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Goldilocks and the Three Fuels
Posted Feb 18, 2010 by Richard Heinberg
[Excerpt] Recent shale gas projects, including those involving the massive Marcellus Shale in several northeastern states, have been yielding significant quantities of fuel. Reserves of the stuff are enormous. But drilling costs and per-well decline rates are high, so producers can make a profit only if gas prices are near historic highs.
Where are oil prices headed in 2010? Forecasts for the year are all over the map, from more than $100 a barrel to under $50.
The difference hinges mostly on assumptions about whether the economy will recover or relapse. Yet it may be that price volatility has become an inherent feature of the oil market—and fossil fuel markets in general—for reasons that can perhaps best be explained with the help of a little history and an old children’s story.
Once upon a time (about a dozen years past), oil sold for $12 a barrel and a lot of people thought it would get even cheaper because the market was glutted.
But instead the price rose: many big oilfields were aging and yielding less, and it was getting harder to find new ones—especially in places easy and cheap to drill.
So the glut eroded and petroleum prices rose. Seeing a perfect opportunity (a necessary commodity with stagnating supply and growing demand), speculators drove the price up even further...
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