Is The Booming Natural Gas Industry Overproducing?

Reply Wed 25 Jan, 2012 11:10 am
As usual, the gas companies will reduce the amount of gas it produces to keep the cost to consumers high. They never give the drivers, especially for the unemployed a break! BBB

Is The Booming Natural Gas Industry Overproducing?
by Christopher Joyce
January 25, 2012

The practice of hydraulic fracturing — pumping fluid into underground rock to push up natural gas — has its detractors, especially among environmentalists. But it's becoming clear that whatever its drawbacks, "fracking," as it's called, is producing a lot of gas — maybe too much gas.
Map: Natural gas drilling (4:3)

Interactive Map

Conventional Natural Gas Drilling Areas And Shale Basins

Fracking was once a small part of the natural gas industry, a technique to get hard-to-reach deposits in underground shale. Then the technology improved, and the dinner bell rang. Everybody wanted in. Now there's so much gas on the market that the price is at a 10-year low.

Michael Kehs, vice president of Chesapeake Energy, one of the biggest shale gas producers, says "the boom has only occurred over the last few years, and the market at first wasn't sure that it was real." But now, he says, "it is so real that's it's actually depressing prices, and the view is that the price will remain low for a number of years going forward."

In fact, companies are storing a lot of gas instead of selling it. Underground and tank storage sites are near capacity.

Chesapeake is pulling back from some wells. The company is moving half the drilling rigs it uses for dry gas wells into wells that produce both wet and dry gas. "Dry" gas is the stuff you use in your stove or water heater; "wet" gas is ethylene, propylene and butadiene, chemicals mostly used to make plastic or textiles. Wet gas products bring a higher price. Some of these wells also produce oil, which is also pricey right now.

It's almost like the shale 'Field of Dreams.' We've built it, and now the demand will come.

- Michaek Kehs, vice president, Chesapeake Energy

Sara Banaszak, an economist with America's Natural Gas Alliance, an industry trade group, says other energy companies are doing the same, but they aren't likely to abandon shale gas.

"Companies that are here to produce natural gas are here for the long term," she says. "You know, there are micro-adjustments in the path along the way, but I think they've made their investments and I think they're going to pursue that path."

Banaszak says fracking operations are pretty flexible. "One thing that is good about a lot of the unconventional production is the ability to sort of scale it up and down with changes in demand and supply," she says.

For Chesapeake's Kehs, it's a matter of waiting for more people — electric utilities or factories — to move to gas power. "You know," he says, "it's almost like the shale Field of Dreams. We've built it, and now the demand will come."

A warm winter has also kept prices down, but analysts at the federal Energy Information Administration say low prices could last for years, which could eventually boost demand. If it doesn't, there's already talk in the industry about liquefying America's surplus gas and exporting it overseas.
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Reply Wed 25 Jan, 2012 11:15 am
Foreign Oil Imports Drop As U.S. Drilling Ramps Up
by Elizabeth Shogren
All Things Considered - NPR
January 24, 2012

Since President Obama took office, the U.S. has made considerable progress in overcoming a problem that has bedeviled presidents since Richard Nixon — dependence on foreign oil.

When U.S. oil dependence peaked at 60 percent in 2005, then-President George W. Bush said the country had a serious problem and was "addicted to oil."

Oil imports were down to 49 percent in 2010, and the Energy Information Agency predicted Tuesday that imports would drop to 36 percent by 2035.

"Reliance on imported petroleum we expect to decline dramatically over the next 20 years," says Howard Gruenspecht, acting administrator of the Energy Information Agency.

Fueling The U.S.: Supply And Demand

The chart below shows both the consumption and the domestic supply of liquid fuels in the U.S. in millions of barrels per day. The difference between these amounts, the area shaded in yellow, indicates the amount of liquid fuel the U.S. imports to make up the difference between demand and domestic supply. By 2035, the U.S. Energy Information Agency expects the U.S. will only need to import 36 percent of its oil.
Chart showing U.S. oil consumption and domestic oil supply, 1970-2035

Source: U.S. Energy Information Agency
Credit: Melanie Taube/NPR

This reflects in part the fact that after decades of decline, U.S. oil production started posting gains in recent years. The Energy Information Agency predicted the increase will continue, and by 2020, the oil production rate would be up 11 percent to 6.7 million barrels per day.

"That's really reversing a long slide," says Gruenspecht.

Criticism For Blocking U.S. Production

Ironically, this breakthrough is happening during the administration of a president who has been steadily criticized for blocking domestic petroleum production. Republicans have attacked him for slowing off-shore drilling in the Gulf of Mexico after the BP spill and for deciding not to open some federal lands in the West to oil and gas development.

But energy experts make it clear that regardless of the criticism, a positive trend is underway that should change the way the county thinks of itself and its relationship with unfriendly, oil-rich nations.

