Natural Gas Production Sets New Records in May as Marcellus Shale Becomes Country's Top Producer

Updated EIA data on monthly natural gas production in the U.S. through May is displayed above, and shows that both "gross withdrawals" and "marketed production" of natural gas set new monthly all-time records on a 12-month moving average basis (to smooth out monthly variations).  Other highlights include:

1. Gross withdrawals of natural gas in May set a new record for the month of May, and were 4.4% above last year and 7.2% above last year for the January-May period. 

2. Marketed production of natural gas in May was 4.3% above last year, and it was also the highest-ever production level for the month of May, and 7.1% above last year for the January-May period.  

3. Over the last four years, both measures of natural gas production have increased by almost 20%.  

Where are the significant increases in natural gas production taking place? A lot of the increase is coming from the Marcellus Shale region, which is about to become the most productive natural gas field in the U.S., according to this new Associated Press report:

Though serious drilling began only five years ago, the sheer volume of Marcellus production suggests that in some ways there's no going back, even as New York debates whether to allow drilling in its portion of the shale, which also lies under large parts of Pennsylvania, West Virginia, and Ohio.

In 2008, Marcellus production barely registered on national energy reports. In July, the combined output from Pennsylvania and West Virginia wells was about 7.4 billion cubic feet per day, according to Kyle Martinez, an analyst at Bentek Energy. That's more than double the 3.6 billion cubic feet from April, and represents more than 25 percent of national shale gas production.

That's neck and neck with production from the Haynesville region in Arkansas and Texas, but new drilling permits there have declined sharply.

The Powell Shale Digest, an industry newsletter based in Fort Worth, Texas, concluded that a recent report from the U.S. Energy Information Agency means "it is reasonable to assume" the Marcellus has or will soon pass Haynesville as the top producer. The Marcellus Shale is a gas-rich formation of rock thousands of feet below ground. Advances in drilling technology made the shale accessible, which led to a boom in production, jobs, and profits, and a drop in natural gas prices for consumers.

MP: At the same time that natural gas production continues to increase, spot prices are also rising, and natural gas is now selling at $3.20 per million BTUs, the highest level since November 2011.  The higher prices are likely reflecting higher demand from electric utilities and industrial customers, and will naturally support ongoing increases in natural gas production. 

Markets in Everything: Salt Gun for Shooting Flies

The original salt gun for shooting flies from Bug-a-Salt. 

HT: Robert Wright

Economist Paul McCracken, 1915-2012, R.I.P.

Economist Paul McCracken on his 95th birthday.

Legendary economist Paul W. McCracken died last Friday in Ann Arbor, Michigan at the age of 96.  In addition to being a professor of Business Administration, Economics, and Public Policy at the Ross School at The University of Michigan since 1948, Paul McCracken served as an economic adviser to Presidents Nixon (chair, Council of Economic Advisers), Eisenhower (member, Council of Economic Advisers), Kennedy (member, task force on the domestic economy) and Johnson (member, Commission on Budget Concepts) from the 1950s through the 1970s.  McCracken was associated with The American Enterprise Institute in Washington, D.C. and chaired AEI's Council of Academic Advisers in the 1980s and also served as interim president of the institute in 1986.

Here are some related links:

1.  Around the time of his 95th birthday in February 2011, I featured Paul McCracken on CD.  At the time, he was still keeping regular office hours at the University of Michigan at age 95!  I featured a quote from Professor McCracken explaining why he opposed President Nixon's "temporary, 90-day" wage and price controls in 1971, which ended up lasting until 1974:

"I thought price controls were a bad idea for a very simple reason. You couldn't look back into history and point to a success story."

That's some timeless economic logic from Professor McCracken that is still relevant today and should be more widely observed by politicians who advocate price controls like the minimum wage, ticket re-sales (Michigan politician wants to limit the markup on tickets sold on the secondary market t0 10% above face value), and rent control.

2. Paul McCracken's New York Times obituary.

3. Washington Post article on Paul McCracken.   

4. Notice from the Ross School of Business. 

5. Article in the Michigan Daily (student newspaper in Ann Arbor).

Note: Paul and I served together on the Mackinac Center for Public Policy's Board of Scholars for the last 15 years, and I was privileged to have met him several times and will fondly remember those encounters.  For a scholar of such impressive accomplishments, he was one of the most friendly, gracious and approachable people I have ever met.    

