The only true metric of energy abundance: The rate of flow

Okay, I'm going to give you the shortest course ever in energy abundance: Energy abundance depends entirely on the RATE of energy flow. Let me say it again: Energy abundance depends entirely on the RATE of energy flow.

Now, here is what it does NOT depend on: supposed, but often unverified, fossil fuel reserves in the ground; hypothetical, sketchy, guesstimated, undeveloped, undiscovered resources imagined to be in the ground by governments or by energy companies and often deceptively referred to as "reserves"*; claims about future technological breakthroughs; mere public relations puffery about abundance in the face of record high average oil prices.

Why is the rate of flow the key metric? Because in order to function the global economy depends entirely on continuous, high-quality energy inputs. We cannot shut down the world's electric generating plants for six months or even three months without crashing world society into a state of irretrievable chaos and decline. We cannot shut down the world's shipping fleet for even a few weeks without doing irreparable harm. Modern global society has become like a shark. It either keeps barreling forward or it dies.

Fossil fuels that are actually proven to be in the ground are by definition not currently being used, whatever we may consider their potential. Fossil fuels that are hypothetical and undiscovered by definition cannot be used. Technology is NOT energy. Technology runs ON energy. Energy first, then applied technology. The ancient Romans designed and built small steam engines and used them to animate children's toys. But, the Romans lacked the dense energy sources needed to make steam engines practical as a mode of transportation or of power for manufacturing.

Now, why am I making such a fuss about all this? Because this week we have yet another entry in the ongoing energy misinformation derby, this time from the usually sensible Atlantic Monthly magazine. In fairness, the headline on the magazine's cover which reads "We will never run out of oil" was probably not chosen by the author for it does not really respect the nuances found in the piece which inside has the only slightly less disinformational headline: "What If We Never Run Out of Oil?" The subheading makes the astounding claim that fossil fuels may not be finite making me believe that the editors didn't actually read their own story.

The editors are, of course, trotting out the tired canard that the opposite and urgent claim that we are running out of oil is made by those skeptical about oil abundance. But, the real claim from skeptics is that the RATE OF FLOW may begin to decline sometime in the not-too-distant future. Oil will be with us for a very long time, just not at these levels of production. If the rate of flow for oil declined by half in the next 20 years, we wouldn't be running out of oil at all. We'd still be pumping about the same amount as we were in 1967, a year of exceptional economic vitality. But, we'd feel the crunch because there are twice as many people on the planet now as there were then. And, the per capita consumption of oil has risen considerably since that year.

The Atlantic Monthly article does include some dissenting voices. But Charles Mann, the author of the piece, has missed the two most crucial points about the future supply of oil and natural gas. First, new unconventional sources of these hydrocarbons are more difficult and costly to extract than conventional ones. In addition, the unconventional well flows exhibit very steep declines in their rate of production--so steep that in the tight oil fields of Texas and North Dakota drillers must replace about 40 percent of their production PER YEAR just to maintain current output. The decline rates for shale gas are no more encouraging: 79 to 95 percent after three years according to a comprehensive survey of 65,000 oil and gas wells in 31 shale plays. Shale natural gas and tight oil drillers face a task similar to climbing up a down escalator. Each must replace enormous fractions of their current production frequently just to keep production flat. A path to persistently rising global production of oil and gas far into the future cannot be built on production from such fields.

Already, the shale gas production boom in the United States has ceased as natural gas production has been flat since December 2011 despite the more than doubling of natural gas prices from their lows in April 2012. World oil production has been on a bumpy plateau since 2005. Mann seems unaware of stalled natural gas production in the United States, and he failed to take into account the total picture of oil flows. Some 60 percent of current production flows come from aging giant fields representing just 1 percent of the world's fields, and as a group they are in decline. Production from all existing oil fields worldwide is believed to be declining at a rate of about 4 to 5 percent. We are trying to make up that decline from tight oil fields that decline around 10 times faster, and we are only just succeeding for the moment. Failing to understand the centrality of flow rates is such an elementary error that it is hard to believe that the Atlantic Monthly missed it.

But there's more. The affordability of hydrocarbons will also matter greatly. Gail Tverberg has outlined in detail on her blog Our Finite World how the high price of hydrocarbons tends to suppress economic activity which then leads to a downturn that then causes oil and natural gas prices to fall due to falling demand. That fall in prices makes unconventional sources of oil and natural gas uncompetitive leading to a slowdown in their production even as production from conventional sources continues to decline. As prices rise with economic recovery, we begin the same cycle again. This suggests that there is a limit to how much of the modern economy's financial and physical resources can be devoted to extracting energy without causing an economic contraction--something that the shark-like nature of the modern financial economy cannot withstand without the kind of severe repercussions we saw in 2008.

The Atlantic article makes one more misleading claim even as the author admits to a bias formed in 1998 while working on a previous energy article. He didn't correctly foresee the promise of experiments with hydraulic fracturing that led to the shale gas and tight oil production boom. Like a racetrack junky who bet on the wrong horse in the first race, the writer doesn't want to miss the next winner. But, he makes a faulty analogy between the new form of hydraulic fracturing and current pilot projects designed to harvest natural gas from methane hydrates, essentially natural gas trapped in ice crystals, most of which lie in deep ocean sediments. A successful test that produced natural gas from this source off the Japanese coast in 3,000 feet of water and 1,000 feet below the seabed has the energy optimists atwitter with talk of virtually unlimited natural gas supplies.

But, attempts to extract natural gas from methane hydrates should more properly be compared to the search for methods to extract oil profitably from the vast oil shale deposits in the western United States. After more than a century of trying, no one has been able to produce oil commercially from these deposits. It may happen someday at much higher prices and in very limited quantities given all the constraints. Not the least of those constraints is the water necessary to process what is not actually oil, but kerogen, a waxy, long-chain hydrocarbon that requires considerable energy and water to convert into what we call oil. Even the ever optimistic U.S. Energy Information Administration projects that by 2030 these deposits may produce only 140,000 barrels a day of what will essentially be synthetic oil. That compares to current world consumption of around 75 million barrels per day of crude oil plus lease condensate (which is the definition of oil).

As for methane hydrates, researchers have tried for decades to figure out how to extract the methane profitably and without causing the occasional explosion--a hazard encountered by companies drilling for conventional deepwater gas when they hit hydrates on their way to sought-after conventional reservoirs. As with oil shale, there are known methods now for extracting these gaseous hydrocarbons from methane hydrates. The remaining questions for both oil shale and methane hydrates are similar: How high must prices go before extraction of either will be profitable? So far, the answer is higher than what people will pay and therefore what the economy can stand. And, at what rate will we be able to get these resources out? Rate is the crucial question.

When it comes to oil shale, we know where it is. It's just that it costs so much to extract and process that we are not producing it commercially. When it comes to methane hydrates, however, we do not even know if the deposits are numerous enough or concentrated enough to make substantial commercial production possible. To pin our hopes on this has the makings of dangerously foolish energy policy.