"We have a complete change in the historic view that we are helplessly dependent on energy imports, oil imports going forward," says John Deutch, a Massachusetts Institute of Technology chemistry professor and former CIA chief who advises the Obama administration on energy.

Deutch says the situation is even brighter than it seems, because Canada could supply most of U.S. oil imports in the future.

We have a complete change in the historic view that we are helplessly dependent on energy imports, oil imports going forward.

- John Deutch, former CIA chief and Obama Administration energy adviser

"I frankly find Canadians as reliable as Californians [in] providing us with energy, so you should not include the Canadians in that import dependence," Deutch says.

Expansion On Private Lands

Oil industry executives agree that the outlook is rosy.

"Past assumptions of oil and gas scarcity that went into business strategic plans, governmental policies and public attitudes are out of date," says James Mulva, chairman and CEO of ConocoPhillips. "The major production trends have certainly been reversed."

The breakthrough comes as oil companies are using hydraulic fracturing, or fracking, to blast open the rock that contains the oil.

According to Mulva, more rigs are drilling for oil in the United States today than have been for 25 years.

But here is where the criticism of President Obama comes in: Mulva stresses that most of these rigs are on private property. They are drilling into places like the Bakken formation, which lies under parts of North Dakota and Montana.

"Had this been government land, we would likely still be awaiting drilling permits or fighting lawsuits from NGOs or outright drilling bans enacted from Congress," Mulva says.

Using Less Fuel

Still, increasing U.S. oil production is only one reason that reliance on foreign oil is waning.

Another is that Americans are using less fuel.

The Energy Information Agency says overall U.S. oil consumption has declined since 2005. The agency predicts it will grow only very slowly over the next two decades, because of policies that boost the fuel efficiency of cars and increase the use of renewable fuels like ethanol.

President Obama deserves credit for those policies. So does his predecessor, President Bush.

The EIA's Gruenspecht says America's dependency on foreign oil will ease even more than the agency's forecasts suggest if Obama goes forward with his proposal to further tighten fuel economy in cars for model years 2017 to 2025.

Related NPR Stories

Blocking Keystone Won't Stop Oil Sands Production Jan. 18, 2012
Obama's Tapping Of Oil Reserve Gives New Fuel To Partisan Energy Debate June 23, 2011
Why Is Gas Cheaper In Midwest? Thank Canada Feb. 14, 2011
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Reply Wed 25 Jan, 2012 12:05 pm
My overly simplistic answer is that as long as we're hitting the pipe.... the oil pipe that is.... we aren't producing enough. The question, IMHO, should be, are we beheading the big oil companies and the politicians in their employ who are doing everything they can to insure we stay dependent on oil so they can make a few more bucks before they die, in the town square?
Reply Wed 25 Jan, 2012 12:29 pm
Ive been saying for the last few months that the gas guys are starting to cap their wells waiting for a price recovery. I was hoping that the assholes of industry would use the opportunity to produce some new gas using cars or diesels. (YEs we can "Build" ethyl ester from nat gas and use it for diesel).
We have a glut of gas that, if gasoline is gone, I can drive a compressed gas or propane fueled car.
We need to create some demand for gas . Set up a balance point where its worth pumping it v sitting on it.
The gas fieldds in PA are slowly shutting down and the people being laid off.
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Best One
Reply Thu 5 Apr, 2012 08:45 pm
Chesapeake Energy is fighting a very large lawsuit filed in Stark County NorthDakota 2012. Billions at stake for Chesapeake breaching a contract, etc.
Reply Fri 6 Apr, 2012 03:15 am
@Best One,
whats the nature of the suit? I follow thi stuff closely.
Reply Fri 6 Apr, 2012 04:08 am
THere is now, reportedly, almost 1/3 of the newest gas wells being capped and shut down in the NE tier of the PA gas fields. Thats a crying shame cause its a price tipping thing and by letting prices just creep back up will not have a desired effect of getting more "USASAGE of nat gas and propane. What will happen is that the "wet gas" production will drive the costs of plastic feedstocks down until that frees up petroleum fracs back into the market nd driving the ultimate products down too. Its compicated and ike a big hydra but commerce based on pure capitalism does have shortcomings too. Its gonna be cyclic and therefore, not a really good time to invest in new unless you diont mind a bumby ride.
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Reply Fri 6 Apr, 2012 01:12 pm
Could it be this?

Best One
Reply Fri 6 Apr, 2012 06:52 pm
Breach of contract,etc. Involves several hundred thousand acres of oil and gas mineral leases.
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Reply Sat 7 Apr, 2012 04:24 am
Thanks for the information. SOnds like whts beneath it all is an overestimation of the field extent and potentia resources. Baaaad form to overextend lease holds and then try to back out. It appears that, in this case Chessie's gonna be in a big fight.
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