Real men worry about gas

The concern about Peak Oil has been subjected to a lot of criticism lately, as the recent decline in oil prices, combined with the announcements of major oil finds in the Gulf of Mexico have given a lot of yaysayers plenty of ammo.

There's reason to be skeptical of both factors, however: Even with it's recent "decline", the price of oil - still hovering in the $60 range - is twice as expensive as what was considered dangerously destabilizing less than a decade ago. (The Clinton administration frequently chided OPEC members whenever oil rose above $25.) Moreover, The Oil Drum wrote an excellent refutation of the idea that Gulf oil was going to save the day.

Less-noticed, but far more immediate than the worry of peak oil, is the problems facing North American natural gas production.

In 1990, the United States had an average of about 460 natural gas drilling rigs operating, which increased to 940 by 2001. This is a measurement of how quickly people are dilling new wells, not a measure of increased production. New production is a fraction of how many wells are dug, because nobody gets it right 100% of the time. Nevertheless, that doubling of drilling rigs operating in the US didn't produce stellar results - production went from 21,500 trillion cubic feet in 1990 to 24,500 in 2001. For a doubling of effort, we didn't get a huge payoff.

It gets worse, however. Between 2001-2006, the number of drilling rigs has increased more than 50% again, from 940 to 1400 in August. This time, however, the gross production has actually declined by about 1,000 TCF in 2005 (the last full year for which data is available.) The numbers on natural gas production are highly variable, and are far more dependent on things like whether or not we get a mild winter in the northeast. But the trend is clear: we are running faster and faster just to stay in place - drilling more and more wells just to keep production level.

(These numbers are from the EIA, here and here.)

The situation is actually much worse than the similar numbers for oil, because while there's a global market for oil, no such market exists for natural gas in the United States. Only about 5% of America natural gas comes from liquid natural gas terminals, and the rest of America's imports come primarily from Canada.

So how's the situation in Canada? About the same. According the Canadian Association of Petroleum Producers, natural gas production has stayed level while drilling rigs have increased about 50% from 2001. None of this is particularly secret - Lee Raymond, before he left as CEO of Exxon, said publicly that he expects North American NG production to decline from here on out, whether or not large projects like the Mackenzie Valley pipeline come online.

The situation has gotten dire enough that not even the energy regulators can ignore it anymore. A few months back, the Canadian Energy Board released a report (PDF) stating that, barring major investments in every area of NG infrastructure, we are in for major disruptions in NG prices and availability. This week, Natural Resources Canada released a report that comes pretty close to ringing the fire bell - saying that while Canada will continue to see increased oil production thanks to the tar sands, natural gas production
will start to decline by 2011, and increased demand in Canada will cut NG exports to the US by about half by 2020.

What is this going to mean? Well, more expensive fertilizers and plastics, or those industries will move overseas to the Middle East and Central Asia. (Wait for the Republicans to start talking about a fertilizer tariff. It's coming.) But more immediately, more expensive electricity on summer days (during peak demand) and more expensive winters. People who own gas stoves may switch to electric ones.

And unlike the uncertainty surrounding Peak Oil, there really isn't a lot of guesswork in these numbers. Canadian and American regulators are - despite real problems - far more transparent than other parts of the world, and these numbers are therefore more reliable than Middle East estimates of recoverable oil. The only wild cards are a) whether America massively invests in liquid natural gas import terminals, or b) whether there's a similar investment in alternative sources like coal-bed methane. LNG has some potential, because while this continent faces a crunch there's plenty of natural gas in Qatar, Russia, and Iran.

Both of these options face serious problems, from an economic, environmental, and political perspective. And in any case, the crunch is almost certainly coming faster than we can build infrastructure to cope.