were 80  in the Middle Eastern Gulf, and 85 in the GOMEX, with some 55 currently in construction. I explained why these numbers are important in an earlier post.

It is in the deeper waters, however, that the major new finds are being made.  Rigzone notes

Another indicator of deepwater activity is the recent rig count. In mid-March, there were 42 rigs drilling or working on development wells in deepwater, including ten rigs drilling in 5,000 feet of water or greater - the ultra-deepwater zone. One year ago, 6 drilling rigs were in ultra-deepwater.
The result has been that there were 10 new oil and gas discoveries in the Gulf last year.  Of these, the Knotty Head discovery  has now been drilled a second time, allowing a better sense of the size and shape of the oilfield.  It turns out to be a bit smaller than originally anticipated, but with 400 - 600 ft of oil-bearing rock (the pay) depending on where the well is, it is still estimated to hold 200 - 500 million barrels of oil.  (For those techo-nerds you might note that the second well was less than a mile from the first, and there was some 200 ft less pay at the second well, showing how rapidly the cap rock is apparently sloping down to limit the size of the field). Unfortunately the Statoil Uranus project in the Barents Sea was less successful, finding no producable hydrocarbons. And so on to Edvarda.

And returning to Saudi Arabia, the Haradh project was officially inaugurated on Wednesday, bringing 300,000 bd of new oil supply and 0.14 bcf of natural gas.

Across the world, while President Putin has agreed to install a new gas line to China from the Eastern Siberia, there has been no agreement yet to build a new oil line, though a study is now going to happen.  The thought does bubble up that perhaps that supply might not be so assured, given domestic demands and the low rate at which oil production is now rising.

It was unclear which fields in Russia the Rosneft-CNPC oil venture would operate. Bogdanchikov said the venture would bid for licenses on the market and would have access to several exploration licenses held by Rosneft.
Apparently, however, the same vagueness holds true for the gas line
For example, little detail is available on the specifics of the plans to build the two gas pipelines that, Putin said, will feed China with up to 80 billion cubic meters of natural gas per year. It remains undecided which Russian gas fields would supply China's high demand and where the roughly $10 billion needed to construct the pipeline would come from.
They may be competing with Europe and the US since
Gazprom plans to start production at the $15 billion Shtokman project, which is to produce liquefied natural gas from shelf reserves in the Barents Sea, by 2010. By that time, Gazprom hopes to make operational the planned $4.75 billion North European Pipeline to carry gas directly to Germany.
though the gas is more likely to come from Eastern Siberia and not start until 2011. Rosneft has some resources available, and I posted recently about the Kovytka field.  For the gas it appears that Rosneft got the nod though the argument is somewhat moot, since the two companies are set to merge However, as the BBC suggest, there is a possible conflict looming over the oil, since Japan would also like to buy Russian oil.
If a deal goes ahead with Beijing, the pipeline will bring 600,000 barrels of oil daily from eastern Siberia to north-eastern China.
Moscow's energy minister told Russian news agency, Tass, that the link to China could be constructed before the end of 2008.
Russia's oil supplies, though plentiful, are not inexhaustible and building a Japanese and a Chinese pipeline is not a likely option, our correspondent says.
 The BBC story also has a map.
I'm sure someone has the expertise to address this, but I imagine that deeper wells take significantly longer to set up and drill than shallower wells. As such, as you go deeper, you would need more rigs drilling just to maintain the same rate (wells/year) of drilling that would be done in shallower locations. In this way, it seems the problem of number of rigs available would get further magnified.

Any thoughts?

 Your assumption is correct. A well of greater depth will typically require additional rig time to reach TD. The rig will also need to be of greater HP to handle the associated loads. Horizontal wells will also typically require greater HP. I include the caveat of "typically" as much depends on the type of formations being penetrated but you are correct that these factors will serve to reduce the EROEI.
Excellent info, thxs.

Obviously, the Law of Diminishing Returns is rearing its ugly head.  The only way to counteract this trend without future violence [ERoVI >ERoEI] is with the countering force of willful Powerdown, thus extending e/capita as long as possible.  I am glad to see Kunstler posting here now, but I really want to see govt officials like Bush, Putin, Blair, etc, sending official notices to be posted by the webmasters for further discussion by our posters.  This govt 'reaching out' process would be an easy way to bootstrap widespread political reform without violence.  Unless they have a hidden preferential agenda that excludes the world's proles--that would be bad news for all.

