Fossil Fuels and Energy Policy: Understanding the New Natural Gas Economy

 

How gas supply and price disruptions now outweigh oil imports as the nation's real energy problem.

During much of this past year, we have seen concern rising among government officials, members of Congress, media representatives, and financial and economic analysts about escalating crude oil prices. The price increases stemmed in part from earlier actions taken by 10 of the eleven members (i.e., excluding Iraq) of the Organization of Petroleum Exporting Countries (OPEC), to reduce supply to boost price levels that were believed to be unsustainably low. However, relatively little attention has been paid to a potentially more severe problem-the consequences of the natural gas drilling slump in the Unites States during the two prior years.

This drilling slump in 1998 and 1999 has caused the rapid run-up of natural gas prices seen of late. It also seems to have reduced deliverability in the lower 48 states, even though the most recent (December 1996) forecast by the Energy Information Administration (EIA) might have suggested otherwise.

The EIA had projected a lower-48 wellhead productive capacity of about 70 billion cubic feet (Bcf) per day, compared to actual dry gas production of 52 Bcf per day.¹ Instead, rather surprisingly, the slump in gas drilling led to a rate of replacement of gas reserves in 1998 of only 83 percent. That low rate occurred even though the average active gas rig count for the year was near its high since 1990, and even though there were 12,106 gas well completions-the highest during the period 1990-1999 .