Theoretically, we have a very large amount of resources of many kinds available–oil, natural gas, coal, uranium, gold, fresh water. There is a relatively small amount of high quality, inexpensive-to-extract resources, and we tend to extract those first. From there, we move to lower quality resources that are more expensive to extract. The question comes: How do we reach limits for the extraction of any of the resources?
For oil, I have shown this chart:
I recently explained what I think is happening with oil, as we are extracting lower and lower quality resources, in my article Oil Limits, Recession, and Bumping Against the Growth Ceiling. High oil prices are squeezing the economy, leading to recession. I think this squeeze may ultimately lead to serious financial problems and reduced oil production.
In this post, I want to discuss natural gas, instead of oil. Here we are also moving down the resource triangle, getting to lower quality, more difficult to extract resources as well.
Shale gas is very low on the resource triangle for natural gas, at least according to Stephen Holditch, in a paper authored under the Distinguished Author Series of the Society of Petroleum Engineers. It has even lower permeability measured in millidarcies or md) than tight gas or coal bed methane.
It seems to me that in the United States we are, or will soon be, reaching a different kind of squeeze at the bottom of the triangle for natural gas–the squeeze of too low prices for shale gas producers to be profitable. If, somehow, natural gas prices do manage to rise sufficiently for the majority of shale gas producers to be profitable, the higher prices are likely to add to the oil’s high price squeeze on the economy that I noted in my earlier post.
In this post, I will explain what I see as happening with US natural gas supply and prices, and how this fits in with the natural gas supply controversy we have been reading about in the press recently.