Recent Readings from Five Different Economic and Financial Indicators Suggest No Signs of Recession

From the Philadelphia Federal Reserve:

"The Aruoba-Diebold-Scotti (ADS) business conditions index is designed to track real business conditions at high frequency. Its underlying (seasonally adjusted) economic indicators (weekly initial jobless claims; monthly payroll employment, industrial production, personal income less transfer payments, manufacturing and trade sales; and quarterly real GDP) blend high- and low-frequency information and stock and flow data.

The average value of the ADS index is zero. Progressively bigger positive values indicate progressively better-than-average conditions, whereas progressively more negative values indicate progressively worse-than-average conditions. The ADS index may be used to compare business conditions at different times. A value of -3.0, for example, would indicate business conditions significantly worse than at any time in either the 1990-91 or the 2001 recession, during which the ADS index never dropped below -2.0."

MP: The chart above displays the daily ADS index from the beginning of 2000 through the end of July.  Recent values of the ADS business index are close to zero and have gradually been increasing from the recent lows in March.  This real-time measurement of business conditions is indicating no statistical evidence of a recession, and is in fact providing support for business conditions that are close to average.

Recent readings from other financial and economic indicators are also showing no evidence of  recessionary conditions in the U.S. economy including:

1. Bloomberg's "U.S. Financial Conditions Index" has been rising for the last year, indicating a gradual and ongoing improvement for the underlying conditions in the U.S. financial markets. 

2.  The Chicago Fed National Financial Conditions Risk Subindex is at the lowest (best) level in more than a year, and has been declining (improving) since the beginning of the year. 

3. The St. Louis Financial Stress Index has been trending downward (improving) since last October and is back to pre-recession 2007 levels.  

4. The Kansas City Financial Stress Index has been below zero for the last five months (a sign of low stress), and this measure of financial stress is also now back to pre-recession 2007 levels.    

Bottom Line: Where's the recession?  Surely there would be indications from at least one of these five measures of economic and financial conditions if the economy was weakening to the point that a recession was underway or pending?  All five indicators accurately signaled the last recession in 2007-2009, so they can't all be wrong this time, can they?

EIA Revises Estimates of America's Energy Bonanza: Record Increases in Proved Reserves of Oil and Gas

On Wednesday, the U.S. Energy Information Administration (EIA) updated its estimates of America's proved reserves of oil and natural gas for 2010.  Here's a summary of the key findings:

1. Proved reserves of both oil and natural gas in 2010 rose by the highest amounts ever recorded in the 35 years EIA has been estimating U.S. proved reserves.

2. Technological advances in drilling and higher prices contributed to gains in reserves. The expanding application of horizontal drilling and hydraulic fracturing in shale and other "tight" formations, the same technologies that spurred substantial gains in natural gas proved reserves in recent years, played a key role. Further, rising oil and natural gas prices between 2009 and 2010 likely provided incentives to explore and develop more resources. 

3. Oil proved reserves rose 12.8% to 25.2 billion barrels in 2010, marking the second consecutive annual increase and the highest volume since 1991 (see chart above). 

4. Natural gas proved reserves (estimated as "wet" natural gas, including natural gas plant liquids) increased by 11.9% in 2010 to a record-high 317.6 trillion cubic feet (Tcf), the twelfth consecutive annual increase, and the first year U.S. proved reserves for natural gas surpassed 300 Tcf (see chart above).

5. Proved reserves reflect volumes of oil and natural gas that geologic and engineering data demonstrate with reasonable certainty to be recoverable in future years from known reservoirs under existing economic and operating conditions.   

John Hanger provides this commentary on the EIA report:

"Most impressively, proved gas reserves in 2010 were up 50% compared to the 2005 number or the 1980 number.  That's right, our proved gas reserves are 50% higher in 2010 than 30 years ago, despite using a lot of gas during that 30 year period.

Indeed, during the last 30 years, the country consumed more than double the amount of our 1980 proved gas reserve number. How could that be? Exploration and production activities are never ending. They keep filling the U.S. natural gas cup that has never emptied and is now overflowing.

So our proved reserves of natural gas have gone up for 12 straight years, increased during 2010 by the highest amount in 35 years, and are 50% higher than in 2005 or 1980." 