Bob Shaw in Phx,AZ  Are Humans Smarter than Yeast?

Thanks for the update, HO.

China has just paid a $400 million bribe to Russia to get the goods. There will be more forthcoming in the future. Japan is probably puzzled that their own offers are being rejected here. It's not clear why to me. Putin has decided China is his new friend and is learning Kung Fu.

President Vladimir Putin holding a
young monk on his shoulder during
a visit to the Shaolin Temple in
China's central Henan province on

The state of Eastern Siberian oil & gas production is immature, to say the least. Once the pipeline deals are finalized, development will proceed there. First things first. You can produce oil & gas in the middle of nowhere but you've to be able to move it before anything can really happen.

That Shtokman project (Barents Sea) is expected to provide LNG to the US. That Uranus failure is no doubt a blow to the hyped potential of that area.

I must reluctantly admit that Saudi Arabia has done a very good job with this Haradh project. It certainly boosts their credibility a bit. Although given the lastest Nigeria update, comparing the two, we are still down about 200/kbpd overall from these two countries. This affects the US, of course. But since oil is fungible as we all know by now, I believe export patterns are about to change not just for Asia, as in your report, but also for the US.

IMO Putin (along with many other older Russians) is still annoyed with Japan for events of 1905. There has been little love lost between Japan and Russia (or between Japan and China, or, for that matter between Japan and ANYBODY) for the past hundred years.

It is amazing to me how long ancient memories rankle. For example, many older Japanese hate Koreans with a fierce passion--and why? Because in the immediate aftermath of World War II the U.S. occupation forces used many Koreans as translators and middlemen, and some Koreans became seen as carpet-baggers taking advantage of poor helpless Japanese people.

And of course, the hatred of Koreans for Japanese can hardly be overstated.

Yeah, I thought about 1905 and you may very well be right. Does anyone have any current information about Russian & Japanese mutual cultural attitudes or predjudice?
I think they're still fighting over four tiny islands that Russia took during WWII.  

But I don't think that's the reason Russia prefers China.  I suspect Russia sees China as a better potential ally than Japan.  Many are expecting China to be the next superpower.  Militarily and economically.  

The Russo-Japanese war of 1904 - 1905 was by no means the last time there was a major armed conflict between Russia and Japan.

During the 1930s, when Japan was heavily engaged in its imperialist expansionary adventure in China, Russia found it necessary to maintain a very large troop presense along the border between Manchuria and the far eastern parts of Siberia, as well as in Mongolia (then a de facto protectorate of the USSR).  For a very long time,Japan coveted the resource-rich areas of Siberia and had dreams of slicing off a nice chuck for itself.

It is not too widely known that in October 1939 Russia and Japan came to blows in the Mongolian desert in a place called Nomanhan. The Russians came out ahead this time around. This was no minor border skirmish, as the Japanese had something like 20,000 casualties and the Russians roughly 15,000. While the pressure on Russia eased after the Japanese started fighting the US in the Pacific, it was still necessary for Russia to maintain many divisions in the area in spite of their being badly needed on the Eastern front against the Germans.

In fact, the Japanese Army and Navy were bitter rivals: the Army favored attacking Russia to split off  a piece of Siberia, while the Navy was in favor of taking control of the Pacific to get at the resources of Southeast Asia.

So, the relations between the two countries was never good and probably still isn't.  

FWIW, CNN is now airing a story on the alliance between Russia and China.  They mentioned the energy deal, but emphasized the military alliance.  

They seem to think the old Russia and China vs. the U.S. dynamic is alive and well.  I think there's something to that.  Japan has no real military, and they're in our pocket, anyway.  If I were Russia, I'd court China, too.

Now the talking heads are lamenting the failure of "free trade."  Opening up to China was supposed to tame them by showing them the benefits of trade.  Instead, it's had the opposite effect.  They are getting more aggressive, not less.  

GW did say he is a "uniter not a divider."  In a sense that it is true.  He has succeeded in uniting the world against us.
There was a meeting of foreign ministers from Australia, Japan, and USA last week (http://www.mofa.go.jp/region/asia-paci/australia/joint0603-2.html).  USA and Japan also emphasized the corporation with India. I think that the alliance of USA, Japan, India, and Australia has been forged gradually in the last couple of years to contain China. Nuclear deal of USA with India should be part of this alliance. The weakest link of BRIC alliance, Brazil and India, seems to move away form the alliance slowly. In my opinions, the most important issue is how far Russia is willing to support China. There was a deal for gas pipelines but not oil pipelines.
Good observation, strandk.  One interesting aspect of an alliance composed of USA, Japan, India, and Australia is that among all four there is damn little oil produced.   As opposed to the China/Russia alliance, which has a lot of oil and, especially, NG.   With China, you have to count in their rapidly expanding bi-lateral deals for oil: Sudan, Iran, etc. and growing.

