It sounds as though the New York Times agrees with me: relatively low product prices (coupled with, I maintain, a hostile Democratic administration) are setting the stage for a shortage of domestic natural gas in the future. And by “in the future”, that’s not ten or twenty years from now. The NYT says 2010, and I’d bet that’s not far wrong.
Certainly we’ll have a supply shortage for natural gas during Obama’s first term: his policies explicitly target independent operators, who drill 90% of the nation’s wells. Since the typical gas well starts producing at a high rate and quickly drops off, the overall ability of the system to deliver high peak rates is dependent on having a large number of one to two-year-old wells. With fewer rigs working, there are fewer new wells, resulting in less peak deliverability, resulting in higher prices.
With all due respect, you asked for it, Mr. Obama.
The number of oil and gas rigs deployed to tap new energy supplies across the country has plunged to less than 1,200 from 2,400 last summer, and energy executives say the drop is accelerating further. …
The reversal of fortune could have important implications for the future health of the nation’s energy companies, for consumer wallets and for national aspirations to rely less on foreign energy sources. …
Energy experts and company executives warn that oil and gas companies now cutting back on investments will be unable to respond quickly to a future economic recovery. John Richels, Devon’s president, said that if the slump lasted two years, it could then take 18 to 24 months for companies to reassemble rig crews.
That means a glut could rapidly turn to scarcity, sending energy prices soaring again. Already, experts are predicting that lower domestic gas production by the end of the year will require increased imports of liquefied natural gas from places like Qatar.
That sounds a lot like my diary from a couple of weeks ago:
What most people don’t realize is that some 80% of the domestic rig fleet is searching for natural gas. Because of prices, rig activity is way down in both sectors. But, especially for natural gas, it is important to maintain high activity.
At current rig utilization rates, we’re probably treading water with gas deliverability. But these tax proposals will absolutely kill any desire on the part of drillers to make new wells. You, the consumer will feel the pain, if not this coming winter, then the next. There will be a shortage of natural gas.
The real irony is that natural gas is perhaps the greenest fuel we have. And we have plentiful domestic resources, and world-leading technology to go get it. But we’ve got to be able to drill wells…
Oil and gas companies have felt the double whammy of prices (down 75% in 8 months) and the stock market meltdown. The typical small oil and gas company’s share are down 75% from 52 week highs – many are trading for pennies on the dollar. This is clearly not the time to make independent oil and gas companies a political whipping boy.