MP: The EIA's significant upward revisions for proved reserves of U.S. oil and gas provide more evidence that America's job-creating, game-changing, economic-stimulating energy bonanza just keeps getting better and better all the time.

As Walter Russell Mead wrote recently:

"Nature — or perhaps Nature’s God — seems to love mocking pundits. Just when the entire punditocracy, it sometimes seemed, had bought into the “American decline” meme, Europe collapsed and huge energy reserves were discovered underneath the United States. The “special providence” that observers have from time to time discerned in America’s progress through history doesn’t seem to be quite finished with us yet."

The Real Internet Came from Spontaneous Order

From a 1998 article in The Freeman by Andrew Morris:

The Internet today bears little resemblance either to what the government wanted to build or to what it actually built. The innovations in networking that produced today’s Net occurred as much despite government funding as because of it. If anything, therefore, the Internet represents the success of spontaneous ordering over central planning, not the successful design of a new technology by the state.

Today’s Internet is the embodiment of a spontaneous order in many ways. No agency or board controls it. No central planner decides how it will operate. It ignores national borders. It has changed the world.

Yet a few years ago, little of what we know today as the Internet existed: no bookstores, no Web pages, little public access beyond academic institutions. Before the Internet, there was ARPANET—the Advanced Research Projects Agency Network—a U.S. Department of Defense (DOD) network that is often described as the forerunner of today’s Internet. The ARPANET connection is thus the source of the “we wouldn’t have it without the government” story.

Unlike the mythical Internet that sprang forth from the ARPANET, the real Internet grew out of a spontaneous ordering process of the interactions of millions of individual users. The uses we make of the Internet were unimaginable to the researchers and scientists who created the networking protocols and hardware advances we rely on today. Far from being the result of the government’s “strategic” investment in the original Defense Department networks, today’s Internet developed at most accidentally from and often in spite of those investments. The explosive growth in commerce, for example, became possible only when the government’s ban on commercial use of the networks it financed was lifted.

Moreover, the “strategic” nature of the early investment in networking is a myth. No one consciously created the Internet. While an international network of networks undoubtedly would look different today had ARPANET never existed, there is also little doubt that packet-switching and e-mail would have evolved anyway. Dedicated, motivated people with a need to communicate—for commercial and noncommercial purposes—would have surely seen to it.

HT: John Stossel via Warren Smith

North Dakota: America's "Economic Miracle State"

The Philadelphia Federal Reserve recently released June Coincident Economic Activity Indexes for all 50 states, along with a national coincident economic activity index.  These indexes are based on four economic indicators: a) nonfarm payroll employment, b) the unemployment rate, c) average hours worked in manufacturing, and d) wages and salaries.

The chart above displays the indexes for North Dakota and the United States over the last ten years, showing that the economic activity in North Dakota is completely "off the charts," along with the state's oil production and oil jobs, which are also showing explosive growth and driving economic growth in the "miracle state."  Even the "worst recession since the Great Depression" barely affected the shale oil-based economic activity in the Peace Garden State, and the June coincident index is 25% above the pre-recession level and almost 11% above a year ago.  Meanwhile the coincident economic activity index for the overall U.S. economy fell about 10.5% during the Great Recession and is now still less than 1% above the previous peak in early 2008.

The Philadelphia Fed also recently released its "State Leading Indexes" for the month of June, which "predict the six-month growth rate of the state’s coincident index. In addition to the coincident index, the models include other variables that lead the economy: state-level housing permits (1 to 4 units), state initial unemployment insurance claims, delivery times from the Institute for Supply Management (ISM) manufacturing survey, and the interest rate spread between the 10-year Treasury bond and the 3-month Treasury bill." North Dakota's leading index for June predicts a 3.8% growth rate for the state's economy over the next six months, by far the highest expected growth rate among the 50 states (only No. 2 Ohio comes even close at 2.6%), and a rate of growth almost four times higher than the expected 1% at the national level.   

MP: The June coincident and leading indexes for the 50 states and the national economy provide additional support that North Dakota is the most economically successful state in the country thanks to its booming energy sector and pro-energy and pro-business policies - the "Dakota Model."  On every relevant measure of economic performance by state: job creation, unemployment rate, income growth, output growth, growth in oil production, tax revenue collected, construction activity, home foreclosure rates, housing prices, coincident and leading indexes, etc., the Peace Garden State leads the country and deserves the title of America's "miracle state."