Where is the huge increase in US natural gas supply?

I keep hearing people talk about how much new natural gas supply horizontal drilling and hydraulic fracturing has provided to the US energy market. They keep telling me that is the reason that US gas prices have stubbornly remained at levels about 1/6th to 1/3 the levels in Europe, Japan and India.

The ads – often disguised as a political speech – say that this new technology is what allows gas producers to promise that they can replace the output from coal plants that are being forced to shutdown. Those coal plant shutdowns, by the way, are often as a result of focused political activity by gas producers like Chesapeake Energy. The marketers also claim that this technology enabled production is what allows utilities to decide they do not need to work very hard to build new nuclear power plants.

When I get confused by marketing pitches, I look for sources of real data to try to gain insights and understanding. Here is a graph from the US Energy Information Agency that shows “gross withdrawals” from US natural gas wells during the period from 1973-2012. Can anyone show me the huge increase in production?

Gross Withdrawals from US Natural Gas Wells 1973-2012

Gross Withdrawals from US Natural Gas Wells 1973-2012

Low prices natural gas prices in the US are largely an artifact of an economic recession that coincided with a couple of relatively mild winters that combined to reduce demand. Those low prices will not last because there are many factors building up to increase demand at the same time that increases in supply are dropping; most drillers and their backers are not happy about sustained low prices. Please understand that the total above ground inventory of natural gas is roughly equal to ONE month of demand.

Gas is not energy dense and it is explosive. It is not safe to keep much of it around; that is why natural gas prices tend to be quite variable over short periods of time.

About Rod Adams

45 Responses to “Where is the huge increase in US natural gas supply?”

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  1. George Carlin says:

    The fact that natural gas prices for consumers is so dependent on market forces is a huge drawback for NG. A consumer is completely at the whim of market prices and can see their energy prices jump up as quick as NG prices have dropped. That is not an energy source I want to depend on.

  2. Meredith Angwin says:

    Rod…I didn’t look up the original numbers for that graph, I admit, but it looks to me like natural gas production was around 2,000 in 2005 and is around 2,400 now. That is a significant rise in production, especially since gas prices (like many prices) are set by marginal availability.

    The usual econ 101 example for my marginal statement is that when an employer needs 20 workers, and only 19 apply, those 19 can each cut a good deal for themselves. If two more apply (21 apply for 20 positions) the ability to cut a good deal is gone. That’s a marginal change in number of workers, but a huge change in pricing.

  3. Steve Skutnik says:

    @Rod: The chart you show seems to indicate a 30% increase – while that’s far from an “explosion,” it’s certainly a non-trivial increase, especially given that supply has, by that graph, essentially been flat (or even declining) for 20 years. This has also manifested in terms of proven reserves, which has also grown over 25% in the last 10 or so years.

    Again, your point would be far better supported if proven reserves were not also increasing, but this is clearly not the case. Neither withdrawals or proven reserves have shown a net decline. If we’re experiencing a glut due to low demand, as you claim, why are proven reserves and withdrawals increasing?

    Further, there’s an easy way to establish your claim – net consumption.

    Consumption since 2001 has averaged slightly upward – on the order of 4-10%. We see a small dip in 2012 (looking at the monthly numbers). But we clearly see supply outstripping demand. Basic econ dictates what follows.

    Your claims just don’t add up, Rod. As much as I’d also like to believe that natural gas prices are going to explode, none of the data supports your assertion.

    • Rod Adams says:

      @Steve – here is a public wager. By the end of 2014 there will be at least one month in which the price of natural gas at Henry Hub will exceed $10 per MMBTU.

      The bet is $50. Are we on?

      • Steve Skutnik says:

        @Rod: Okay, let’s make it an official wager then – I accept. (Keep in mind, I’d rather be wrong, but I don’t think I will be.)

        • Joel Riddle says:

          Is the bet for a sustained month of > $10/MMBTu?

          If the timescale were extended to 2015, the price point of the bet lowered to $8, and the period reduced to 2 weeks, I am pretty sure I would bet on that happening.

          The completion of the LNG export facility at Sabine Pass, the continued conversions of vehicles to run on CNG or LNG, and the completions of more 55-60% thermally efficient Combined Cycle power plants will drive up the demand side of the equation and cause prices to rise. If they get too out of hand, some coal plants that have fallen down several rungs on the dispatch order will move back up.