Frankly, it doesn't look too good for the home team unless we get to work real fast on both conservation and alternatives, as Hirsch says.   In this regard, the recent strong statements by Richard Lugar are totally on point.  I have to believe that people are going to see this in the not too distant future.

I have to wonder, when you mention those four nations, (Aus, USA, Jap, India) how much the global-influence of a Nation is necessarily hinged upon its access to raw materials and great labor-force.  Look at the British Empire, or just the way Humans, and by a further extension, the Transistor- use raw power itself.  It is a model of a smallish conduit that funnels and manages power.  Success is based on the effective, and sometimes the efficient Handling of that power, not necessarily that of being the energy supply itself.

So I look at the ascendency of China and wonder if the Next Dynasty comes from SIZE, or from Having the 'Right Idea for the time period in question' (IE, England combining their Market Systems with the need for Naval Dominance reinforced by the history of Norman and Spanish incursions)

.. I should have said
"The right MANAGEMENT Idea for that period.." since, as I re-read it, I'm looking at 'Power Conduits' that operate largely Extra-nationally, like Wal-Mart or Exxon..  They are leveraging the power-sources wherever they are, against the financial resources, whereever they are.. dependent, of course, upon the ability to transport the goods from the one to the other.  But aren't corporations in many ways competing at the scale of the nations for resources and influence, with the 'Power Management Idea' of doing so without the Ball-and-chain of a fixed piece of land or a population to have to answer to?
If I were to make a guess, I'd guess that the right management idea for the upcoming period will involve less stringent rules on some forms of intellectual property than the US currently has.

The US software industry flourished for decades with no patent protection.

Computers have provided the first manufactured good that's literally too cheap to meter: the transmission of data by the megabyte around the world. Business models that take advantage of the unlimited-sum nature of data copying will do better than those that try to fight it. For example, some book publishers are finding that putting complete books online for free increases sales of those books, and Megatunes.com is doing the same with music.

For more of my thoughts on intellectual property, click here.


Interesting points.

John Perry Barlow of the Grateful Dead would seem to agree with you in this.  He's said that their open policy about bootlegging was a boon to their success, not a drag on it.  I have been looking at the increasing amount of art that is finalized as 'Data', and therefore doesn't exist as a unique material object.  There is no 'Original'.  What does that do to Arts Auctioning, and then what does that mean for 'Ownership' of art at all?  Would people who could have just 'one of an unlimited number' of copies of a great Cezanne, a CB DeMille or one of Mozart's or Shakespeare's Manuscripts, etc, without ever getting to be that 'King of the Hill' who has 'THE ONE'..

.. and is universal access to one's very own source of power-generation (Solar, Wind, etc) just as great a threat to the 'Selective-Ownership Society' as that of our Art being so 'unownable'.

It's unfortunate that parts of Capitalism tend to succeed from conditions of imbalance, because it creates a demand by the capitalist society FOR imbalance.  It's a disincentive for cooperation, trust and peace.  Now sure, to do business with each other, these same conditions have to be present to some degree, but PROFIT is won by leveraging divisions.  Feeding from low cost supplies, offered to places with high-priced demand.  War Profiteering has never had it so good, and it's hard to keep the labor costs down if population gets too plentiful.


I think the US is in some ways trying to replay the old English strategy of building alliances on the continent to contain the strongest continental power.  In this version, though, instead of Great Britain offshore of Europe, it's the US offshore of Asia, building alliances to contain the Chinese.
There's also a good article in this week's Newsweek about this "alliance." The other remarks about in this thread are true enough, but....

I think Russia is merely bowing to the inevitable, though I'm sure they don't see it that way.

Nature (and politics) abhors a vacuum, and that's what Siberia is. The Chinese are already "invading" it, and if they're patient, they can probably take it without a fight. Given all its problems (demographic meltdown, AIDS, tuberculosis, alcoholism, corruption, ...), Russia won't be able to resist very effectively.