I am not attempting here to address the climate implications of natural gas production from methane hydrates and shale, nor those of oil extraction from tight oil deposits or oil shale (kerogen). Needless to say, if the optimists somehow turned out to be right, burning all these hydrocarbons would lead to almost certain climate catastrophe. But, we are in bad enough shape as it is without compounding inaction on climate change with a misdiagnosis of oil and natural gas supplies.

Despite our best efforts, we have only just been able to keep oil supplies from declining in the last seven years. Despite (possibly exaggerated) claims that we have more oil reserves than ever, we need to remember that the rate of flow, that is, our daily consumption, has grown by a factor of eight from 1950 to the present. And, half of all the oil ever consumed has been consumed since 1985. The available reserves may be large, but they are being consumed at such a colossal rate that supposedly record reserves have been unable to lift that rate appreciably above a plateau that started in 2005. The result has been record average prices for oil worldwide for two years running. Rate is and always will be primary in evaluating our energy wealth.

While natural gas supply worldwide is likely to grow for a time, the cost of this new supply--especially if most of it comes from shale deposits and possibly methane hydrates--will be far higher than the optimists would wish. And, that has the kind of implications cited above for affordability and thus demand.

We seem to have hit a double wall that is both financial and physical when it comes to the flow of oil and natural gas. If we remain ignorant of the first principle of energy abundance, that flow rates are the key metric, then we will be doomed to bad energy policy and other serious consequences that flow from that ignorance.

*Reserves are properly defined as resources that can be extracted from known fields using existing technology and sold profitably at today's prices. Reserves are thus a tiny fraction of "resources," the estimates for which are actually vague, sketchy guesses about the amount of a substance present in the Earth's crust in a given area.

Kurt Cobb is an author, speaker, and columnist focusing on energy and the environment. He is a regular contributor to the Energy Voices section of The Christian Science Monitor and author of the peak-oil-themed novel Prelude. In addition, he writes columns for the Paris-based science news site Scitizen, and his work has been featured on Energy Bulletin, The Oil Drum, OilPrice.com, Econ Matters, Peak Oil Review, 321energy, Common Dreams, Le Monde Diplomatique and many other sites. He maintains a blog called Resource Insights and can be contacted at kurtcobb2001@yahoo.com.

Scientific viewpoint or 'religious' belief: My cat explains energy optimism

Each morning when I release my cat from the basement where he sleeps, he rushes to the upstairs bathroom to drink water from a bowl placed there for him. He appears to have a 'religious' belief that the water in this bowl is far superior to that in the bowl sitting alongside his food in the basement. So far as I can tell, there is no discernible evidence available to him to make this distinction. I take his preference then as a matter of faith rather than evidence. The water upstairs is holy. The water in the basement—not so much.

How do I know that the upstairs water is really holy? When I forget to fill the upstairs bowl, the cat complains even if his basement bowl is full. It is hard enough to reason with a cat, but even harder to argue one out of what is essentially a religious belief.

And so it is with humans. Some ideas find their basis in fact, while others fall under the category of faith. As it turns out, those that are faith-based are the most difficult to overturn. I rarely try. But, then there is a vast sea of ideas parading as facts, when really, these 'facts' are nothing but ideology based on ideas that are empirically false or at least suspect.

Such is the ideology of the fossil fuel optimists who tell us that the marketplace will bring forth whatever fossil fuel supplies we need when we need them at prices we like. Some, but not all, tell us that fossil fuel supplies have no practical limits because it is our imagination that brings them out of the ground. Statements like that are part and parcel of the kind of magical thinking that infects the public discussion about the future of energy.

I style myself as an energy realist with an emphasis on risk management. No one can know the future. That's why it is important to use our imagination to picture outcomes that might hurt us badly and to suggest measures to prevent or mitigate those outcomes.

The fossil fuel optimists in the world tend to be economists, not geologists (who generally take an empirical rather than religious approach to matters). Those economists simply know that they know that the marketplace is a superior force—even a god-like one—to which we should exclusively entrust our energy future. Yet, that same marketplace has failed to yield enough crude oil in the last decade to provide the cheap energy that keeps the global system stable. In fact, the record price of oil has and continues to be a destabilizing force in global affairs.

My colleague Jeffrey Brown—who back in 2006 conceived the Export Land Model and through it correctly foretold the subsequent decline in global oil exports and the accompanying price rise—recently remarked that many of the optimists believe something which defies logic. They believe that the sum of production from discrete oil wells, oil fields and oil producing countries around the world—which provide innumerable examples of peak production followed by persistent declines—will never add up to a global peak and decline in oil production—ever! Oil production will grow at some percentage each year forever, indefinitely.

In fairness, I must point out that quite a few of the other optimists say that a peak in oil production is decades away. So, at least their case does not rest on a logical impossibility imposed on a finite Earth. But, they refuse to admit that no one knows the day when oil production will peak. And, the inescapable logic of their position is this: If world oil production will someday peak and decline, the risk of a decline grows with each day. Failed peak oil predictions of the past don't mean that peak oil is wrong, only that peak oil draws ever closer. The bumpy plateau in oil production proper (crude oil plus lease condensate) since 2005 ought to be cause for alarm.

Now, I should classify those economist/optimists so that their motives become more transparent. There are those who work directly for or as consultants to the oil industry. Enough said. There are those who work for Wall Street firms that do substantial business with the oil industry. Enough said. There are those who work in government all around the world. Here it can only be said that most of the world's governments have no plausible plan for addressing the consequences of a persistent decline in world oil production. So, given that, it hardly seems advisable to them to inform the public about a danger for which there is no response.

The optimists associated with the oil and financial industries will tolerate no dissent. Those of us who want a rational discussion about logical outcomes, prudent risk management and sound public policy are to be ridiculed and shouted down as heretics. In fact, those optimists are currently engaging in a public relations blitz designed to drown out dissenting voices and make people think the following: "I'm hearing that we have a lot more oil from a wide variety of credible sources: energy analysts and consultants, oil industry executives, think tank scholars, university academics, even government energy agencies. How can they all be wrong?"

But the simple truth is that—except for the government personnel—they are paid directly by the industry or have financial ties to it through donations to think tanks and grants for academic research. The government personnel get most of their information from the industry, so it is not surprising that they share the industry's view.

Keep in mind that the work that the optimists do on Wall Street and in the oil industry is focused specifically on making rich people richer—that is, the rich who own and run the oil industry and the rich who own, run and/or prosper along with Wall Street and all financial establishments worldwide. These optimists are not paid to think about the public good, but only to search out speculative profits and stoke speculative fevers for the advantage of their benefactors. Their pronouncements about energy or practically any other subject are not made for the sake of good policy, but for the sake of high profits.

If there is room for optimism about energy, logic tells us that it simply cannot lie with finite, depletable resources. We do know that the resource of sunlight is vast. The solar radiation which strikes the Earth over just 20 days is equivalent to all the energy in known reserves of coal, oil and natural gas. But, so far, we have only been able to harvest just a tiny amount of it for human purposes. While there are environmental impacts to large solar and wind installations (and, let's not forget that wind is just another form of solar energy), the energy source, the Sun, is on any human time scale inexhaustible.

