Arts » Dance

An era of energy abundance

by

comment

One of the less understood facts about the U.S. energy marketplace is that the price of natural gas has been much more volatile than the price of oil over the past 15 years.

Unlike oil, which trades at globally uniform prices, natural gas has always been a more locally-traded commodity, with wide price differences from region to region. And in the middle years of the past decade, when the U.S. natural-gas price spiked to $14 per thousand cubic feet, up from $2 or less for most of the 1990s, both Middle Eastern and Russian gas could be had much more cheaply — if you were located in their neighborhood.

Like domestic production of oil, U.S. production of natural gas had been relatively flat for years. All the official public and private forecasts expected domestic gas production to decline, with the result that the United States, hitherto nearly self-sufficient in natural gas (we have been importing about 10 percent of our gas from Canada and Mexico), would have to import as much as 20 percent of our needs by 2020.

Most of the new gas imports were expected to come from the Persian Gulf, extending American dependency on that politically sketchy region. The oil-and-gas industry argued that the only way to turn around our gas fortunes was to open up more areas for exploration and production, especially offshore on the continental shelf, but this ran into the same political opposition that has hobbled domestic oil production.

Now, within an astonishingly short time, the entire picture has changed. In mid-December, the U.S. Energy Information Administration released new estimates of U.S. natural gas showing proved reserves at their highest level since 1967, up 33 percent in the past three years and 62 percent in the past 10. Natural-gas production here in 2009 — 21.6 trillion cubic feet — was the highest since 1973, even though demand was down on account of the
recession.

The Department of Energy now predicts gas reserves will grow by at least another 20 percent over the next decade, though a number of energy forecasters think reserves will grow by much more, securing a 100-year supply for our needs. Even as oil and gasoline prices rise again to uncomfortable levels, the price of natural gas has declined 80 percent from its mid-recession level in summer 2008, to about $4 per thousand cubic feet, and it is likely to stay at this level or perhaps fall further. Although price volatility might not be a thing of the past, it is unlikely we’ll see spikes to $14 again for a very long time.

But how did this startling turnabout occur? The phrase suddenly in every newsroom is “unconventional gas,” chiefly shale gas and coal-bed methane, produced through a technique known as hydraulic fracturing, or fracking. Fracking involves sending high-pressure fluid deep into wells to force cracks in the surrounding rock formations, which releases gas — and also oil where oil deposits are mixed in rock.

But shale-gas wells have a much faster production-decline curve than conventional-gas wells. In other words, shale wells run out of gas sooner, requiring new ones to be drilled on a constant basis. New regulations that slow or make more expensive the replenishment of depleting wells, or a gas glut that collapses prices and idles drilling capacity, could set off a fresh round of price volatility and scramble everyone’s calculations.

It would be best if politicians left well enough alone and allowed the marketplace to compete over the use of natural gas, but politics and energy have always mixed like gin ethanol and tonic, so don’t count on it.

Steven F. Hayward is the F.?K. Weyerhaeuser fellow at the American Enterprise Institute. This article is adapted from The Weekly Standard.