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USGS Ponders the Question, "Are We Running Out of Oil?"

The USGS's answer, in poster form, is "Wrong question! The question is 'When is the big rollover?'"  The big rollover turns out to be the time when oil goes from a buyer's market to a sellers' market. When will that be? Soon. Who's fault is that?  Nobody's fault. "We are not running out of oil, it will just become more precious."  It's a big pdf file that takes a while to download. q.v. or q.v.  Wonder if it went trough inter-agency review? Had it, EIA would have disagreed, since it doesn't expect the big rollover for decades and decades. q.v. Ironically, EIA bases it's view on USGS data.


Mystery of the Missing Quads, Part 4:  EIA Solves It -- On Shore, Lower 48!

Mary Hutzler, head of long-term forecasting at EIA, has presented Congressional testimony to explain where the necessary supply will come from to satisfy natural gas demand in 2015/2020. q.v.  It won't be from the sources Pete investigated in parts 1, 2, and 3.  Surprisingly, the necessary gas will be found in a combination of conventional nonassociated gas from the lower 48, and what EIA calls lower 48 nonassociated unconventional, which means primarily tight sands gas and coalbed methane.  Here is EIA's view of gas production through 2020:

wpe3.jpg (18881 bytes)

Who would have guessed that after 30 years of decline, the lower 48 states were primed for a renaissance that would surprise even Erasmus, or, for that matter, Lazarus?  And it will all happen without price increases, since the forecast assumes a wellhead price of $2.81/Mcf (1998 $) in 2020.  Unfortunately, EIA is a little vague on how this could possibly happen, other than suggest that technological progress will play a role.

So Pete asked Gary Swindell, consulting petroleum engineer out of Dallas q.v., what he thought.  (Mr. Swindell's paper on gas decline rates in Texas q.v. is well worth reading for background).  He replied, "I think there's plenty of gas out there to supply US needs for quite some time. But the price and particularly activity level MUST change. Last year we added less than 3,000 new gas completions in Texas - less than half what I figure we need just to stay even. And the treadmill keeps running faster, which is the main point of my paper. There's got to be a steep increase in activity across the whole country to keep up with demand. Clinton's actions to take huge gas prone areas out of play for drilling is not going to help. Washington wants natural gas as the preferred fuel, but as the API(?) pointed out, "gas does not rise from the earth as if by magic into our homes and plants."

In fairness to EIA and confirming Mr. Swindell, the agency has now looked at the problems caused by accelerated production declines from gas wells in a new study q.v. that apparently wasn't ready until after Ms. Hutzler's had given her testimony.  While EIA hasn't changed its reference forecast, it examines what happens to natural gas well head prices if decline rates continue to be as severe as they have been in recent years* and finds that prices will have to increase greatly and that the production levels called for in the reference case won't be met. So, technically, the missing quads may not have been found, depending on which EIA analysis is used.

For comparison purposes, read the National Petroleum Council's gas assessment q.v. and the specialist newsletters on two of the major domestic gas production provinces: the San Juan Basin q.v. (which includes large amounts of coal bed methane) and the Permian Basin q.v.  The newsletters conclude that production from the two regions has peaked.

*From the report: "While natural gas wells drilled in 1972 declined from their peak at an average rate of 17 percent per year, natural gas wells drilled in 1996 have been declining at an annual rate of 49 percent. At the same time, the ratio of natural gas production to the level of proved reserves resources that have been identified and are ready to be developed have increased from 15.7 percent in 1991-1992 to 18.0 percent in 1997-1998.   In addition to the effects of depletion, exploratory drilling for oil and gas was also extremely low in 1999 as a result of unusually low prices. In 1999 the average number of rigs drilling for oil and natural gas was only 625, the lowest level in decades."


Mystery of the Missing Quads, Part 3:  Methane Hydrates

Clearly, the quads Pete's been searching for could easily be supplied from the vast amounts of methane (80-90% of natural gas) trapped the form of ice-like hydrates.  The potential is enormous since the quantity of carbon trapped in the hydrate form is believed to be at least twice as large as carbon stored as fossil fuels.  Since methane, CH4, is a far more potent greenhouse gas than CO2, it's important that attempts to release the carbon and hydrogen locked in methane not trigger catastrophic subsea landslides or other events that could release huge volumes of methane into the atmosphere. q.v.1, q.v.2

Hydrates are relatively easy to find since they have a recognizable acoustic signature.  q.v. Depending on how much you need to know, read US Geological Survey background information q.v. or more detailed thesis info on hydrate chemistry, physical occurrence, properties, etc. q.v.

DOE has had a research program for some time. q.v. DOE is just deciding who's going to do the research funded for the current year.  Here's the most recent list:

Is this enough activity for a country intent on following a natural gas future without enough gas?  Pete doubts it.