As a practical matter, we would have to reduce our energy consumption drastically over time to make it possible for renewable energy to supply the lion's share of our needs. Even a very rapid and large build-out of renewable energy infrastructure would not allow us to consume the colossal amounts of energy that we do today, at least not any time soon.

But, we know how to reduce our energy consumption considerably. I always get a rise out of American audiences when I tell them that the average European lives on one-half the amount of energy of the average American. And, it's worth noting that oil consumption for Japan, Germany, and Italy has been in persistent decline since 2000. But, even in these countries, there is much more to be done.

It matters little whether my cat ever comes to the realization that he's getting the same water upstairs as he is in the basement. His 'religious' belief in upstairs water does no harm to him and inconveniences me only on rare occasions. But the religious devotion of the energy optimists to the oil abundance story and their campaign to prevent a reasoned discussion based on the facts and logic has the potential to harm us all very badly and soon.

The future of energy is not a parlor game or a poker match. It's dead serious business. The oil industry and its spokespersons in their various garbs are taking it seriously. Are you?

Kurt Cobb is an author, speaker, and columnist focusing on energy and the environment. He is a regular contributor to the Energy Voices section of The Christian Science Monitor and author of the peak-oil-themed novel Prelude. In addition, he writes columns for the Paris-based science news site Scitizen, and his work has been featured on Energy Bulletin, The Oil Drum, OilPrice.com, Econ Matters, Peak Oil Review, 321energy, Common Dreams, Le Monde Diplomatique and many other sites. He maintains a blog called Resource Insights and can be contacted at kurtcobb2001@yahoo.com.

No post this week

A combination of computer-assisted difficulties and feline health problems have conspired to prevent me from finishing the piece I planned for this week. See you next week.

Aging giant oil fields, not new discoveries are the key to future oil supply

With all the talk about new oil discoveries around the world and new techniques for extracting oil in such places as North Dakota and Texas, it would be easy to miss the main action in the oil supply story: Aging giant fields produce more than half of global oil supply and are already declining as a group. Research suggests that their annual production decline rates are likely to accelerate.

The most recent research on giant oil fields has been available since 2009 so it doesn’t attract media attention the way new discoveries hyped by oil company public relations departments do. And yet, that research is far more important to understanding our oil future.

Here’s what the authors of “Giant oil field decline rates and their influence on world oil production” concluded:

1. The world’s 507 giant oil fields comprise a little over one percent of all oil fields, but produce 60 percent of current world supply (2005). (A giant field is defined as having more than 500 million barrels of ultimately recoverable resources of conventional crude. Heavy oil deposits are not included in the study.)

2. “[A] majority of the largest giant fields are over 50 years old, and fewer and fewer new giants have been discovered since the decade of the 1960s.” The top 10 fields with their location and the year production began are: Ghawar (Saudi Arabia) 1951, Burgan (Kuwait) 1945, Safaniya (Saudi Arabia) 1957, Rumaila (Iraq) 1955, Bolivar Coastal (Venezuela) 1917, Samotlor (Russia) 1964, Kirkuk (Iraq) 1934, Berri (Saudi Arabia) 1964, Manifa (Saudi Arabia) 1964, and Shaybah (Saudi Arabia) 1998 (discovered 1968). (This list was taken from Fredrik Robelius’s “Giant Oil Fields -The Highway to Oil.”)

3. The 2009 study focused on 331 giant oil fields from a database previously created for the groundbreaking work of Robelius mentioned above. Of those, 261 or 79 percent are considered past their peak and in decline.

4. The average annual production decline for those 261 fields has been 6.5 percent. That means, of course, that the number of barrels coming from these fields on average is 6.5 percent less EACH YEAR.

5. Now, here’s the key insight from the study. An evaluation of giant fields by date of peak shows that new technologies applied to those fields have kept their production higher for longer only to lead to more rapid declines later. As the world’s giant fields continue to age and more start to decline, we can therefore expect the annual decline in their rate of production to worsen. Land-based and offshore giants that went into decline in the last decade showed annual production declines on average above 10 percent.

6. What this means is that it will become progressively more difficult for new discoveries to replace declining production from existing giants. And, though I may sound like a broken record, it is important to remind readers that the world remains on a bumpy production plateau for crude oil including lease condensate (which is the definition of oil), a plateau which began in 2005.

One the clearest cases of the study’s key finding is Mexico’s Cantarell oil field, the second most productive in the world, until a steep decline began in 2004. Production from Cantarell stalled in the early 1990s leading Petroleos Mexicanos (PEMEX), the Mexican national oil company, to begin an aggressive drilling campaign and to build what at the time was the largest nitrogen extraction plant in the world. Once completed, the plant captured nitrogen from the air and injected it into the Cantarell field in order to counter falling pressure.

The result was a dramatic rise in production from about 1 million barrels per day (mbpd) in 1995 to above 2 mbpd in 2003, just two years after the nitrogen injection began. But, by the end of 2005 it was evident that Cantarell was in decline. What followed was a breathtaking slide from 2.136 mbpd in 2004 to just 394,000 barrels per day as of March this year. That’s a total decline of 81 percent in just over eight years.

PEMEX has stabilized total Mexican oil output from all fields at about 2.5 mbpd—it was 3.4 mbpd at Cantarell’s peak—by successfully increasing production from its Ku-Maloob-Zap offshore field. But once again the company is using nitrogen injection to achieve the increase just as it did at Cantarell. And so, PEMEX may be on course to repeat at Ku-Maloob-Zap the rapid decline previously experienced at Cantarell.

Four years on from the 2009 study it is possible that the percentage of world oil production from the giants has slipped as just enough production from new smaller fields has been added to keep global production flat. But if, as the study suggests, the decline rate for giant fields accelerates, the record-breaking expenditures and herculean technical efforts now being undertaken by the oil industry just to keep production flat may be overwhelmed.

Perched on a production plateau, either we are approaching ever closer to a decline in worldwide production of crude oil proper or new developments—that is, ones not yet in evidence—will boost the global rate of production definitively above the current plateau. The weight of the evidence, however, suggests an unfavorable outcome in the decade ahead.

UPDATED 4/9/13: After mysteriously disappearing, the missing PEMEX production report which included the latest production rate from the Cantarell oil field has returned to the company's website. I've now provided a link above.

Kurt Cobb is an author, speaker, and columnist focusing on energy and the environment. He is a regular contributor to the Energy Voices section of The Christian Science Monitor and author of the peak-oil-themed novel Prelude. In addition, he writes columns for the Paris-based science news site Scitizen, and his work has been featured on Energy Bulletin, The Oil Drum, OilPrice.com, Econ Matters, Peak Oil Review, 321energy, Common Dreams, Le Monde Diplomatique and many other sites. He maintains a blog called Resource Insights and can be contacted at kurtcobb2001@yahoo.com.