          My (qualitative) guess for the average price of NG at the Henry Hub for the period from 2014-2018 is around $6-$8/MMBtu.

      • Daniel says:

        Since we have entered the domain of complexe finances and wagers, I strongly disagree with the NRC’s decision to halt progress on CALVERT CLIFFS 3 NUCLEAR PROJECT, due to international financing.

        We are talking about civilian nuclear plants. After safety concerns, waste concerns they have now found a way to get things to stop with financial structure.

        This is a modern version of calvinism no less. It is disgusting. Financing, control and decision making can be split. It is getting ridiculous and maybe it is time to call in Ghost Busters.

        In the meantime Dr J is in Fukushima talking about safety and nuclear. Who puts ou the bill?

        • Rod Adams says:

          @Daniel – in this case, the ACRS is simply following the law. The rule against foreign ownership for nuclear power plants in the US was codified in The Atomic Energy Act of 1954 and has never been repealed or amended.

          Interestingly, the law does not apply to fuel cycle facilities.

          The law should be changed. It is obsolete.

          • Daniel says:

            @ Rod,

            Do you think CALVERT CLIFFS 3 will find the financing ? Why are they dragging their feet since it is a known contrainst for at leastr 2-3 years now.

            I am worried.

          • Daniel says:

            If Calvert’s management wants to buy time, they could appeal the decision.

            If the NRC is equal to itself, this easily takes a few years & the licence application will be maintained.

            Clavert Cliffs 3 will have plenty of time to find financing.

            That is what I suggest.

      • John Tucker says:

        Barring general inflation in energy markets and spot disasters, you are probably going to lose that. At least recent events would seem to dictate so:

        Nearly full natural gas reserves, onshore drilling minimize Isaac’s effect on price ( http://newsok.com/nearly-full-natural-gas-reserves-onshore-drilling-minimize-isaacs-effect-on-price/article/3705608 )

      • Joris van Dorp says:

        I think you will win Rod.

        The shale gas situation in US is a perfect storm of multiple temporary phenomena coming together that have driven up production and driven down prices, only to result in an equal and opposite move sooner or later.

        I expect prices will at least reach between $5 and $8. Add in the customary overshoot due to the volatile nature of natural gas market and I can certainly see $10 in the near future. More likely the peaks will be higher than previous peaks, because the production of dependable *conventional* gas has kept (slowly) falling, while new-build of gas consuming electric plants + new NG vehicles will increase demand above historical levels. $15 will then come into view, especially if the NG price outside of the US stays as high as it is now.

        Difficult to say how quickly this will all play out. If all players would have perfect knowledge of the future, then NG gas would be between $5 and $8 in the US for a very long time, since Shale Gas may be a crap resource compared to conventional gas: at least it is highly abundant.

        http://energypolicyforum.com/?p=505

  4. Jeff S says:

    Rod, are you looking at the same graph i am? Because i see something on the order of a 50 pct increase in production over the course of twenty years. That seems pretty big to me.

  5. SteveK9 says:

    Rod,

    Might have sent this link before. You may find it interesting. There are also a few more recent articles by this guy (Wolf Richter). To me this (and a few articles like it) have the ring to truth to them. There are plenty who disagree with him. They sound to me like the same people who told me housing prices would never drop.

    http://www.testosteronepit.com/home/2012/6/20/natural-gas-where-endless-money-went-to-die.html

  6. Bruce Behrhorst says:

    I’d rather get gas from flatus by bovines grazing on pastures of alfalfa.
    This source of gas would be much more stable for price points. BIG OIL is a crazy industry. In British Columbia political mavens are predicting a turn away from the Northern Gateway Project. And the RNC POTUS candidate promising every energy source development under the sun. At some point auto manufactures who don’t get Gov’t bailouts will have to commit to making cars that run on fuel sources where prices have a modicum of price point stability rather than the ‘soup-to-nuts’ flex-fuel sales pitch now en vogue.
    Gov’t regulation & the nuclear industry will have to step-up and seriously deal with competition issues as in co-generation to process a range of stable priced fuels for future autos for example.
    The media hype machine war against nuclear for hydrocarbon dollars funded by petrodollars should cease at some point you have to start telling the truth that nuclear offers competition in energy markets.

