Countdown to 100$ oil (23) - Running out of natural gas in North America

(click on graph for updated prices)

Okay, natural gas prices are waaay down from their highs, so all's fine, right? It doesn't matter than these prices are still double the highest power plant developers expected only a couple years back, they are down. Alert over.

Hah! Let me show you just one new graph below the fold.

This is a simple compilation of the prognoses made each year by the US government, through the Energy Information Agency of the DoE, for expected future production in North America.

The top line was the prediction made in 2002 for future years. The next line the prediction made in 2003, etc...

Notice something? The predictions have been going down every single year... and so has production, in recent years.

As I posted a while ago, the problem is that more and more wells are being drilled, but they run out quicker and quicker.

This graph shows the rates of decline depending on the year the field was put in production: the slopes are getting steeper and steeper, i.e. new production is declining really quickly, and thus total production is going down.

This prediction, made in 2003 by the National Petroleum Council (pdf - see p.11), shows where the gas was expected to come from back in 2003: a good chunk of it is expected to come from Alaska or Artic Canada, and lower 48s was supposed to remain stable. This seems increasingly unlikely.

The ONLY solution will be to bring in more LNG, but guess what: - all the expected import terminals are expected to be built right on Hurricane Lane:

If there's any problem with import terminals, or any other supply problem of any kind, you get a tight supply-demand balance and what happens is what we saw in the UK last week when a cold snap happened at the same time as an accident on a storage facility: prices quadrupling overnight...

What the first graph above means is that the decline in production is much faster than was expected only a few years ago, which means that, like in the UK, the facilities that have been planned to replace that production will be available too late and, in the meantime, the system will be highly vulnerable to any incident.

Earlier "Countdown Diaries":
Countdown to 100$ oil (22) - gas shortages in the UK - 240$/boe
Countdown to 100$ oil (21bis) - long term vs short term worries
Countdown to 100$ oil (21) - 8-page extravaganza in the Independent: 'we're doomed'
Countdown to 100$ oil (20) - Meteor Blades is Da Man in 2005
Countdown to 100$ oil (19) - Your bets for 2006
Countdown to 100$ oil (18) - OPEC happy with oil above 50$
Countdown to 100$ oil (17) - Does it matter politically? A naked appeal for your support
Countdown to 100$ oil (16) - We'll know on Monday
Countdown to 100$ oil (15) - the impact on your electricity bill
Countdown to 100$ oil (14) - Greenspan acknoweldges peak oil
Countdown to 100$ oil (13) - Katrina strikes / refinery crisis
Countdown to 100$ oil (12) - Al-Qaeda, oil and Asian financial centers
Countdown to 100$ oil (11) - it's Greenspan's fault!
Countdown to 100$ oil (10) - Simmons says 300$ soon - and more
Countdown to 100$ oil (9) - I am taking bets
Countdown to 100$ oil (8) - just raw data
Countdown to 100$ oil (7) - a smart solution: the bike
Countdown to 100$ oil (6) - and the loser is ... Africa
Countdown to 100$ oil (5) - OPEC inexorably raises floor price
Countdown to 100$ oil (4) - WSJ wingnuts vs China
Countdown to 100$ oil (3) - industry is beginning to suffer
Countdown to 100$ oil (2) - the views of the elites on peak oil
Countdown to 100$ oil (1)

•  Tip Jar - Mar. 24

  by Jerome a Paris on Fri Mar 24, 2006 at 03:42:38 PM PDT

  •  European Tribune

    • More commentary on the French protests.
    • update on the demonstrations against the dictature in Belarus
    • discussion of the ceasefire by ETA, the Basque terrorist organisation
    • How Bush is meddling in the ongoing Italian election campaign

    by Jerome a Paris on Fri Mar 24, 2006 at 03:46:05 PM PDT

  •  terrific diary

    as always

    by OrangeClouds115 on Fri Mar 24, 2006 at 03:49:08 PM PDT

  •  Question on the EIA Forecast

    It appears in that chart that the 2004, 2005, and 2006 estimates began revising DOWNWARD, prior year estimates of supply!  WTFO?

    How do you get the supply wrong for prior years?

    by Hoya90 on Fri Mar 24, 2006 at 03:58:17 PM PDT

    •  Not exactly sure

      But as I wrote below (http://www.dailykos.com/comments/2006/3/24/184733/170/11#c11), I expect that the "2004" forecast is produced in 2003 and includes an estimate for 2003, which can be revised downwards later (and thus in the 2005 forecast, which would have the real data for 2003)

      by Jerome a Paris on Fri Mar 24, 2006 at 04:05:04 PM PDT

  •  Oil and Gas Futures

    Jerome,

    Did you see the oil and gas futures' prices that were posted on The Oil Drum the other day?