Current U.S. energy policy: Risk management that is worse than ever

Current U.S. energy policy is, in fact, a hodgepodge of disconnected policies designed for specific constituencies with no coherent goal. The country has subsidies for fossil fuels, subsidies for nuclear power, subsidies for wind and solar, and subsidies for insulating and retrofitting buildings. We also have energy standards for some appliances and miles per gallon standards for automobiles.

What never gets asked and answered definitively in the policy debate is this: What should our ultimate goal be and when should we aim to achieve it? The first part of the question has elicited so many answers from so many constituencies that I may not be able to represent them all here. But here is an attempt to categorize the main lines of thinking concerning the country’s energy goals:

1. Seek the cheapest price for energy with the implication that environmental consequences should not be tallied as part of the cost.


2. Complete a transition to renewable energy as quickly as possible while drastically reducing the burning of fossil fuels.


3. Replace all fossil fuel energy with nuclear power.


4. Develop all sources of energy to make sure we have enough at reasonable prices. This is often called the “all-of-the-above strategy.”

Goal 1 is really the argument put forth by the fossil fuel industry and therefore a defense of the status quo. Goal 2 is the dream of every climate change activist and clean-tech executive. Goal 3 seemed to be gaining some momentum before the accident at Japan’s Fukushima Daiichi nuclear plant dashed hopes for a widespread nuclear renaissance.

Goal 4 is being touted by my congressman who heads the U.S. House Committee on Energy and Commerce, and it is the policy of Obama administration. The so-called all-of-the-above strategy is the de facto energy policy of the United States, and the one which I described above as a hodgepodge of disconnected policies designed for specific constituencies with no coherent goal.

Our energy policy wouldn’t matter except for two things:

1. Fossil fuels supply more than 80 percent of the world’s energy, and they are finite. We cannot count on them to supply energy to us indefinitely. We simply do not know when their rate of production might turn down though a bumpy plateau in global oil production since 2005 is an ominous sign.


2. Climate change induced in large part by the burning of fossil fuels is proceeding faster than models have predicted. We don’t have much time to reduce our carbon emissions radically in order to avert the risk of catastrophic climate consequences.

No one knows the future, not my congressman, not President Obama, not the fossil fuel industry, not even climate scientists. But, we can outline the risks we face based on what we know today.

About fossil fuel supplies we know two key things. Already mentioned is that production of oil proper (crude plus lease condensate) has stagnated since 2005. Second, the remaining fossil fuels, especially oil and natural gas, will come from deposits that in general are smaller, less concentrated, harder to extract (in some cases due to geology, in others because of their location such as deep under the seabed and in the Arctic) and  harder to refine. This means these fuels will be far more costly and be produced at rates that are unlikely to rival the rates of the previous easy-to-get oil and natural gas.

About climate change we now know that it is proceeding faster than anticipated by climate modelers. That means the worst effects could arrive much sooner than expected, within a couple decades instead of several decades.

When it comes to oil and natural gas, it’s possible that yet-to-be-invented technology will make them cheaper and easier to extract in the future. We just don’t know. Even if that technology arrives, the ever increasing difficulty of accessing new deposits may more than wipe out any cost and productivity advantages.

It’s possible that climate change might slow down. But, that seems unlikely since events that are markers for the progress of climate change such as the melting of Arctic ice are occurring much sooner than anticipated. A few years ago it was thought that the Arctic might become ice-free in the summer by mid-century if we maintained our current greenhouse gas emissions trajectory. Now, some models suggest it could occur by 2020.

The point is that when it comes to fossil fuel supplies most of the current information suggests that supplies will likely not be as abundant or as cheap as the industry has been leading people to believe. And, when it comes to climate change, the effects and the time of their arrival have been consistently underestimated.

To manage energy supplies and climate risks, the United States has done little in terms of policy that makes sense given the gravity of the challenges it and the world face.

It is important to note that risk is not merely a function of probability. Rather, it is the product of probability times severity. But, neither variable can be assessed in a strictly numerical way given how complex the energy and climate systems are. We do know, however, that if the pessimistic scenarios for both energy and climate arrive, we are in deep, deep trouble.

Here is a key insight into risk management. The accuracy of any forecast decays quickly with time. That means that when it comes to long-term forecasts, it is not the forecast itself, but the RANGE of possible outcomes that is more important. Any forecast that doesn’t include a range is practically worthless for scenario planning purposes and probably designed to deceive rather than inform you.

And, it’s not the benign outcome that should concern us, but rather the possible dire outcomes. Why is this so? As Nassim Nicholas Taleb, author of several books relating to risk including Fooled by Randomness and The Black Swan reminds us: "[I]t does not matter how frequently something succeeds if failure is too costly to bear."

It seems obvious that the destruction of modern civilization as we know it due to inadequate energy supplies and rapid climate change ought to be something we consider “too costly to bear.” And yet, America continues with energy policies that are almost certain to fail because we are largely repeating what we've done before.

The de facto American all-of-the-above energy policy implies that increasing the rate of fossil fuel combustion should be one of our goals. That policy also fails to concentrate enough capital spending on the infrastructure (mostly electrical) needed to exploit renewable energy.

So, we end up with a strategy that assumes that fossil fuel supplies will remain adequate for decades and that climate change will remain largely benign during this period. This is not so much managing risks as ignoring them.

Some will point out that the administration is working on carbon sequestration so as to make it possible to increase fossil fuel consumption and reduce carbon emissions at the same time. The idea that carbon sequestration could achieve this result in time to avert a climate catastrophe has already been laid to rest by some fairly straightforward calculations done by energy expert Vaclav Smil. In 2010 he wrote:

This means that in order to sequester just a fifth of current CO₂emissions we would have to create an entirely new worldwide absorption-gathering-compression-transportation-storage industry whose annual throughput would have to be about 70 percent larger than the annual volume now handled by the global crude oil industry whose immense infrastructure of wells, pipelines, compressor stations and storages took generations to build. Technically possible—but not within a timeframe that would prevent CO₂ from rising above 450 ppm [parts per million]. And remember not only that this would contain just 20 percent of today’s CO₂ emissions but also this crucial difference: The oil industry has invested in its enormous infrastructure in order to make a profit, to sell its product on an energy-hungry market (at around $100 per barrel and 7.2 barrels per tonne that comes to about $700 per tonne)—but (one way or another) the taxpayers of rich countries would have to pay for huge capital costs and significant operating burdens of any massive CCS [carbon capture and storage].

Perhaps the simplest way to manage the energy transition we must undergo would be to impose a high and ever rising tax on carbon. Such a tax would not favor one particular solution to carbon-free energy. But, it would move people to conserve and to switch from carbon fuels. It would also provide inventors and businesses with the incentive needed to work out the quickest, most economical path to a renewable energy economy.

Quite often politicians and representatives of the fossil fuel industry—sometimes it’s difficult to tell the difference—will say that the United States shouldn’t undergo this energy transition alone because it will be put at a competitive disadvantage on world markets. Saying this is really the equivalent of saying that we should maintain our current course until it becomes obvious—even to the most dimwitted—that  we are all committing suicide.