  7. John Tucker says:

    Look at storage options as well. Its not a colossal amount but with decreases in production it does prove a surplus. There are/were very few export venues for NG.

    Weekly Natural Gas Storage Report ( http://ir.eia.gov/ngs/ngs.html )

    Low U.S. injections reflect already high natural gas storage inventories ( http://www.eia.gov/todayinenergy/detail.cfm?id=7450 )

    Natural Gas may have been oversold and rushed into, overrated reserves combined with weak environmental resistance for being the proverbial “bridge fuel” – but – its infrastructure can be easily modified to accept similar hydrocarbon feed products of which there seems to be nearly unlimited supply.

    • George Carty says:

      Isn’t natural gas (along with other fossil fuels) a genuine “bridge fuel”? A bridge between the muscles, wind and water of the pre-industrial era, and the nuclear-powered world of the future…

      • John Tucker says:

        This article seems to share your opinion Rod. One thing I will note is NG production is not much higher than it was from the 70’s from that EIA graph. Something I didn’t know.

        Natural Gas Suppressed, Yet Price Recovery Inevitable ( http://seekingalpha.com/article/857251-natural-gas-suppressed-yet-price-recovery-inevitable )

        http://www.eia.gov/naturalgas/ ( http://www.eia.gov/naturalgas/ )

        Climate also effects use. Although we have had a series of rather mild winters in many places, even with GW that’s not a guaranteed trend, and as a matter of fact due to storms and increased variability its conceivable in the future they could seem worse. (this coming winter could be interesting here and in Europe as well)

        So along with increased use by the power generation sector and new export capabilities coming on line things could be a bit tighter than I assumed. It wouldn’t take all that much to turn on a dime.

  8. James Greenidge says:

    So bizarre. Just woke up to regularly scan on-line news sources for the day and noticed several handfuls of natural gas PSAs featuring cute little girls blowing flowers, but the closest nuclear PSA I could find I had to hunt down on its creator NEI’s site, just featuring abstract 50’s era cartoons. Someone needs to clue pro nuke promos on what grabs and touches the public.

    James Greenidge
    Queens NY

  9. Daniel says:

    @ Rod,

    66 years after the atomic bomb …. Please go on the web and look at pictures of downtown Hiroshima (at night with the neons) and downtown Detroit.

    I think this would be a great topic. No comments. Just pics.

    • Daniel says:

      What was I thinking … Radiations in Hiroshima are lethal for billions of years …. Especially at ground zero …

  10. Daniel says:

    Just listened to Pres Obama’s speech.

    NO mention of nuclear energy but a lot of wind on climate change and greenhouse gas emissions.

    What a disappointment. A true green democrat.

    • Brian Mays says:

      Disappointing? Yes. But are you surprised?

      If you are, you haven’t been paying attention. Out this week: “The Top American Science Questions: 2012″

      Both candidates answered 14 questions related to science, energy, and health policy. Take a look at their answers.

      On energy, Obama’s “all-of-the-above energy approach” is (in order of preference?) “natural gas, wind, solar, oil, clean coal, and biofuels.” There is no mention of nuclear energy in any of his answers to these science-related questions, but his campaign does talk about “increasing the level of ethanol that can be blended into gasoline” (in case any of you were wondering whether your car’s gas mileage could drop any lower).

      Just in case you weren’t aware of the sponsorship of this year’s Presidential Election, Obama’s team even managed to slip in a commercial, by repeating the American Petroleum Institute’s marketing line: “America’s near 100-year supply of natural gas.” Keen, eh? Nice product placement. ;-)

      So, Obama is all about natural gas, “clean” coal, and ethanol, but no nuclear.

      Meanwhile, the answers provided by the Romney campaign — in addition to being more comprehensive and better organized, in general — mentioned nuclear energy twice in the answers to two questions, one on energy and another on climate change. No talk of ethanol, no commercials about a “100-year supply of natural gas,” and no mythical lipstick-on-pig qualifiers on coal.

      That’s quite a contrast.

      • Daniel says:

        @ Brian,

        Worth noting. Not a word on solar … Not a single word.

        • Brian Mays says:

          Daniel – Sorry. I’m not following you.

        • Brian Mays says:

          Daniel – Do you mean Obama’s convention speech?

