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Wednesday, June 25, 2008

Natural Gas Production

Markets work. Supply responds to changes in prices and profits. Expanding domestic energy production can make a difference to energy consumers.

For some reason, many politicians deny these facts of economic life.

Perhaps they should take a moment to consider the information presented in the June 11 “Energy in Brief” from the U.S. Energy Information Administration titled “Is U.S. natural gas production increasing?” Consider the following points made in the brief:

• Natural gas production in the Lower 48 States has seen a large upward shift. After 9 years of no net growth through 2006, an upward trend began that generated 3% growth between first-quarter 2006 and first-quarter 2007, followed by an exceptionally large 9% increase between first-quarter 2007 and first-quarter 2008.

• The large recent increases in supply came from across the Lower 48 States. But, more than half of the increase in natural gas production between the first quarter of 2007 and the first quarter of 2008 came from Texas, where supplies grew by an exceptionally high 15%.

• Even production from the offshore Gulf of Mexico, which had been declining for years, increased 2% from first-quarter 2007 to first-quarter 2008. The start-up last year of production from the deepwater Independence Hub, with wells in 9,000 feet of water, alone added about 1% to Lower 48 States production.

• Improved technology, developed over many years, now allows economic production of resources in deep water and large "unconventional" resources, which are difficult to produce. High and increasing natural gas prices have spurred more natural gas drilling and the trend to move from drilling simpler vertical wells to horizontal wells.

• Total U.S. proved natural gas reserves – resources that have been identified and tested and either have been or will be developed – have increased for the last eight years, and in 10 of the last 11 years. Recent drilling trends indicate continued growth, with a stronger concentration on unconventional resources like shales. Shale formations in the lower 48 States are widely distributed, large, and contain huge resources of natural gas. They are just starting their full development. Already, the production from just one Barnett Shale field in Texas contributes more than 6% of production from the lower 48 States, which is more than from the large producing State of Louisiana.

What does this tell us from a policy perspective? It’s quite simple. Remove the prohibitions to energy exploration and development offshore and under federal lands, and the market will bring more energy to the marketplace.

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