Waiting for catastrophe to happen before acting means that it’s too late to act. It is precisely this scenario that proper risk management is designed to avoid. If I were to grade America’s risk management strategy with regard to energy supply and climate change, I would, not surprisingly, give it a failing grade.

I only wish the damage inflicted by that strategy were limited to bad marks. Instead, the real-world consequences are almost certain to grow larger and larger, the longer the country ignores intelligent risk management principles.

Kurt Cobb is an author, speaker, and columnist focusing on energy and the environment. He is a regular contributor to the Energy Voices section of The Christian Science Monitor and author of the peak-oil-themed novel Prelude. In addition, he writes columns for the Paris-based science news site Scitizen, and his work has been featured on Energy Bulletin, The Oil Drum, OilPrice.com, Econ Matters, Peak Oil Review, 321energy, Common Dreams, Le Monde Diplomatique and many other sites. He maintains a blog called Resource Insights and can be contacted at kurtcobb2001@yahoo.com.

Will the final blow for America’s shale gas ‘revolution’ be high prices?

As U.S. natural gas prices flirt with the $4 mark, some skeptics of the so-called shale gas revolution think prices are headed much higher. Such a move would, not surprisingly, seriously undermine the official story that the United States has a century of cheap natural gas waiting for the drillbit.

Several years ago when natural gas began flowing in great quantities from deep shale deposits beneath American soil, it seemed to be the beginning of the end of America’s troubled journey into dependence on energy imports—a journey marked by frequent worry, occasional war and enormous expense.

But, to some people this supposed solution to America’s energy needs has begun to seem as costly to the environment and human health as the country’s dependence on imported energy has been in terms of mental distress, money and blood. It turns out that this new kind of natural gas requires the industrialization of the countryside in order to extract it. And that, say those closest to the action, risks tainting air, land, and drinking water and compromising the health of humans and animals alike.

Well, at least we can say that shale gas is plentiful, cheap, American, and much easier on the climate than coal or oil. It didn’t take too long before people started looking into whether shale gas really was that much easier on the climate. A Cornell University researcher came to the conclusion that shale gas was probably worse for climate change than coal. His conclusion hinged in part on what are called “fugitive emissions”—unintentional, but unavoidable releases of unburned methane into the atmosphere during the hydraulic fracturing operations performed to extract the gas. Methane is some 20 times more potent than carbon dioxide as a greenhouse gas.

Naturally, the oil and gas industry responded vigorously to the researcher’s findings with its usual ad hominem attacks. But, it also highlighted uncertainties that are always part of any scientific study. This industry is, of course, the same one that has consistently denied the existence of climate change and continues to spend millions trying to convince the public that climate change either isn’t happening, or if it is, it won’t be that bad or if it is, it may actually be good for us.

The industry’s response to the study has, not surprisingly, been met with skepticism. That is befitting an industry that, having spent the last two decades denying climate change, now suddenly embraces it as a reason to produce more natural gas. So, despite the industry’s best efforts, the meme that shale gas is worse than coal is out there and being repeated again and again by opponents of shale gas drilling.

Well, at least we can say that shale gas is plentiful, cheap and American. But, then came the industry campaign to end federal limitations on the export of natural gas. What had been touted by the industry as a fuel that would help lead America to energy independence would henceforth be treated as just another world commodity seeking the highest bidder—even if that bidder is in China, Japan or Great Britain. The industry’s aim, of course, is to get higher prices for its product than customers in the United States can provide. As noted above, natural gas trades at around $4 per thousand cubic feet (mcf) in the United States. That compares to about $17 per mcf for liquefied natural gas delivered to Japan. The price in Europe is around $12.

Well, at least we can say that shale gas is plentiful and cheap. As natural gas prices declined from double digits in 2008 and the shale gas boom proceeded apace, the industry convinced Americans that cheap, plentiful natural gas was the country’s future for a century to come. And, when natural gas prices plunged briefly to $1.82 per mcf last April, even the oil and gas industry began to wonder whether cheap natural gas was really such a great thing. At that price or anything below about $2.50 really, almost no wells were profitable.

Last year independent petroleum geologist Art Berman, while reviewing the financial wreckage of the once flourishing, but now fallen shale gas drillers, noted that the industry was based on:

an improbable business model that has no barriers to entry except access to capital, that provides a source of cheap and abundant gas, and that somehow also allows for great profit. Despite three decades of experience with tight sandstone and coal-bed methane production that yielded low-margin returns and less supply than originally advertised, we are expected to believe that poorer-quality shale reservoirs will somehow provide superior returns and make the U.S. energy independent.

As Berman noted back then: “Improbable stories that great profits can be made at increasingly lower prices have intersected with reality.” The industry proceeded to abandon shale gas plays in favor of tight oil plays which have proven to be profitable with oil prices consistently crisscrossing $100 a barrel in the last two years.

Apparently, price does matter when it comes to natural gas. And so, it seems natural gas won’t be endlessly cheap in America after all. As Berman foretold in an earlier piece, prices would have to rise to between $5 and $6 to make currently paid-for leases profitable from this point forward and between $7 to $8 to make new leases worth pursuing. For comparison, back in the heyday of cheap natural gas, the decade of the 1990s, the average annual U.S. price was $1.92 per mcf, according the U.S. Energy Information Administration.

So what exactly has happened to U.S. natural gas production as reality has set in and companies have withdrawn drills to await prices that might actually be profitable? The answer ought to be troubling to those who are counting on endlessly escalating supplies large enough to displace the majority of oil and coal used in our economy. To wit, U.S. marketed natural gas production has been almost flat for the last two years.

The trend is so ominous that two industry insiders I know believe that U.S. natural gas production could actually start declining soon and send prices soaring. They say drillers have fallen so far behind that it will be impossible to make up for production lost from existing shale gas wells. Those wells typically see production decline rates of 85 percent after two years. (Translation: Some 85 percent of existing production from shale gas wells must be replaced every two years BEFORE production can grow.)

The future is, of course, unknown to us. But, the present and the past suggest that the so-called shale gas revolution is about to be laid to rest. Yes, shale gas might prevent total American natural gas production from dropping off a cliff even as conventional natural gas production continues to decline. And, at some point shale gas might even allow U.S. production to rise modestly above current levels. But, two things are now abundantly clear: It won’t be easy and it won’t be cheap.

Kurt Cobb is an author, speaker, and columnist focusing on energy and the environment. He is a regular contributor to the Energy Voices section of The Christian Science Monitor and author of the peak-oil-themed novel Prelude. In addition, he writes columns for the Paris-based science news site Scitizen, and his work has been featured on Energy Bulletin, The Oil Drum, OilPrice.com, Econ Matters, Peak Oil Review, 321energy, Common Dreams, Le Monde Diplomatique and many other sites. He maintains a blog called Resource Insights and can be contacted at kurtcobb2001@yahoo.com.