OTOH, China faces demographic problems of its own. They will all be living in interesting times.

Yes, I remember that my Russian friend showed me an editorial in Pravda regarding with Russian policy in Far East a year ago. It said that Russia would welcome remilitarization of Japan because Japanese military will become a good counterbalance against Chinese. It also mentioned that this would be a good way to avoid nuclear attacks from Chinese. Russians are much more comfortable with Europe than China. Russians are well aware of resource insecurity of Chinese. Russians have great concerns about Chinese illegal immigrants in Far East. To my eyes, USA and Russia seem to be dealing with China independently and from different reasons. Nobody wants to provoke China. But it would be very dangerous to fuel too much self-confidence in Chinese. That is why, as I said, the most important issue is how far Russia is willing to support China.
I think Russian's policy is brilliant in this regard. By making themselves a critical supplier of energy they are both supporting and putting China under some kind of control.

Of course they have the resources to do it.

And Europe.
Yes, history may play a role, but I agree with those who point to the current situation. The US has been and is doing everything possible to undermine the Russian sphere of influence and loosen its grip on its energy assets. And China is of course the next Evil Empire. So in spite of numerous reasons for Russia to be leary of China, and China to be leary of its leariness, they are forced to draw together to some extent.

Russia is huge, empty (by Chinese standards), resource rich (by any standard), but still nuclear with means to deliver. So Russia must figure it's better to give China at least some of what it wants. Upheaval in China can only scare Russia whereas a certain degree of power that challenges US power is a plus.

Historical animosities are usually, or maybe even always, exploited to serve current political objectives. One could write a fair-sized book on contemporary demonizations and stirrings-up of animosities. The biggie is anti-Muslim, anti-Arab. Briefly we had "freedom fries" and "freedom kisses". And the Germans got whacked briefly before that. Of course one of the really big demonizations occurred in Germany in the 30s when a group of Germans discovered that they weren't really Germans! Who me? And now, irony of irony, Palestineans have a very bad image because they don't understand why they should foot the bill for all that mischigass in the 30s and 40s. Another irony of irony, somewhat more humorous, but not entirely, occurred when some darker Arabs here in the US, after 9-11, found it expedient to pass for black!

In any case, animosities can go into remission and even heal. But if there is a major interest to be served in stirring them up, it will happen.

It is not just the Kuril Islands over which Japan has a dispute with Russia. The far larger Sakhalin Island, with an estimated 14 billion barrels of oil and 96 trillion cubic feet of natural gas, has long  been in contention between the two countries (and China). The first Japanese settlement there was in  1679. In 1845 Japan declared sovereignty over the whole island which they call Kita Ezo. Various treaties have split the island between the three countries. The Japanese  held the southern part of the island until 1875 when they ceded it to Russia in exchange for the Kuril Islands but regained the southern part in 1905. In 1945 the Russians took Sakhalin and the Kuril Islands by force with, according to Japanese sources, 20,000 civilian casualties. No formal treaty has been signed but in 1952 Japan renounced  claims over Sakhalin but did not recognise Russia's claim. On Japanese maps it is marked as no man's land.

Japanese prejudice against the sizeable Korean ethnic minority in Japan is vicious and deep seated. My wife, who translates Japanese professionally, has come across jibes and characterisations in business letters that would be legally actionable in many countries in the West.   This from a country that normally uses the most restrained language to avoid offence. If  Koreans were black and Japanese widely understood there would be a world scandal.

Thanks for the Shtokman site, Dave, though I see that it is now not anticipated to produce until 2010, at best.
Time for me to trot out my Texas analogy  
Texas peaked at 54% of Qt in 1972.  
Oil prices went up 1,000% from 1972 to 1980.
The rig count exploded to an all time record high.
The number of producing wells increased by 14% from 1972 to 1982.
Production fell by about 30% from 1972 to 1982.  
The smaller fields we were finding could not make up for the declines in the large, old fields like the East Texas Field.

Saudi Arabia Today
Saudi Arabia is at about 55% of Qt.
Oil Prices are up.
The Saudi rig count is way up.
We shall see what happens.
The East Texas Field is to Texas, as
The Ghawar Field is to Saudi Arabia

I'm buying most of what you're saying Jeffrey except for The Saudi rig count is way up. It's up but there's a lot of room for increases in the number of rigs they operate. I assume you're saying that will do no good.
Correct.  We didn't stop finding oil in Texas in 1973, but where do you go in the Lower 48 to replace a 6 Gb oil field?   The mighty East Texas Oil Field, that provided a lot of the fuel for the Allied victory over the Axis powers in World War II, is now producing 1.2 million barrels of water per day with a 1% oil cut.  

