Gas price roller coaster always peaks higher

I would only add that each ridiculous low will be caused not by great new finds of cheap fossil fuels, but by wrenching economic contractions caused by the previous unimaginable highs.

“. . . [N]atural gas prices will reach unimaginable highs and ridiculous lows in the next decade.”

— Dave Russum, AJM Petroleum Consultants (Calgary)

I would only add that each ridiculous low will be caused not by great new finds of cheap fossil fuels, but by wrenching economic contractions caused by the previous unimaginable highs.

In January of this year, Russum made a presentation at the Unconventional Oil and Gas Conference in Toronto, and like all of his presentations, it had easily understandable graphs and a hint of gallows humour.

AJM doesn’t sugar coat things, like the NEB (National Energy Board) and the AEUB (Alberta Energy and Utilities Board) tend to do. There is always a hint of worry, backed up by a fair number of downward sloping graphs (the pdf files are available online at www.ajmpetroleumconsultants.com).

In the case of natural gas, the main worry is that we are in an era of “basin maturity.”

We are rapidly running out of relatively cheap conventional sources and are now forced to turn to relatively expensive unconventional sources (such as coal bed methane and shale gas).

The main source of unconventional natural gas that has been affecting North American prices over the last year is shale gas, which is natural gas that is trapped deep underground in the tiny pores of shale rock.

In the good old days, drillers would just stick a huge straw into the ground and the gas would come up fairly easily. But now, they have to stick a huge straw into the ground, pump down a mix of water, sand, and some rather unhealthy chemicals, and then pressurize it with 20,000 horsepower pumps so that the natural pores in the shale are opened up a bit more (allowing the gas to flow out more easily).

I should note that the unhealthy chemicals have occasionally been posing a bit of an issue, where some landowners close to drilling activity have complained about things like toluene (a chemical used in explosives and paint strippers) in their drinking water.

The shale gas strata are generally much deeper than the aquifers that the water wells tap, and the drill holes are usually encased in cement so as to block any contaminants from reaching the aquifers, but since the exact composition of the chemical brews are considered proprietary information, it has been difficult to unequivocally state that the evil brew coming out of Granny’s tap is related to the evil brew that the natural gas industry has been pumping underground.

What is certain, however, is that this new source of natural gas is significantly more expensive than the old. Not only do drillers have to go through the sequence mentioned above (called “hydraulic fracturing” or simply “fracing”), but once set up, the wells tend to dry up much faster than conventional natural gas wells. With the latter, a well might produce significant amounts for a decade or more. But with shale gas, the useful life of a well is closer to two to five years.

All of these factors mean that it will only get more and more expensive to heat our homes. And as Russum noted above, there will be a roller-coaster ride. Prices rise (like in 2008), generating investment. Production, in turn, goes up. The market gets saturated. As a result, prices plummet (like now). Investment then dries up. Then production plummets. In response, prices spike yet again. And on it goes. The cycle continues. But unlike a roller coaster at the fair, the peaks on this one only get higher and higher as we ride along into the future. Welcome to the world of finite resources.

Evan Bedford is a local environmentalist. Direct comments, questions and suggestions to wyddfa23@telus.net.

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