Depletion: The one word oil optimists refuse to utter

With the media awash in stories telling us how much oil is being discovered around the world, there is one word which the optimists quoted in these stories refuse to utter: Depletion.

The simple fact is that depletion never sleeps. It starts as soon as an oil well begins production and goes on 24 hours a day, 365 days a year. Furthermore, it is not exactly news that oil is being discovered all around the world. The industry has been spending record amounts to find it.

What’s critical is the difference between the annual additions to oil production capacity and the annual decline in the rate of production from existing wells, a decline which is running anywhere from 4 to 9 percent depending on whom you talk to.

Even at the low end of decline rate estimates, the world must find and put into production the equivalent of what is currently coming out of the entire North Sea, one the world’s largest finds, and we must do so EVERY SINGLE YEAR before worldwide production can rise. So difficult has this task become, that we’ve only just been able to keep global production on a bumpy plateau since 2005. For now, the oil industry is on a treadmill which requires ever more drilling just to keep production even.

(Many regular readers will wonder why I continually emphasize the flat trajectory of world oil production since 2005. It’s so new readers will be introduced to this central fact about oil supplies—an indisputable trend which the industry simply refuses to talk about and even tries to obscure by changing the definition of oil to include things which are not oil. This trend has ominous implications for our society if it continues or, even worse, turns downward.)

To the untrained observer the quantities of oil recently discovered sound large. But, when put into the context of how much we consume, they won’t extend the oil age by much. Norway, which produces oil from the North Sea, recently announced its largest find since 2000, a field with nearly 1.8 billion barrels. How long would the oil in that field last the world at the current rate of consumption? About 24 days.

The math looks like this. The world currently consumes about 27.4 billion barrels a year of crude oil including lease condensate—which is the definition of oil. So, just divide 1.8 billion by 27.4 billion and multiply the fractional result by 365 days in a year, and you’ll get the number of days such a discovery could supply the world if we could pump it out at any rate we want to (which we can’t).

Well, there are larger discoveries in Brazil, you may say. If we accept the government’s figures on their face (and we really ought to be a little skeptical), then the Tupi field has 5 to 8 billion barrels and the Sugarloaf field has 33 billion. (The truth is no one really knows because there hasn’t been enough drilling.)

Let’s take the top end of the estimates and call it 41 billion barrels. If we do the above calculation for just one billion barrels, we find that it will last about 13 days. And so, a little multiplication tells us that two of the most massive finds ever (if they actually pan out) will give us 41 X 13 days of oil or 533 days, which is about a year and a half. It’s nothing to sneeze at; but it doesn’t exactly change the overall picture that much.

And, of course, this number holds only if the world does NOT increase its rate of oil consumption. But economic growth is dependent on ever increasing supplies of oil, a fuel central to every economy on the globe. India, China and many other developing countries have consistently increased oil consumption to fuel their economic growth. But because worldwide production has been flat since 2005, consumption in places such as the United States has had to fall in order to make room for growing demand from Asia.

This has happened because American and European consumers aren’t willing or aren’t able to pay as much. Oil analyst Steven Kopits has explained the counterintuitive idea that poor Asians are willing to pay more for oil and oil products than rich Westerners because poor Asians get so much more economic productivity out of the marginal barrel of oil than rich Westerners who consume many times more barrels of oil per person. The result has been that developed countries in North America and Europe have seen very little growth in their economies as Asian economies continue to sprint ahead.

Of course, the optimists have been telling us (and telling us and telling us) that so-called tight oil—the kind that comes from hydraulically fractured wells—will now finally move the needle on worldwide production. Well, so far, the net result is nada, nothing, zilch. Production from such wells has risen, but not enough to offset declines elsewhere.

And, as it turns out, fracked oil wells are now the poster children for the problem of production decline. Average annual oil production decline rates for two of the most well-developed tight oil plays, Bakken in North Dakota and Eagle-Ford in Texas, are 38 percent and 42 percent, respectively. That means that drillers in those plays must replace 38 to 42 percent of their current production EACH YEAR before they can increase production. It’s a ferociously high decline rate, some 10 times the rate worldwide. And, this is the oil that the optimists tell us is going to raise global production!

Humans evolved to be optimistic risktakers. That genetic heritage has served us well up to this point. But, sometimes that trait makes us incautious and gullible. And, the oil industry is taking advantage of a natural human inclination to believe the presumed experts, especially when they offer an optimistic tale that is designed to make us comfortable with the status quo.

In truth, unprecedented disruptions and changes in our worldwide energy system have been underway for more than a decade. We can ignore that fact, but only at our peril.

Kurt Cobb is an author, speaker, and columnist focusing on energy and the environment. He is a regular contributor to the Energy Voices section of The Christian Science Monitor and author of the peak-oil-themed novel Prelude. In addition, he writes columns for the Paris-based science news site Scitizen, and his work has been featured on Energy Bulletin, The Oil Drum, OilPrice.com, Econ Matters, Peak Oil Review, 321energy, Common Dreams, Le Monde Diplomatique and many other sites. He maintains a blog called Resource Insights and can be contacted at kurtcobb2001@yahoo.com.

Oil's average price posts new records and they’re telling us it’s abundant!

It is a slick piece of public relations to convince people to disregard what is right in front of them and believe the opposite. And yet, that is what the oil industry has achieved with an oh-so obviously coordinated campaign to tell the public and policymakers that there is no need to be concerned about future oil supplies.

Many people remember the price spike of 2008 which shot prices to an all-time high of $147 a barrel. Oil subsequently crashed all the way down to about $35 at the end of that year as a brutal contraction gripped the global economy. But, oil has subsequently been making new all-time highs when you consider the yearly averages.

U.S. drivers should not be that surprised by this for they paid average daily gasoline prices that were higher in 2011 and 2012—$3.53 and $3.64 per gallon respectively—than they did in the previous record year of 2008 when they paid an average of $3.26, according to the U.S. Energy Information Administration (EIA).

Brent Crude, which has become the de facto world benchmark price for crude oil, has also just posted back-to-back years of record prices, higher than even the average daily price in the fateful year of 2008. In that year Brent achieved an average daily price of only $96.94 according to the EIA. But, in 2011 the average daily price was a record $111.26—which was followed by another record in 2012 of $111.63. The price in 2013 has so far averaged about $114.

It is true that the American benchmark crude—Cushing, Oklahoma West Texas Intermediate—has been trading at a discount to Brent Crude. This is because Cushing, one of the country’s largest oil depots, is being flooded with supplies from North Dakota and the Canadian tar sands, supplies currently unable to find their way to a seaport that would connect them with world markets and thus world prices. An operator I know in Houston said that rather than send his production to Cushing where the discount is between $20 and $25, he is happy to put his oil on a barge and send it to Louisiana where he has consistently been getting prices over $100.

As it turns out, most inhabitants of the globe pay prices reflective of the Brent Crude price, and that’s why it is frequently quoted as the world price.

