Sunday, September 1, 2013

Can the US Export its Way to Energy 


By Kurt Cobb | Sun, 18 August 2013,  OILPRICE.COM

Never let the facts get in the way of a good story. That's the credo of the oil and gas industry as it continues to lobby for increased oil and natural gas exports from the United States. After all, the industry claims, we're on our way to achieving energy independence, and we can help our balance of trade by exporting the extra hydrocarbons we produce. The data, however, contradicts the industry's claim.
Even as the Obama Administration approved the country's third natural gas export terminal, the United States remained a net importer of natural gas. Production in the United States averaged 69.5 billion cubic feet (bcf) per day this year through May, the latest month for which data is available. But the country consumed 76.9 bcf per day. It IMPORTED almost 7.8 bcf per day from Canada. And, then it EXPORTED about 1.8 bcf per day to Mexico, a number that is likely to rise as pipeline export capacity to Mexico expands. (Both Canada and Mexico are part of an integrated North American natural gas pipeline system.)
The latest approval would lift the capacity for daily liquefied natural gas (LNG) exports from the United States to 5.6 bcf per day or about 8 percent of what we currently produce. The exports would be shipped using special freighters to Europe and Asia. Strangely, these exports would make it necessary for the United States to IMPORT more natural gas in order to support current consumption! The situation seems surreal, and yet, additional approvals for LNG exports are likely in the future.
Natural gas producers keep telling the public and policy makers that U.S. natural gas production is set to grow continuously for decades as they tap large shale gas resources using hydraulic fracturing. But the story isn't holding up. U.S. natural gas production has been moribund, bouncing along a plateau from January 2012 through May of this year (the latest month for which data is available).Monthly production last year averaged 2.11 trillion cubic feet (tcf), but was slightly less through May of this year at 2.10 tcf per month. This is despite prices that have nearly doubled from the lows in April 2012.
It's possible that the situation could change, but unlikely for two reasons. Production decline rates for natural gas wells in the United States are averaging around 32 percent PER YEAR. That means about one-third of U.S. production must be replaced EACH YEAR just to stay flat. And, that's really all that we've been doing for the last year and a half.
But the situation is likely to get much worse. Here's why: Gas from shale deposits is rising as a percentage of total U.S. production. Shale gas wells decline much faster than the current overall rate (which includes conventional gas wells), between 79 and 95 percent in the first three years. That means some 80 to 90 percent of all existing shale gas production must be replaced every three years. With shale gas, it is as if we are on a down escalator trying to go up; but, the down escalator, in this case, is increasing its speed, making any upward progress difficult, if not impossible.