    Thanks for making me aware of that great site.

    by Benito on Fri Mar 24, 2006 at 08:08:03 PM PDT

•  What does this have to do with Ben?

  by melvin on Fri Mar 24, 2006 at 03:48:45 PM PDT

  •  all the more reason to get it onto the rec'd list

    I'm sick of ben

    by OrangeClouds115 on Fri Mar 24, 2006 at 03:49:49 PM PDT

    •  He had his fifteen minutes already. Enough.

      by melvin on Fri Mar 24, 2006 at 03:52:12 PM PDT

  •  Yeah I thought dKos was supposed to be

    All Ben all the time.

    by inclusiveheart on Fri Mar 24, 2006 at 03:51:16 PM PDT

  •  Who's Ben? nt

    by Jerome a Paris on Fri Mar 24, 2006 at 04:01:07 PM PDT

    •  (Kidding)

      Although I must admit i have not followed that particular story closely

      by Jerome a Paris on Fri Mar 24, 2006 at 04:01:54 PM PDT

    •  Well there is a lot of gas involved.

      Harness the energy of those furious fingers pounding the keyboards.

      by melvin on Fri Mar 24, 2006 at 04:04:21 PM PDT

      •  Well said, well said, my man.

        by panicbean on Fri Mar 24, 2006 at 04:56:03 PM PDT

      •  I could add something here

        About unicorn farts and the natural gas supply, but that would be plagiarism against Hunter, so I won't.  I got ethics.

        My words:  Whoever thought up the idea of electric power plants that run on natural gas were definitely drunk, on drugs, or just plain foolish.  How do these people keep getting in decision-making positions?

        by jcrit on Fri Mar 24, 2006 at 06:25:36 PM PDT

•  If the price

  of oil rose $1 every time you posted a "$100-per-barrel" oil diary, then the price of oil would be $100 per barrel.

  Jerome, I bet you we don't see $100 p/brl oil for at least 5 years.

  Deal or no deal?

  by misterblaine on Fri Mar 24, 2006 at 03:52:32 PM PDT

  •  Set the stakes

    But tell me if you are talking exclusively about oil or if you include natural gas in the bet.

    by Jerome a Paris on Fri Mar 24, 2006 at 04:00:42 PM PDT

    •  Stakes...

      U$S 100 to the charity or cause of my/your choice if the price of crude ever closes at or above $100 per barrel between now and March 24, 2011.

      by misterblaine on Fri Mar 24, 2006 at 04:03:40 PM PDT

      •  Done

        Let's state WTI as the reference for the avoidance of doubt.

        by Jerome a Paris on Fri Mar 24, 2006 at 04:06:06 PM PDT

        •  Okay

          Now, I hope I'm still alive on March 11, 2011...

          by misterblaine on Fri Mar 24, 2006 at 04:08:25 PM PDT

          •  You know

            that you can also place your bet in my 2006 pool. You get a free chance to win a bottle of champagne if you end up with the most accurate bet...

            by Jerome a Paris on Fri Mar 24, 2006 at 04:12:16 PM PDT

            •  No,

              I didn't know that, but now I do.

              I will submit a prediction shortly.  Champagne it is.

              by misterblaine on Fri Mar 24, 2006 at 04:17:15 PM PDT

            •  noble prize for the guy who calculates snap point

              I bet there is a price that can be calculated that predicts the point where oil hits a certain price/barrel forcing gasoline prices to a certain price/gallon which impacts the bottom line of businesses so dramatically that demand collapses and the economy tanks faster than light.

              So far the economy has withstood the tripling of price.  Gas prices has been super cheap.  But with prices doubling people are abandoning their SUV's faster than you can say hybrid.  

              Local prices are at $2.49/gallon(MI) so a $3 summer is inevitable.  So the question is not when will oil hit $100/barrel but when does the economy snap from the economic pressure of expensive and supply limited energy.  

              So aren't we at 88mbpd, how far can supply be pushed by demand past this 88mbpd level?  What is the impact of $70,$80,$90/barrel?

              My balance on my heating bill is $754.  I paid $160 last month, I'll try to pay $200-$300 next month, that still leaves me a balance of $454 plus the gas I'm using this month!!  You figure it out, this is money I'm not spending on other stuff.  and I'm doing all I can TO USE LESS GAS.