So, how is it that the public and many policymakers have swallowed the abundance argument even though the evidence of prices suggests the opposite? The industry has made its case by saying that newly accessible tight oil deposits in North Dakota and elsewhere are going to vastly expand oil production. It has coaxed Wall Street firms with whom the industry does business to put out rosy forecasts; it has made an army of paid think-tank propagandists available to the media; it has convinced government agencies that the future is bright; and, in one case, it sent one of its own to Harvard to write an industry-funded report that says everything will be fine—in the future!

You will notice one theme here. The industry’s case for abundance rests not on a current glut or a downward sloping oil price chart, but rather on the promise of abundance at some indeterminate time in the future, that is to say, on magical forecasts. But colorful charts and cheery prognostications are not facts. And, as always, it is important to consider the source.

Keep in mind that what a good magician does is not really magic. Rather, a good magic show is based primarily on misdirection. Get the audience to look in the wrong place while you do your handiwork unobserved.

And, so it is with the oil industry. It has been able to get the public and policymakers to focus on marginal gains in U.S. oil production while ignoring declines in the rest of the world. Mathematically speaking, that is how it must be since the rate of worldwide oil production has been essentially on a bumpy plateau since 2005. As U.S. production has grown, production in the rest of the world as a whole has declined by about the same amount.

Now, that wouldn’t matter quite so much if oil were not traded in a world market dominated by large countries that are still huge importers of crude oil. But, the other fact that the industry PR magicians don’t want you to focus on is that global net exports of oil—that is, the oil available on the world market to importers such as the United States, China, Japan, India and much of Europe—have been shrinking since 2006. The global competition among importers for those shrinking exports has been a major factor in sustaining record prices for the past two years.

It is worth keeping in mind that all of this is happening as the so-called fracking “revolution” is proceeding, as record investment in oil exploration and development continues, and as consistently high prices drive the necessary profits for all this effort. And yet, the impact on supplies worldwide has been almost imperceptible.

In fact, as John Westwood, chairman of the energy consulting firm Douglas-Westwood, explained in a slide presentation, it is becoming exceedingly difficult to add new oil production capacity. Some $2.4 trillion in oil industry capital expenditures from 1994 to 2004 increased the worldwide rate of oil production by 12 million barrels per day. However, $2.4 trillion in capital expenditures spent from 2005 to 2010 resulted in a decrease in the rate of oil production of 200,000 barrels per day. (See slide 8 of Westwood’s presentation.)

I am reminded of the late comedian Richard Pryor who, when caught by his wife in bed with another woman, explained that things weren’t what they seemed. When she resisted his explanation, he asked her, “Who you gonna believe? Me or your lyin’ eyes?”

Once you’ve seen the troubling facts about flat global oil production, shrinking global oil exports, and record high prices, about all the industry can do is insult your intelligence by asking the same question.

Kurt Cobb is an author, speaker, and columnist focusing on energy and the environment. He is a regular contributor to the Energy Voices section of The Christian Science Monitor and author of the peak-oil-themed novel Prelude. In addition, he writes columns for the Paris-based science news site Scitizen, and his work has been featured on Energy Bulletin, The Oil Drum, OilPrice.com, Econ Matters, Peak Oil Review, 321energy, Common Dreams, Le Monde Diplomatique and many other sites. He maintains a blog called Resource Insights and can be contacted at kurtcobb2001@yahoo.com.

Lower highs: The real trajectory of U.S. oil production

The way the oil industry is touting gains in U.S. crude production, you would think that production is soaring to new all-time highs. But the facts say otherwise. Below is a monthly plot of U.S. crude oil production through December 2012.

U.S. production remains well below the peak achieved in 1970 and below a secondary peak in 1985—a lower high, if you will—which resulted from the ramp-up of production in Alaska. But since then production has gone relentlessly downhill until just recently.

It is true that a new form of hydraulic fracturing—high-volume slick-water hydraulic fracturing—has made available sources of oil not previously accessible. But it is also true that the industry’s hyperbole doesn’t square with the evidence. The U.S. Energy Information Administration’s (EIA) latest estimate of technically recoverable oil from so-called tight oil deposits—the ones made accessible by this new type of hydraulic fracturing—is 33 billion barrels (see below). It sounds like a lot. But, in fact, it would only supply the United States for about 6½ years (assuming current net annual consumption of about 5.1 billion barrels). Not bad; but not a world-changing number, especially when you consider that all oil goes onto a world market where 33 billion barrels would last a little over a year. Beyond this, the estimate says little about how much of that oil will ever be economically recoverable. Wherever it isn’t, no one is going to extract it.

But there is another column in the EIA table above that is worth focusing on, the one labeled “% of Area Untested.” We don’t yet actually know that much about the potential for the country’s tight oil (often mistakenly referred to as shale oil). In some areas drilling has only just begun, and in others there’s been no drilling at all.

There is reason to believe that things may not go as planned. In the areas already drilled, drillers have focused on a few sweet spots that have proven profitable. That makes perfect sense. But, it suggests that they must now venture beyond those sweet spots to find additional supplies from deposits that will be more refractory and thus more expensive and difficult to exploit. No one is certain how drillers will fare. But logic suggests that production growth will slow and then at some point stop—after which a production decline will begin in earnest.

The EIA projects that U.S. oil production will peak later in this decade—a little below the previous secondary peak in 1985. That would result in a tertiary peak, or yet another lower high. In the meantime the extra supply promises to lower America’s bill for oil imports. But the modest turnaround in America’s oil fortunes won’t solve the larger problem of worldwide oil depletion which, despite American gains, has kept worldwide oil production on a bumpy plateau since 2005.

We live in a global oil market, and that market remains tight as is evidenced by an oil price hovering around $90 in the United States and $110 in Europe, the latter price being more representative of what most people pay.

For obvious reasons the oil industry doesn’t want us to think about weaning ourselves off oil anytime soon. They believe that if they can convince us that oil is abundant, we won’t even try. But oil prices have been telling us for almost a decade that supplies are much tighter than the industry is acknowledging. And, the facts about U.S. oil production tell us that if there is a revolution going on in American oilfields, it is only a minor one, and one that will soon be reversed.

That doesn’t leave us much time to prepare for a world in which oil supplies are almost certain to dwindle globally as the current plateau in worldwide production turns into a decline. And, that will be a problem for everyone including the United States, a country that remains the planet’s largest importer of crude oil.

Kurt Cobb is an author, speaker, and columnist focusing on energy and the environment. He is a regular contributor to the Energy Voices section of The Christian Science Monitor and author of the peak-oil-themed novel Prelude. In addition, he writes columns for the Paris-based science news site Scitizen, and his work has been featured on Energy Bulletin, The Oil Drum, OilPrice.com, Econ Matters, Peak Oil Review, 321energy, Common Dreams, Le Monde Diplomatique and many other sites. He maintains a blog called Resource Insights and can be contacted at kurtcobb2001@yahoo.com.

The questionable logic of U.S. natural gas exports

With U.S. natural gas production having risen more than 25 percent from its nadir in 2005, natural gas producers are pushing for an end to limits on U.S. natural gas exports. The growth in supplies comes primarily from previously inaccessible shale deposits deep in the Earth, a development that has convinced many people that the country is now entering a new era of natural gas abundance.

