The Energy Tribune has an excellent cautionary tale titled New Research Questions Haynesville Shale Economics for those people who insist that abundant shale gas is the saving grace for the US energy needs and that its abundance is sufficiently large to serve as THE bridge to a solar/wind utopia.
I have been watching the energy industry for too long to ignore the fact that there is plenty of economic lucre awaiting fossil gas companies if policy makers accept the notion that natural gas is so abundant that it can be used at a greater rate than today in both electrical power generators and compressed natural gas fueled vehicles. Methane prices are relatively low today, compared to the peaks achieved in 2008, but that is only because demand across all traditional customer sectors including chemicals, fertilizer, electrical power, and residential heating is subdued by the recession.
Some financial analysts are seduced by the higher than average storage numbers that the gas industry is reporting, but it is important for policy makers to understand just how small our gas storage is in comparison to the annual demand. The US consumes roughly 20 trillion cubic feet of gas every year, but the total amount of storage in the system is only about 6-7 trillion cubic feet and at least some of that would be unusable. The system has to have relatively constant production levels in order to meet customer demands without interruption.
Shale gas wells tend to produce generously for the first year or so after being drilled, but their depletion rates are far higher than gas wells in the kinds of formations that have historically been tapped. I think of them as sprinters that wear out quickly. The problem is that their drilling costs require a longer payback time at today’s prices. Higher prices would enable the costs to be repaid in a shorter period of time, but higher gas prices would have devastating effects on the traditional customer base. Chemical manufacturing and fertilizers can move, but home heating is, by definition, a domestic demand.
It is funny – in a very sad way – how adamantly the oil/gas industry fights additional taxes under the mantra of their negative effects on hard working people, but markets their product hard in order to increase sales prices as driven by supply and demand imbalances. Of course, taxes do not go into the pockets of oil/gas company executives, but higher prices sure drive those profit numbers and the associated bonus payments, even without any improvements in actual productive performance.