Where does one go to replace Ghawar?  The rig count in Saudi Arabia is up by 100% over 2004, but it's just the beginning of the drilling frenzy.  

One other point.

As much money as I can make from finding one million barrel oil fields in West Central Texas, and as much money as the majors can make from finding one hundred million barrel oil fields in deep water, we are really just rounding errors on the global energy scene.

The real oil industry consists of one Gb and larger oil fields.  

And IMO, that is why Hubbert Linearizaton (HL) works for Texas, the Lower 48, the North Sea, Saudi Arabia and the world (I won't mention the "R" word).   We are primarily plotting the discovery, peak and decline of one Gb and larger oil fields.

I totally agree.

Thanks for the great summary and highlight on importance of mega fields.  IMO most people think that finding multiple new fields can make up for the decline of mega fields.  I don't see this as mathematically possible as you have pointed out.

Interesting Graph:

If you plot the number of Texas producing wells from 1972 to 1982 versus production, it's inversely proportional.  As we added more oil wells, total production fell.   Let's review that again, more oil wells = less oil production.   The problem was that we couldn't make up for the declines in the large, old oil fields.  

Worldwide, we are now where Texas and the Lower 48 were at in the early Seventies.    This is literally true.  The Lower 48 peaked at about 49% of Qt.  Texas, the swing producer, at 54%.  Today, the world is at 50%.  Saudi Arabia, the swing producer, is at 55%.  

Whenever I hear Saudis talking confidently about their ability to increase their oil production, I always ask "do you think that Texas oilmen had a different opinion, at our all time record high peak production in 1972?"  

If you had told a Texas oilman in 1972 that oil prices would go up by 1,000%, that the rig count would explode, that we would increase the number of producing wells by 14% in 10 years, and as a consequence, oil production would fall by 30% in 10 years, what do you think he would have said?  Probably something similar to what the Saudi oilmen are saying right now.

According to the US EIA, the number of Natl gas producing wells in the US was 33% higher in 2004 than in 1999 (405,048 vs 302,421), but total dry gas production was 0.4% less (18,757,477 vs 18,832,232 mcf). And it's only getting worse - 2005 production was 18,168,295 (3.5% less than 1999 - prob some hurricane factor reflected) but the well numbers aren't out yet. A swelling of well numbers in a mature area is diagnostic of decline, I believe.
Are the rig and production numbers for Canada available as well?
If they have these kind of numbers, it could really get iffy over the next 5 years. And that's if we can get large amounts of LNG, if not, major problems.
I'm sure the numbers are available but I haven't tried to look them up, probably don't have time today. I have been reading recently about significant concerns in Canada as well, however, and Simmons says North America, not just US, has peaked in gas production.
That is quite the graph. I mean, it's not terribly subtle, is it?

Subkommander Dred

This is a little off-thread. I'll copy to next open thread.

"After 'peak oil', 'peak gas' too":


Go to the source for full article.

Here it is claimed that peak gas is imminent, a year or two behind peak oil.

What do TODders think of this claim?

First, let's admit this:  When it comes to predicting natural gas supply, consumption, and prices, it's easy to end up with egg on your face.

Ask CERA (Cambridge Energy Research Associates).  Ask the EIA (Energy Information Agency).  Ask the USGS (United States Geological Survey).  Ask the greatly respected NPC (National Petroleum Council)

Almost everyone now agrees that conventional North American Natural Gas production is peaked.  Note the keywords in that sentence, "now"  and "conventional".

As we know, the consensus on North American gas peak did not exist as little as three years ago, and some say if we throw open all areas now off limits to drilling, the peak is purely a function of legal/political events.  This is hotly debated:  The NPC (National Petroleum Council) study funded by the Department of Energy assumed a throwing open of all moratoria areas (East and West Coast and Rockie Mountains) where gas cannot now be drilled for)by the year 2006.  Well, 2006 is here and there has been no such "throwing open" all areas, but guess what?
The NPC study says that even with this throwing open, the North American market will face a huge shortfall!