Trouble is, the United States remains an importer of natural gas. Through November 2012 the country imported 12.5 percent of its natural gas consumption for the year, mostly from Canada. That's down from an average of 15.7 percent for the previous 20-year period. But it's not exactly energy independence.

So worried are industrial consumers of natural gas about exports pushing up prices and thus their production costs that they've formed an alliance to fight the loosening of export restrictions. The alliance includes utilities dependent on natural gas to fuel electricity generation, chemical companies that use it as a feedstock for making myriad industrial chemicals, and heavy industrial users such Alcoa and Nucor who use natural gas to fire their metal-making operations. (Those who heat their homes and businesses with natural gas also stand to benefit if the alliance prevails.)

The members of the alliance have reason to worry since Europeans are paying close to $12 per thousand cubic feet for liquefied natural gas and the Japanese are paying more than $17. Compare that to the U.S. domestic pipeline price for natural gas of just $3.27 as of last Friday (Henry Hub spot price).

It's a classic case of those in an extractive industry seeking top dollar for their minerals, and those who buy the minerals to make other things seeking to keep a lid on the price of their inputs. Here in a nutshell is the logic on each side:

• Natural gas producers believe they ought to have the right to sell production coming from under American soil to the highest bidder worldwide. They can't do that now because of U.S. export restrictions. Whether the United States produces enough natural gas for domestic consumption is actually irrelevant to this argument since it rests on the notion that the owners of the natural gas have the right in a free market to dispose of it as they wish. (For context, these same companies have been promoting the idea of American energy independence in the media in order gain public acquiescence to lax environmental regulation and support for opening public lands to more drilling. So much for energy independence!)

• The industrial consumers believe that there is a broader good to be served by keeping the prices of energy and chemical feedstocks low for domestic industries, and thereby giving those industries an advantage over competitors abroad. This translates into higher employment and income across wide areas of the American economy since low natural gas prices benefit practically every business and homeowner—everyone, in fact, who pays a natural gas bill. High natural gas prices, on the other hand, only benefit those in the natural gas production business while dampening activity in natural gas consuming industries and the economy in general.

But what if U.S. natural gas production does ultimately exceed U.S. consumption? Won't that make both sides happy? Actually not necessarily, because in a worldwide market for natural gas, every consumer is bidding against every other consumer. Even if U.S. domestic gas production does rise significantly from here, exporting it would make everyone in the United States subject to worldwide pricing pressures. Right now the U.S. exports small amounts of natural gas to Mexico and Canada in places where it makes economic sense to do so because of the proximity of American supplies.

But, what the natural gas producers want is the development of a vast network of export terminals that cool natural gas to -260 degrees F where it becomes a liquid that can be shipped overseas by special liquefied natural gas carriers. If that expansion proceeds far enough, it might bring U.S. natural gas prices to parity with world prices. If it doesn't proceed very far at all—perhaps due to pressure from the alliance of natural gas users mentioned above—then the producers may only see a slight rise in domestic natural gas prices beyond what they would have seen without such export terminals.

All of this assumes that there will be plentiful supplies of natural gas in the United States. But, that might not be the case. U.S. natural gas production has been essentially flat for more than a year. Partly this is due to very low prices and subsequent cutbacks in drilling. But it belies the claim made in Congressional testimony by the industry's protagonist-in-chief, Chesapeake Energy CEO Aubrey McClendon, that supplies can grow 5 percent per year through 2018.

While the industry still clings to the now widely discredited notion that the United States has a 100-year supply of natural gas (at current rates of consumption), new assessments have suggested vastly reduced numbers for the amount of U.S. natural gas from shale—the main source of new supplies—that is technically recoverable. In 2011 the U.S. Energy Information Administration, the statistical arm of the U.S. Department of Energy, reported 862 trillion cubic feet (tcf) in shale gas resources. In 2012 the agency revised the number downward dramatically to 482 tcf based on new information from the U.S. Geological Survey. Keep in mind that this number says nothing about whether such resources will be economically recoverable. That number is bound to be much smaller.

Actual proven reserves of dry natural gas in the United States at the end of 2010 (the most recent date for which U.S. Department of Energy figures are available) amounted to about a 12-year supply at current rates of consumption. A reserve is something that can be produced profitably at today's prices with existing technology from known fields. As you will see, it is a much smaller amount when compared to "resources," a term in the oil and gas industry that really only refers to estimates based on sketchy evidence of what might be in the crust of the Earth under a country, state or field.

Resources are never exploited to 100 percent, and often only a small fraction ever become reserves. Keep in mind that only 35 percent of all the oil ever discovered has actually been produced. The rest is too expensive and sometimes even impossible to extract. That's in fields we have drilled extensively! The percentage of an estimated resource that is likely to be extracted is often less than that because resource estimates have almost never been tested with an actual drill.

Petroleum consultant Art Berman estimates that when all natural gas resources thought to be available under the United States are totaled, and an appropriate reduction is made based our experience with extraction, the actual economically recoverable resource of natural gas is likely to be closer to 23 years of supply at current rates of consumption, not exactly a figure that makes one confident about committing to send large quantities of natural gas abroad.

Yet another thing to keep in mind is that none of the estimates discussed above contemplate increases in the rate of U.S. natural gas consumption, increases that natural gas producers have been promoting. The producers have suggested that there is enough natural gas to justify building a fleet of natural gas powered vehicles and increasing considerably electricity generation from natural gas (something that is already happening). If the rate of consumption were to increase each year, the time to the exhaustion of the presumed natural gas resource would shorten dramatically and the time to a peak in output followed by an irreversible decline would happen much, much sooner as well. Exactly what will we do with our new natural gas powered generating plants and vehicles if we experience a continuous decline in natural gas supplies, say, starting in 2025?

Given all this it's surprising that industrial natural gas users are even considering accepting a compromise to allow a limited, but considerably higher volume of exports. U.S. shale gas resources—the biggest source of new supplies—continue to be a moving target, and their estimated size is moving swiftly downward. Possibly for that reason, the alliance of natural gas users mentioned above is suggesting that a decision about U.S. exports be delayed until a clearer picture of the country's natural gas endowment emerges. A Dow Chemical Company spokesman opined that if there really is a 100-year supply of natural gas under the United States, then we need not be in any rush to make a decision about exporting U.S.-produced gas.

Kinda makes you wonder why all the natural gas producers are in such a hurry.

Kurt Cobb is an author, speaker, and columnist focusing on energy and the environment. He is a regular contributor to the Energy Voices section of The Christian Science Monitor and author of the peak-oil-themed novel Prelude. In addition, he writes columns for the Paris-based science news site Scitizen, and his work has been featured on Energy Bulletin, The Oil Drum, OilPrice.com, Econ Matters, Peak Oil Review, 321energy, Common Dreams, Le Monde Diplomatique and many other sites. He maintains a blog called Resource Insights and can be contacted at kurtcobb2001@yahoo.com.