Our Dwindling Supplies of Natural Gas
by Cam Mather
Natural gas prices were at a seven-year low in September and it’s given a lot of people a false sense of security. The price of natural gas has started to head back up and I believe the upward trajectory of the curve will get steeper and steeper for a variety of reasons.
First is demand. Organizations like Ontario Power Generation keep building natural gas power plants to deal with peak electricity demand because they are fast and relatively cheap to build. Second is short-term supply. The economic collapse, which destroyed demand, sidelined a huge amount of natural gas well drilling activity. As the economy improves the inventory will quickly be used up and we will not have enough in the reserve to keep prices in check. New gas wells that come on line have lower production and older wells are getting depleted. When you read this it doesn’t sound that bad, but let’s look at it in detail.
The mainstream media keeps talking about all the natural gas being discovered in the continental U.S. It’s true that there are a lot of deposits of gas being discovered in shale and coal beds. These deposits are much smaller than traditional natural gas wells and they are very problematic to get at. Traditionally you just drilled a well down into the ground and hit a pocket of natural gas. You capped the well and you were rockin’ and rollin’. The natural gas in a shale deposit is locked up in the rock and distributed over a larger area so you have to try and break up the rock to get at it. This is called hydraulic fracturing or “fracking” and you inject water, chemicals and sand to break the rock to release the gas.
The first problem with this method is that unless you are careful, that water and all of those chemicals (which can include diesel fuel) will mix with ground water that people drink. In many areas where fracking is going on there has been widespread contamination of groundwater. Andrew Nikiforuk documented this in his book called “Tar Sands” as did William Marsden in his book “Stupid to the Last Drop”.
The second problem is that these methods just don’t produce as much gas. In 1990 unconventional gas from shale and coal-bed methane made up 10% of U.S. production. Today it is 40% and growing quickly. The more gas produced this way the more drinking wells will be contaminated. The reality though is that clearly unconventional gas isn’t going to be able to keep up to current North American demand.
David Hughes is on a crusade to alert people to the impending energy crisis. He worked for the Geological Survey of Canada and as a former public servant he wants to warn the people who employed him about the challenges we face. In an interview with Global Public Media he provided the following data. (Go to http://globalpublicmedia.com/transcripts/827 )
In 1990 our rate of gas production in Canada was about 14 Billion cubic feet (Bcf) per day and our depletion rate was about 13%. (This means that if we didn’t drill new wells to replace the gas we used our production would drop by 13% each year.) In 2004 our depletion rate was 20%. Part of the problem is that in 1996 the average gas well produced about 600 thousand cubic feet (Mcf) per day but in 2004 it was only about 200 Mcf/day. So we had to drill 2 or 3 wells in 2004 in order to achieve the same output as just one well drilled in 1996. In 1996 we drilled 4,000 successful wells. In 2001 with much higher gas prices we drilled 11,000 gas wells, but only had a 10% increase in productivity by drilling 3 times as many wells.
In 2003 we drilled 14,000 wells and production fell by 3%. In 2005 we drilled 16,000 wells and production was at the same level it was at in 2002. You can see how the numbers just don’t add up over the long haul. If we keep up at this pace the Western Canadian Sedimentary Basin (WCSB) in B.C., Alberta and Saskatchewan will look like Swiss cheese. A coal bed methane well might produce 100 Mcf/day. More and more wells will have to be drilled for less and less gas.
The economic collapse came along and destroyed demand and dried up capital so well drilling activity took a nosedive. We should be drilling like crazy just to keep our homes heated but we’re not.
David Hughes sums it by saying we drilled 300,000 wells to discover the first 70% of the natural gas available in the WCSB. For the 30% that’s left we’ll have to drill 500,000 wells. We’ve found the big, easy to reach deposits. What’s left is in smaller deposits that are harder to find, so it’s going to be very expensive. Gas prices will have to rise or it simply won’t make sense for a natural gas driller to bother. To take on the risk and expense, gas will have to be much more expensive.
The point for you as a homeowner is that there is only 30% left and we may not get all of it out of the ground. If you heat your home or hot water with natural gas you are in for a shock. I know what you’re thinking, “but gas is so cheap right now.” Markets are great at pricing things over a 6-month period rather than a 6-year period. For the next 6 months with the mild winter we’re having things look great. The economic downturn has idled industrial demand so everything is rosy in the natural gas world. When you look 6 years down the road though it’s a different story. If you’ve got a natural gas furnace, it’s a terrifying story.
The rebate from the Federal Government to help you to put in a geothermal system and get off natural gas only lasts until 2011. What are you waiting for?
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Reader Jeff Goodman added this to a previous post about geothermal and so I thought I would add it here as well;
“The rebate for geothermal is presently $8750+ but that’s a combined federal / Ontario rebate. I think SK offers the same. I think the other provinces have a lower total rebate, maybe federal only ($4350?). This program is presently expected to end March 31, 2011, all work and the follow-up visit to be completed by then – so people should move on this now if they want this rebate (and who wouldn’t?). A friend of mine in Maryland USA got much more than this amount.
Federal / Ontario Combined Rebates: http://www.mei.gov.on.ca/en/pdf/conservation/homeenergy/OHESP_Brochure_English.pdf