It gets even better:  North America is now embarking on a massive LNG (Liquified Natural Gas) program.  Canada is discussiong building receiving terminals...(can there be a greater admission of thier production difficulties than the willingness to risk billions on LNG terminals to IMPORT GAS, not, as had always been assumed, to export it?)

But, says the NPC and other reports, if the LNG plants move exactly as planned with no cost or time overruns, we will STILL FALL SHORT OF PROJECTED DEMAND.

This leaves only "unconventional gas" to make up the gap.  TOD recently had some great posted information on unconventional gas, and it is too complex to re-examine that issue here....but suffice it to say, unconventional gas holds great promise, but also great mystery:  Trying to predict future production is very hard, relying on technology, price, local opposition and a dozen or more other factors.

So, Peak Gas?  In the world market, it will be awhile.  There is a lot of gas.  But it is in many of the "wrong places" by U.S. standards.  The threee largest known reserves of conventional gas are in (a) Russia (b)Iran (c) Qatar.  The whole military operational headquarters in the Iraq invasion/occupation is based in Qatar  (ain't that a coincidence?)  Qatar has only about 800,000 people (less than the city of Atlanta!) and sits on one of the greatest natural gas reserves in the world (mostly offshore in the Persian Gulf)so we are well hooked up to import the gas if we can build the infrastructure to get it.  The Emir of Qatar and his beautiful and actively progressive wife are staunch allies of the U.S.  But the transport issue is still problematic.  Qatar is developing multi purpose refineries and chemical factories with an eye to exporting finished natural gas products (Gas to Liquids such as NGL, fertilizer, propane, and even gas to Diesel facilities)
It could make the Emir of Qatar and his people among the richest in the world.

The other hot area is the Pacific.  Australia has more gas than people, but China and India are closer.  Much of South Asia remains undeveloped and often even unexplored.  There will be gas there.  How much is anybodies guess.

So what's the problem?  
(a)  Consumption-Natural gas is now such a priceless commoditiy in the production of high tech goods and chemicals, that if we assume a rise in GNP, we have to assume a rise in gas consumption.  Electicity production by gas is the only easy way out of the "carbon curse", and Kyoto type treaties and actions have driven the dash to gas
(b)Expense-All the options listed above to assist in easing the natural gas shortage need more expensive gas to become economically viable:  The Alasken natural gas pipeline will be one of the most expensive petro projects ever undertaken.  LNG terminals and ships can only compete if there is no cheap pipeline gas. The "unconventional gas" resource is out there, but experimental in it's extraction, and expensive in many cases due to various drilling and expensive "injection" extraction methods.

If natural gas is not peaked in the U.S., certainly cheap gas is not likely again soon, if ever.  This of course calls into question almost all of the oil consumption "mitigation" efforts we planned before 2000 or so.  
>Tar Sand oil extraction relies completely on cheap and plentiful natural gas.  Without it, the tar sand option is dead (as if it wasn't already, given the tiny fraction of liquid motor fuel it could ever provide even with cheap gas)
>The Hydrogen economy:  Almost ALL the hydrogen ever produced has come from either natural gas, crude oil or coal.  It is ASTOUNDING that the fuel cell crowd, and the "hydrogen economy" are seen as "renewable" energy.  At this point, they are anything but that, using more natural gas to make hydrogen than just burning the natural gas itself.
>Bio fuels.  Again, in no way a "non-fossil fuel" industry, bio fuel simply takes natural gas and Diesel fuel, combines it with sunlight and water, to create another fossil fuel based fuel!  The plans for bio fuel were laid out in an age when natural gas was predicted to be cheap and abundant, an assumption that proved in no way true.

So there you have it.  But let's return to the birth of this thread, and mention the wells, pipelines and equipment crisis.
If oil is "fungible" as so many here like to say, it cannot be said that natural gas is as easily "fungible", due to the natural gas transport problem.
But what is fungible is equipment.  It is often forgotten that as the number of drills continue to rise to recover an ever falling amount of oil/gas, American oil and gas producers are competing with not only other nations but each other for manpower and machinery. If both oil and gas need drills, pumps, pipes, etc., to avoid a production drop, and here's the rub, they both need the equipment at the same time,  the price of petro equipment could go to astronomical levels.  This will have to show in the prices paid by consumers in plastics, coatings, chemical products, and electric rates.

What else is fungible?  See the reference to Qatar above:
Fertilizer, Propane, NGL (natural gas liquids) etc.
The equipment to convert natural gas to finished product is fungible too.  

