Commodities Obey Supply and Demand (It’s a Law)

As I have traveled to AAPG conferences during the past year-and-a-half I have been impressed by the number of symposia on shale gas.

I am not struck by the fact that they are held, but rather by the fact that they have all drawn capacity crowds. It is as if 80 percent of our members are working in shale plays or, at the very least, expect to be working in shale plays in the near future.

The most recent of the conferences to feature a session on shale gas was the recent European Region conference in Kiev, Ukraine (see related story, page 39). The interest in shale gas plays is certainly high in Europe, but since the surface owners typically do not own the minerals in Europe, the sight of a drilling rig is much less appealing to the farmers.

As strange as it may seem, I also have been struck by the similarity of the shale gas play to dairy farming. I will stipulate that I personally have not been involved in dairy farming since my youth, but the basic technology and the economics have not changed much in the last 40 years.

Both industries require a substantial capital investment, are labor intensive and are seven-day-a-week operations. The products of both industries are sold at posted prices, and the laws of supply and demand govern the magnitude of the posted price. Therefore, in both markets, there is a penalty for success. The greater your success, the more product you make available to the market – and the lower the price is likely to be.

Both industries are dominated by large corporations, but there is still room in each of them for the small independent.

Depletion is a significant factor in both industries. As the means of production age, the volumes decline.

While dairy farmers do not have the luxury of shutting in production until the price improves, they do not face the need to invest additional capital with the inevitable result of increasing supply in order to maintain their acreage position.

There is nothing unique about milk. Any natural resource is subject to the laws of supply and demand. The exception to that rule may be diamonds, where the supply and price seem to be fairly well controlled.

Before you fire up the computer to send me an e-mail noting that prior to 1973 there was a limited natural gas market and the market price of oil was essentially controlled by the Texas Railroad Commission, I will grant that, at the very least, crude oil market forces were substantially constrained prior to 1973. The entire energy industry experienced a major change in 1973. Texas was able to influence crude oil price prior to 1973 because approximately 38 percent of the U.S. oil production from 1935 through 1970 came from Texas.

For those of you outside of Texas who wonder what a Railroad Commission has to do with oil and gas production, the Texas Railroad Commission was established in 1891 to regulate – as the name implies – railroads. However, in 1917 they were given jurisdiction over oil and gas pipelines, and in 1919, they were given jurisdiction over “the conservation of oil and gas, forbidding waste.”

In 1920, the production and sale of natural gas in Texas was deemed to be a public utility – and the Railroad Commission was given jurisdiction.

As they say, the rest is history.

Comments (0)

 

President's Column - David G. Rensink

David G. Rensink, AAPG President (2010-11), is a consultant out of Houston. He retired from Apache Corp in 2009.

President's Column

AAPG Presidents offer thoughts and information about their experiences for the Association. 

VIEW COLUMN ARCHIVES

See Also: Book

Desktop /Portals/0/PackFlashItemImages/WebReady/book-s61-Sediment-Transfer-from-Shelf-to-Deep.jpg?width=50&h=50&mode=crop&anchor=middlecenter&quality=90amp;encoder=freeimage&progressive=true 3988 Book
Desktop /Portals/0/images/_site/AAPG-newlogo-vertical-morepadding.jpg?width=50&h=50&mode=crop&anchor=middlecenter&quality=90amp;encoder=freeimage&progressive=true 4457 Book

See Also: Bulletin Article

We present a method of using fault displacement-distance profiles to distinguish fault-bend, shear fault-bend, and fault-propagation folds, and use these insights to guide balanced and retrodeformable interpretations of these structures. We first describe the displacement profiles associated with different end-member fault-related folding models, then provide examples of structures that are consistent with these model-based predictions. Natural examples are imaged in high-resolution two- and three dimensional seismic reflection data sets from the Niger Delta, Sichuan Basin, Sierras Pampeanas, and Cascadia to record variations in displacement with distance updip along faults (termed displacement-distance profiles). Fault-bend folds exhibit constant displacement along fault segments and changes in displacement associated with bends in faults, shear fault-bend folds demonstrate an increase in displacement through the shearing interval, and fault-propagation folds exhibit decreasing displacement toward the fault tip. More complex structures are then investigated using this method, demonstrating that displacement-distance profiles can be used to provide insight into structures that involve multiple fault-related folding processes or have changed kinematic behavior over time. These interpretations are supported by comparison with the kinematics inferred from the geometry of growth strata overlying these structures. Collectively, these analyses illustrate that the displacement-distance approach can provide valuable insights into the styles of fault-related folding.

Desktop /Portals/0/PackFlashItemImages/WebReady/fault-displacement-distance-relationships-as-indicators.jpg?width=50&h=50&mode=crop&anchor=middlecenter&quality=90amp;encoder=freeimage&progressive=true 5770 Bulletin Article

See Also: Field Seminar

This four-day field trip will begin with a drive from Denver to Glenwood Springs and a road log describing the general geology along Interstate 70 (I-70), as well as an overview stop in Rifle to introduce the Wasatch and Green River systems. It will focus on two themes: observing the characteristics of a wide variety of sedimentary environments and comparing these with subsurface data.

Desktop /Portals/0/PackFlashItemImages/WebReady/ace2015-ft-08-hero.jpg?width=50&h=50&mode=crop&anchor=middlecenter&quality=90amp;encoder=freeimage&progressive=true 14687 Field Seminar

See Also: Short Course

This course is a non-numerical introduction to the use of geochemistry and BPSM to better understanding unconventional resources. This course is designed to provide participants with new information on unconventional and sweet spot identification that is not normally available in routine service company courses.

Desktop /Portals/0/PackFlashItemImages/WebReady/hero-geochemistry-and-modeling-unconventional-petroleum-systems.jpg?width=50&h=50&mode=crop&anchor=middlecenter&quality=90amp;encoder=freeimage&progressive=true 20059 Short Course