Mystery of the Missing Quads, Part 2:  LNG

Our story so far: It remains unclear how a natural gas future will work since it's not apparent how the US will get 15 of the 35 quads it will need each year.  Pete looked at the US offshore and couldn't find them, but maybe he wasn't looking far enough offshore.  There is increasing evidence that some important people plan to import the gas in liquefied form from other continents.  Consider the BP chairman's remarks, "Will LNG sales into the USA increase materially? We believe they will if, as you suggest, gas market prices in the USA are generally healthy. With the latest liquefaction technology and the general levels of US prices (not necessarily today's relatively high prices), we believe imported LNG will be a significant factor in the future of US gas." q.v. Consider that ExxonMobil has just awarded a turnkey contract to an engineering firm for a cryogenic system at its Beaumont, TX refining and petrochemical complex. Consider that Enron has been getting ready for some sort of venture to help Venezuela get involved in the LNG business.  And, of course, as explained below, the big east coast gas pipeline just bought the largest LNG plant in the country even though the plant had been nearly dormant for twenty years.  While El Paso isn't as far along as Williams, it plans to reopen its LNG facility near Savanah, GA.  Meanwhile CMS Energy, operator of an LNG terminal in Louisianna, processed 27 LNG shipments last year compared with 17 the year before and received or contracted for 35 shipments this year. Cabot Corp. which operates the questionably sited Boston LNG terminal received 44 shipments last year, up from 18 the year before, reflecting the start of shipments Trinidad and Tobago under a 20-year supply contract.

Certainly, LNG remains a plausible way for getting many of the missing quads.  Back in the good old days, when the Defense Department thought about the national security implications of energy policy, LNG was a type of forbidden fruit.  It represented an entirely different form of dependency with worse possibilities than oil dependency, and each shipment involved the raw energy of a nuclear weapon, making it prime terrorist bait.  A lot must have changed since those days.


Mystery of the Missing Quads, Part 1:  Mineral Management Service Doesn't Have Them

Now that our energy future calls for at least 35 quads of natural gas by 2020 instead of the 20 quads produced today, the issue is where the very substantial increase will come from.  Pete's been trying to track it down.  The first guess might logically be the US outer continental shelf, particularly the deeper zones in the Gulf of Mexico.  After all, the Gulf of Mexico has been providing most of our increased gas supplies for some time, and recent technological developments now make it possible to drill the fields that lie beyond the 200 meter level.  No question there's gas there, but will it be enough?  Here are the estimates reported by the National Petroleum Council and the Interior Department's Mineral Management Service (the jurisdictional agency for oil and gas production from federal holdings):

MMS Expected Future OCS Natural Gas Production (Tcf)

Year Gulf Mex/ NPC Gulf Mex/ MMS Pacific OCS Atlantic OCS Alaska OCS Hydrates TOTAL
2000 5.70 5.15 0.050       5.20
2005 7.40 6.40 0.030       6.43
2010 8.00 6.70 0.020   N/A   6.72
2015 7.60 6.40 0.010   N/A 0.05 6.46
2020   5.50 0.004 0.1 N/A 0.01 5.61

Notes: In essence, the MMS finds that the US OCS will be producing in 2020 about what it does today, even using MMS's aggressive case forecast.   Note, however, MMS gives no value for the Alaskan OCS even though it clearly has huge potential.  Hydrates too have huge potential, but no one knows how to extract methane commercially without environmental risk.  Note that the Atlantic OCS is locked up by law until 2008, and therefore won't contribute as much as it could.  Finally, note that values reported for MMS are the most optimistic case.  MMS base case in 2020 was 4.3 Tcf.    NPC=National Petroleum Council, MMS=Mineral Management Service, OCS=outer continental shelf.  Source:  MMS, Future Natural Gas Supply From The OCS, April, 2000, p. 35.

No missing quads supplied here.  Read the Mineral Management Service's study and conference presentations. q.v.  Fans of bureaucratic humor, like Pete, will appreciate MMS's subtlety.  Instead of saying 'sorry, not enough gas will be available to supply the missing quads,' they politely assume that their political masters are right -- that gas production will indeed grow to 35 quads -- and then announce that the share of total US supply to be provided by the OCS will decline from 27% to about 20%.

View Pete's HTML recastings of the original PowerPoint presentations:

    OCS Natural Gas         Deep Water Gas I         Deep Water Gas II

For a  point of view that believes there'll be lots of OCS gas, try the Gas Research Institute's supply assessment. q.v.


Methane Jones

You thought the addiction to foreign crude was embarrassing, but consider gas.  Despite wildly optimistic US resource assessments, most marginal natural gas sold in the US comes from Canada. q.v.  That's OK.  Everyone knows the Canadians are nice, reasonable fellows who've always been good to us, eh?  Except the Canadians have on the books a vague law q.v. that allows them to rein in the petroleum trade whenever it appears to be in their interest (and making the US pay dearly was in their interest in the late 70s); and the Canadians export most gas to the US under short-term contracts. q.v.1 q.v.2  So read the Financial Times report that all might not be aces in Alberta not as grounds for panic in needle park, but as a sort of distant warning that somebody should be looking into. The Canadian Potential Gas Committee has no definite word, pending release of a major study next year, but their site includes some interesting preliminary analyses. q.v. (you can disregard the warning that one of the files is 800 meg in size)