          If so, are you surprised? Who would want to reopen the can of worms that was Solyndra? It was a major embarrassment for the administration.

      • Rod Adams says:

        @Brian Mays

        I did not watch either of the conventions, but I spoke to a young political “junkie” yesterday who did. She told me that each one of them could have included the tag line “sponsored by the coal, oil and gas industry.”

        She was sorry that she did not record the broadcast in its entirety so that she could let me have a copy so I could count the commercials and discuss the investment made in the political process by nuclear energy’s true competition.

        I admit freely that I am disappointed by both parties when it comes to a realization that nuclear energy should be listed at the top of any real energy policy agenda. However, it is par for the course to hear politicians in the US pander to the donors with the most open checkbooks.

        • John Chatelle says:

          I thought these people were concerned with the eventual historical view of their legacy. They get Libraries built in their name.

          A few months back, I heard of Bill Clinton’s return from Haiti. As I recall, his spoken proud accomplishment was to put solar panels on a school.

          Someday there will be a billion people in the lith of Mars and the Moon. They won’t be using windmills, solar panels, or combustion. I’m beginning to doubt there will be a high proportion American decendents among them.

          Long before that time, our long dead latter day ex-Presidents and political leaders will be known for the great damage they put upon the Unted States and her people for the benefit of their short term political well being.

          History will reveal them.

  11. Robert Steinhaus says:

    (Former) US Representative Dennis Kucinich feel that it is time to announce:
    A WORLD WITHOUT NUCLEAR

    In an effort to mobilize an election year policy shift, anti-nuclear protesters plan to congregate in Washington DC, hold a three day rally concluding with a protest action consisting of occupying the Nuclear Regulatory Commission.
    http://coalitionagainstnukes.org/ai1ec_event/rally-no-nukes-no-war/?instance_id=265

    Lots of old influential enemies of peaceful nuclear power generation will be at the three day rally, including Dr. Arjun Makhijani, President, Institute for Energy and Environmental Research (IEER); Arnie Gundersen of http://www.Fairewinds.com; Alice Slater of the Nuclear Age Peace Foundation; Michael Mariotte of Nuclear Information and Resource Service (NIRS); Beyond Nuclear’s Paul Gunter; Harvey Wasserman of http://www.nukefree.org; congressman Dennis Kucinich; Green Party presidential candidate Jill Stein; and Japanese activist Yuko Tonohira.

    Pro-nukes usually get inferior media exposure and lose the information contest with the antis that are skilled and adept in manipulating public opinion through unwarranted fear. Will pro-nukes and Thorium advocates attempt to offer competing information to present a balanced and realistic picture of the value of nuclear energy out to the public?

    Is there a wise response that could be offered by the pro-nuke community?

    Will any pro-nukes attempt to organize a counter rally?

    • Joel Riddle says:

      A properly executed counter rally would be nice. I wish I could participate, but I am pretty well stuck down in Florida for now, helping finish up a nuclear uprate project. Perhaps some of those with more free time at present could do something?

      One major advantage that the anti-nuclear lobby has is that its members likely have very little productive economic activity going on in their lives, and thus can devote far more free time to their extremely misguided cause.

      One thing that might be nice to include in the counter-rally would be to somehow convince the anti’s there to take a properly administered and interpreted MMPI, as I suspect they would mostly do miserable on it.

      • Daniel says:

        I do not remember who made the observation, but notice how no anti-nukes ever went to show off on a military navy yard to protest against nuclear powered submarines.

  12. Daniel says:

    I have questions regarding Hiroshima and Nagasaki. Today, these cities are densely populated and have architectures that match the world’s best metropolis.

    Here are my questions:

    Were those cities ever evacuated based on fear of radiations after the bombs and if so for how long ?

    If they were not evacuated, why is the Japanese govt insisting to maintain those ridiculous evacuation areas around Fukushima ? It is not like they do not have reference points !

  13. northcoast says:

    Just wondering. Is this blog all about natural gas now?

    • Rod Adams says:

      This blog is all about energy from an atomic perspective. Its recent focus on the below cost prices of natural gas in the United States stems from the fact that those prices are having a strongly negative effect on the important effort of starting new nuclear projects.