              When gas hits $4/gallon the impact on the economy will be dramatic when oil hits $100/barrel demand will soften rapidly from the economic contraction that will ensue.  Their is only so much money out there, the balance will be the minimum demand of the world's economy for oil and other energy resources.
              ie hit may hit $100/barrel but it won't stay there long, in the short run at least

              by gaspare on Fri Mar 24, 2006 at 05:38:21 PM PDT

              •  Er, maybe you should do some research?

                may hit $100/barrel but it won't stay there long

                Nope, it sure won't stay there long. Peak Oil will make sure of that. It'll just keep on rising - in TEN years people will fondly remember the days when oil was "only" $100/bbl.

                Remember the 1974 Embargo? The huge lines US drivers waited in to get gas? The entire world is getting ready to have the same experience. It won't be temporary, pretty, or peaceful.

                cdn

                by grndrush on Fri Mar 24, 2006 at 10:27:43 PM PDT

                •  I did add in the short term at least

                  I've been tracking the peak oil issue for seven years now.  The price/barrel will be set by the demand vs. supply.  It'll also be set by what countries can afford.  My bet is that China can afford a much higher price for several reasons 1. they can impose draconian conservation measures overnight 2. they have cut deal with Iran and other oil rich countries regardless of US influence 3 they are strategically in a much better location to influence the middle east.

                  I think oil will hit $100/barrel in the very near future maybe by this summer but their is a snap point where people will car pool, cut back or do whatever to spend less on gas causing demand to eventually slip, at the same time the money being spent on energy is money that won't be spent on the rest of the economy like eating out, weekend getaways, the economy will contract.  Will this be enough to make the price fall below $100? Probably.  and only in the short term.  with globabl demand constantly increasing unless an energy alternative is found soon, peak oil will cause more and more pressure on price.  And even bigger will be the reduction of supply caused by wells drying up throughout the world and the lack of new finds to replace that supply.

                  by gaspare on Mon Mar 27, 2006 at 09:33:00 AM PDT

  •  Ha

    I'm gonna remember this post. I bet we'll see $100/barrel oil in two years, maybe less.

    by xjac on Fri Mar 24, 2006 at 05:05:00 PM PDT

•  The Graph: 'DOE EIA Forcasts' ...

  ...(just under the fold) looks funny to me.

  How is it that the estimate for '06E tracks back to 2002 when the estimate itself was supposedly made in 2006?

  Same for '03 to '05... just aking...

  by Sanuk on Fri Mar 24, 2006 at 03:55:33 PM PDT

  •  Real production numbers.

    I expect the, say,  2004 forecast to be prepared sometime during 2003, probably in the later part of the year, and released then or early in 2004,  so it includes real numbers until 2002, an estimate for 2003 and forecasts for 2004 and beyond.

    by Jerome a Paris on Fri Mar 24, 2006 at 03:59:43 PM PDT

    •  'rolling reality'

      nt

      by count on Fri Mar 24, 2006 at 07:47:51 PM PDT

•  I suppose this would be the place to ask...

  What's up with gas prices being up lately? Was it that cold snap that did it? Instability in the Middle East? Nefarious environmental regulations? Gearing up for "summer fuels"? Some other BS excuse? Or, perchance, are we just maxing out the available supply as demand increases? I see that diesel is back down, relatively speaking, so I'd assume that they've increased diesel production back to normal levels at the expense of gasoline production...

  by pb on Fri Mar 24, 2006 at 04:00:14 PM PDT

  •  a little of each

    Plus an unexpected problem.  

    Refinery shutdown could lead to $2.50 gas

    Brokers said the rally was sparked after Amerada Hess said Tuesday that over the weekend it unexpectedly shut a gasoline producing unit at a refinery in St. Croix that it co-owns with Petroleos de Venezuela. The spokesman said repairs to the unit, which refines roughly 150,000 barrels of crude per day, could take up to two weeks.

    by randym77 on Sat Mar 25, 2006 at 08:50:03 AM PDT

•  Hurricane Lane

  The major reason that the most of the new LNG terminals are expected to be built in the Guilf Coast is that it is the only place where they do not face overwhelming local opposition.   Because of local opposition, it is virtually impossible to build them elsewhere.  

  by johnny rotten on Fri Mar 24, 2006 at 04:15:05 PM PDT

  •  They call them LULUs

    LULU = Locally Undesirable Land Use

    Quaint term, don't you think?

    by Joe Bob on Fri Mar 24, 2006 at 05:09:38 PM PDT

  •  Changing attitudes

    In the US we're already seeing a major change in attitude toward nuclear power, and I suspect that as the energy situation gets worse that objections to LNG terminals, wind turbines "spoiling" the view (a view I very strongly disagree with, for the record), etc., will fade away pretty quickly.

    by loudGizmo on Fri Mar 24, 2006 at 06:36:27 PM PDT

•  Problems I've got, solutions would be nice.

