Despite a 20% increase in US drilling during the last year, overall US natural gas production dropped 9.2% year-on-year, reported Raymond James & Associates today. Energy bankers such as Matthew Simmons have been pointing to the approaching gas problem for some time.

The public does not seem to be paying much attention to the natural gas supply now due to the high profile of oil and gasoline prices, but the situation will become difficult. As with oil, the US is more reliant on natural gas imports to meet its needs. Shipping gas from afar is more problematic than shipping oil -- the solution is to cool the gas down to a liquid (Liquid Natural Gas -- LNG), ship it off in enormous LNG tankers (floating thermos bottles) and regassify it. That entire cryonic process carries a large energy cost and dollar cost.

The use of natural gas in transportation currently is quantitatively not large (approx. 150,000 vehicles in 2003) although CNG and LNG fuel 26% of the alternative fuel (non-gasoline or diesel) vehicles on the road. There are many speculating on the use of natural gas as a mechanism for producing hydrogen, however, either through today’s processes or emerging technology such as ion transport membranes. In any of those production scenarios, a natural gas crunch would prove a problem for a hydrogen economy -- and for the H₂ highway.

A tightening of the natural gas supply will put more demand pressure on oil.

The importance of having a robust natural gas supply is leading to a fervor in building LNG terminals. Currently the US has 4 such terminals in place, but has approved, planned or proposed another 35, as shown in the diagram. (Click to enlarge.)