Natural Gas: The Squeeze at the Bottom of the Resource Triangle

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:

Figure 1. My version of the oil resource triangle.

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.

Figure 2. Stephen Holditch’s resource triangle for natural gas 

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.

Continue reading

Don’t count on gold in a downturn

The way the price of gold keeps rising, a person might think that no matter what the downturn, gold would prove to be a good investment. I think that if things don’t fall apart too much, gold will be an OK investment. If things really start falling apart, though, it is not clear that gold will work nearly as well, especially if we expect gold to function as a currency itself.

If things don’t fall apart too much

If we keep teetering on the edge, but our current financial system remains in place, gold seems likely to be a good investment–whether it is coins or gold bars, gold shares or exchange traded funds. People are frightened, and because of this, seem likely to keep bidding up the price of gold for some time to come. Continue reading

Oil Limits, Recession, and Bumping Against the Growth Ceiling

The issues we are confronted with today seem to be a subset of the issues foretold in the book Limits to Growth back in 1972. At some point, the economy cannot continue to grow as rapidly as it did in the past. It appears to me that the most immediate limit we are hitting today is inadequate low-priced oil, but there are other limits lurking not far away–inadequate fresh water and excessive pollution, for example. When the economy cannot grow as fast, or actually starts declining, recession sets in. Governments start having debt problems. Financial markets start behaving strangely.

This issue is a difficult one to talk about, because there really is no good solution. I have talked to a couple of groups recently (one a church group; one a peak oil group), about this issue. This is a copy of the presentation I used (Bumping up against the Growth Ceiling (PDF) or Bumping up against the Growth Ceiling (PowerPoint)). In this post, I will discuss my presentation.

Slide 1

Continue reading

Recession: We are hitting an economic growth ceiling caused by limited cheap oil

People wonder what has been happening recently, with wildly gyrating financial markets and government debt problems. It seems to me that we are bumping up against an economic growth ceiling, brought on by a limited supply of cheap oil. As a result, we appear to be headed back into recession. Debt deleveraging can be expected to play an important role as well, and may cause this recession to be much worse than the last one.

Connection with Cheap Oil

Economists tend to believe that economic growth can continue, essentially forever. We are now reaching a reality check, with the recent severe recession and the economy’s apparent inability to rebound from that recession.

There are many reasons to believe that at least part of our continuing recessionary problem has to do with oil prices. For one thing, we know that food prices tend to rise with oil prices (Figure 1), and that food is a major expenditure for much of the world’s population. The association between oil prices and food prices arises partly because oil is used to grow and transport food. Now that food is being used to produce biofuels, there is a connection in the opposite direction as well: high demand for oil tends to lead to high demand for food crops that substitute for oil, thus further acting to raise food prices.

Figure 1. Food prices measured by FAO Food Index seem to rise and fall with oil prices, measured by Brent Oil Price (Data, FAO, EIA)

Continue reading

Fall of the Soviet Union: Implications for Today

Back in the 1960s and 1970s, the country that was the “big growth story” was the Soviet Union. Its oil consumption grew by leaps and bounds. Its space program grew; its military program grew; and it became much more industrialized. But then something happened to stop the amazing growth story. The Soviet Union became the Former Soviet Union (FSU) in late 1991, and even before that, oil production and consumption slowed.

It seems to me that the FSU changes have been helpful to the rest of the world, in ways we don’t stop to consider, because it helped put off peak oil and left resources of many types in the ground that could be extracted later. Furthermore, the fact that in many ways the FSU has not bounced back to where it was prior to the fall, even today, has some profound implications, as the world contemplates going through its own financial “tight spot,” and wonders what may be ahead.

Continue reading