So, if the controlling factions of government/industry try to artificially try to hold oil/gas prices down, then the American producer cannot justify expense to build/buy the equipment needed.
Price and supply issues come out in machinery prices/availabilty.  It begins to risk American production of petroleum.  The industry has to make more to invest more, in gas AND oil at the same time. Like the little boy with his finger stuck in the dike....the pressure will try to leak out somewhere.
When people say oil is fungible, they don't know how true that is...but what they forget is that equipment, manpower, refineries and chemical plants are also fungible.
Thus, natural gas is fungible too.

The world needs gas, and the world has a fair amount.  The United States needs natural gas, but is in a weak positon (Qatar excluded) compared to the world, and consumes big while producing small.  The money flow out of the U.S. for equipment, LNG, finished natural gas goods, fertilizer, will be horrendous.
What do Peakers think of Peak gas?  Just go with the words of Matthew Simmons, that "Peak Oil" sage and prophet...
"Crude oil may not be the U.S. biggest problem!
"Natural gas crisis could be worse than oil!"

ThatsItImout -

Excellent post!  I agree with just about everything you've said.

It's a good reminder that even if new major reserves of oil and gas are discovered, they do not become available overnight; someone has to make a very difficult and expensive effort to develop the means of extraction and distribution. And there is growing global competion for those services.

Proposals for an Alaskan gas pipeline have been around since the mid-1970s. Several alternative routes for the pipeline have been considered, but none have actually gotten off the ground.  As supplies get tighter, we are probably going to finally see an Alaskan gas pipeline. Quite a long lead time, though.

Qatar has become a de facto protectorate of the US and currently a main base of operations for the US military presence in the Persian Gulf. Being in that situation, Qatar is hardly in a position to do anything to seriously displease the US. Which makes me wonder about the sudden (to me at least) announcement that Qatar is planning to open up an energy bourse.

 Would it be a very good bet that transactions at the Qatar energy bourse will be in dollars rather than euros? Is it a coincidence that we have the emergence of a Qatar energy bourse at almost exactly the same time as the Iranian Oil Bourse? And why has the opening of the Iranian Oil Bourse, originally scheduled for late March, been indefinitely postponed?  I smell some serious back-channel manoeuvring going on here.  


I don't think I could have hoped for a more thorough and interesting reply.

Right on!
In 2000, Simmons was predicting this, and his white papers on the topic at the time were what got my interest in peak oil started. BTW, nearly everyone thought he was crazy at the time.
I agree with you that prices for gas will stay high.  World gas supply is pretty tight even with LNG.  If you look at LNG tanker pricing, you will see it is at the low end.  This means that LNG production has failed to increase very fast.  Another Oil Drum article stated how we were having LNG tanker shortage.  Well, it ain't happening now.  It is all due to delays in ramping up LNG production while LNG tankers are being build on time or ahead of schedule.  

As mentioned, China, Japan, Europe, other Asian countries and US are all competing for more gas.  With all these competing interests and lack of political consensus to lift all areas to exploration and production in the world, you are right that high prices are here to stay.  Another point I agree is that production costs are rising, too.

I do want to point out that New Zealand is also going to be a lng importer in the near future sapping supplies from Australia.

Also, China and India are struggling to compete for oil and gas.  For gas, they are looking for under $4 gas and not finding anyone willing to sell to them.  China got outbid by Japan.  India is forcing Iran to sell them at below market rates.  It looks like India and China may not like US's call for open markets for oil and gas.  As it is known that US can afford to pay high prices while China and India cannot afford to due to political and economic issues.

And continuing with the original theme of the thread - the Russia-China pipeline which the US doesn't want to happen: I wonder how long after oil/gas starts flowing before an 'accidental' US bomb lands on it, like the bomb that 'accidentally' landed on the Chinese embassy during the last Yugoslav war.
What happens to those holes when a field is depleted? I'm asking because these fields are natural places for compressed air energy storage.
I am not an expert, but I heard they pour concrete like substance to plug up the pipes.  

As for injecting air into these fields, it is not known that the air will stay in place.  There is a high possibility that the air will escape into the atmosphere.  I was told it depends on the field's geology.  Current CO2 injections for advanced oil recovery already sees significant CO2 escaping into the atmosphere for some fields.

If empty fields are near large gas markets, they are often used for gas storage during summer and release during winter.

Otherwise, they are capped and plugged with concrete.