      Temporarily low natural gas prices are causing decision makers to take the easy route of increasing the use of already existing natural gas fired power stations and building a few more of them. I believe that course of action will be the source of high profits for the oil and gas industry for several years at the cost of future prosperity for the rest of the economy.

      • Bruce Behrhorst says:

        “Gov’t regulation & the nuclear industry will have to step-up and seriously deal with competition issues as in co-generation to process a range of stable priced fuels for future autos for example.”
        Rod is correct. This is a BIG OIL/GAS ‘head fake’ on temp. low NAT GAS product price point.
        As I said before U.S. industry need to stop shooting itself in the foot. Both the U.S. nuclear industry, hydrocarbon refining industry and gov’t regulation need to cooperate to CO-GENERATE methane reforming for synergistic H2 fuels plus other future fuels.

  14. John Tucker says:

    One more thing – Intermittent renewables require supplemental natural gas cogeneration. Renewables cant truly replace coal or nuclear. Gas can and renewables can only displace natural gas.

    In other words they require its consumption to generate power.

    That in itself could be a something of a game changer in the equation that I haven’t seen addressed completely.

    • Daniel says:

      @ John,

      We can also go circular on the natural gas madness and link it to ethanol and its water requirements.

      Here it is:

      To grow and process the corn for one gallon of ethanol takes 3,300 gallons of fresh water. Some of that water comes from underground aquifers that are being depleted. To fill a 20 gallon gas tank with E-85 (85% ethanol) requires 17 gallons of ethanol, the production of which consumed 56,700 gallons of water, 472,000 pounds of water.

      Growing corn also requires large quantities of nitrogen fertilizer which is made from natural gas, a non renewable resource.

    • Rod Adams says:

      @John Tucker

      The natural gas industry is well aware of their connection to building unreliables (aka renewables). If they had not already figured it out for themselves, they have been treated to several talks on the topic by such prominent unreliables advocates as Robert F. Kennedy Jr. and former Colorado Senator Tim Wirth:

      Here is RFK Jr. telling the Colorado Oil and Gas Association that large wind and solar plants are really gas plants:

      http://atomicinsights.com/2010/11/robert-f-kennedy-jr-tells-the-colorado-oil-and-gas-association-that-wind-and-solar-plants-are-gas-plants.html

      And here is an article about Tim Wirth, as a representative of Ted Turner, telling the same group a similar story at a previous meeting.

      http://atomicinsights.com/2009/08/best-smoking-gun-ever-former-senator-tim-wirth-giving-natural-gas-industry-legislative-pep-talk.html

      • John Tucker says:

        Unbelievable – on the boards of renewable megga green and he just says it point blank :

        “The plants that we’re building, the wind plants and the solar plants are gas plants.”

        Ive have never seen that and its over 2 year old. I didn’t start looking at nuclear power seriously until recently because responsible environmentalism demands it, but they have known there was a dependence problem with gas and “renewables” all along.

  15. Daniel says:

    I do not want to pass judgment but discouraged family men in Italy and Greece are committing suicides over their economic situations:

    http://www.cnn.com/2012/09/10/business/italy-economy-suicide/index.html?hpt=hp_c2

    The link to gas and energy ? Well, Greece imports 65% of its energetic requirements and Italy close to 83%. Can’t these guys get a nuclear infrastructure in place and reduce their energy costs ?

    Monty, the newly elected Premier of Italy, was a top notch energy official within the European Community Government and knows very well that nuclear is very competitive.

    Was the check is he waiting for? Where is the leadership ?

    Italy is like France 40 years ago and should embrace their slogan: Hey France why did you go nuclear again ?

    NO OIL, NO GAS, NO COAL, NO CHOICE

    That’s right.

  16. Gunnar Littmarck says:

    I think this is the real threat:

    http://en.wikipedia.org/wiki/Underground_coal_gasification

    That old dirty method can be clean an safe with modern technique.

    Fischer-Tropsch method under ground, and the best is that all heave metal will stay in the deposit.

    I who are for mass produce smr GenIV try to find the biggest threat.

    With under ground coal gasification you can build the factory over the coal and that can be as deep as 1300m below.

    Inject water and up to 55% of the energy will come up as hydrogen.

    This coal technique do not use mine workers or train, and do not pollute the air.

    The next ten years will show if I’m right (hope not).

    Anyway energy will be cheap after expensive oil is competed out of the market, in ten years. maybe…