If nothing else, 2012 can be noted for the orgy of articles lauding the shale gas revolution. Suddenly, we are supposed to escape the energy constraint, whilst also being able to cut our carbon emissions at the same time. I never thought the numbers added us for such claims (see my posts starting here), but am still surprised how lacklustre U.S. production has been in 2012 (data released so far go up to October). Here is a chart based on the official numbers from the U.S. Energy Information Administration (EIA):
Obviously, within the aggregate numbers we have shale gas production going up but conventional natural gas production going down; but the net result is that we have been flat-lining for a year. Is this just a bump in the road to the shale gas nirvana? The yearly chart (click for larger image) up until 2011 certainly looks impressive (although not so impressive as to presage a surge of U.S. natural gas exports that will save world).
The monthly natural gas numbers going forward will certainly be critical data points and I will try to report them as they come out. In the meantime, my sense is we just have a typical market adjustment related to price and volume. Whenever you see the word ‘unconventional’ it is always worth replacing it with the word ‘expensive’; in other words, shale gas is unconventional gas, which in turn is expensive gas. Shale gas is costly to produce, so when the price drops, production will be pressured as it just isn’t economic to take it out the ground.
Following this logic, we may also be disappointed over the degree to which shale gas displaces coal going forward (and thus helps reduce CO2 emissions) because producers are not able to deliver enough gas at the right price to the electricity generators. And as for fleets of LNG tankers heading from the U.S. to Europe—in your dreams. For the time being, let’s just let the monthly numbers on volume and price do the talking.