  OK I am convinced we are in deep doo doo. How does usage break down by sector? i.e. transportation, home heating, commercial heating, electricity generation, cement manufacturing, industrial feed stock (plastics et al)...
  Without knowledge of where the current demand is, there is no rational way to come up with a  conservation plan. Having said that what is your solution?

  Great job as usual Jerome. Thanks for the effort.

  by leftover on Fri Mar 24, 2006 at 04:32:58 PM PDT

  •  peak oil solution

    die-off. That's how most living organisms respond to resource depletion. There is no solution to peak oil. We're in overshoot. There are far too many people on this planet to sustain after oil peaks. We are in for a rude awakening.

    by xjac on Fri Mar 24, 2006 at 05:12:28 PM PDT

    •  overshoot

      overshoot says it all

      The human population curve is eerily tied to the energy availability curve.

      The down-side of that energy availability curve says some scary things when the demand cant go down with it gently.

      by mrcoder on Fri Apr 07, 2006 at 08:52:21 AM PDT

•  Not my view, but their view

  I hear some talk of $55 being the next support. The risk premium is a bit rich, Iran, the hurricane season and Bush still in Washington. Then yesterday a major carrier announced weaker than expected numbers. The financial knee jerk analysts called it poor execution, but if the economy is slowing then builds or lower than expected drawdowns, mean the economy is in trouble.
  A recession might not have the expected consequences, lower oil prices, but thats' clearly number one. In the event, will China divert all their excess capacity to domestic production, they aren't that flexible. The prime mover of course is the dollar, and the weak dollar has pushed oil prices higher than static demand could do by itself.
  So a recession with a weak dollar, equals higher oil prices, stagflation, etc. The kicker is shortages, someone made the point that not all oil trades on the free market, and perhaps even less oil will trade there. This puts futures markets in a bind, they can set prices, based on demand, but what if they can't guarantee delivery? ouch. looks like we're back to 1977, would prices necessarily go to $100. I think you could make a case that oil prices are already well below the relative value of the dollar, yoy, so oil is being supported, and will probably trade at a discount to the dollar, but, there may not be any oil to buy.  
  Oil is the transportation component of energy, gas is the domestic, and manufacturing component. Thanks to global warming the demand for gas slacked off this winter, and driving has a large discretionary aspect, people can cut back, and will when times get difficult. Freezing to death is not an option however.
  but i would expect to see just in time delivery put in place, and some of the slack taken out of the market, and the market to become more efficent. I wouldnt count on Bushco to figure it out, but if we start running into shortages it doesn't make sense to hoard. does that make any sense?

  by agent double o soul on Fri Mar 24, 2006 at 04:59:14 PM PDT

•  A strong hurricane season is predicted

  There was no southern osscillation induced El Nino and only a weak La Nina to knock the tops off the 'canes. There are 9 forcast hurricanes 5 of which are predicted to category 3 or higher, 3 of which may go to the Gulf. My bet is $100/bbl August 29, 2006. It will be reached again when we go to war with Iran, probably at the end of September.

  by sailmaker on Fri Mar 24, 2006 at 05:58:52 PM PDT

•  Recently I read about

  The discovery of a large new Mexican deepwater field, but as Jerome says, it won't be producing for several years.

  Jerome, you have amassed an incredible body of work at dkos. I don't know how you do what you do, but I'm very glad you do it.

  by count on Fri Mar 24, 2006 at 07:43:41 PM PDT

  •  If it even exists

    Many suspect it's just "political barrels."  In any case, they can't have a real idea of how much is down there with the limited exploration they did.  The numbers they waved around are probably the largest estimate possible, and about as likely as winning lottery.

    by randym77 on Sat Mar 25, 2006 at 08:55:34 AM PDT

•  NG vs. Oil

  I have always wondered why a certain type of graph is always done for NG fields but never for oil fields. The one I am talking about is this, from Jerome's post:
  
  If people could see this effect on oil fields, we could better explain the situation for oil as well.

  by Webster Hubble Telescope on Sat Mar 25, 2006 at 02:24:57 PM PDT