Natural gas has long been one of the leading domestic energy sources for the U.S. economy. For a while, in the 1980s, it fell to third place behind oil and coal, but production is now on the rise again. By the end of 2009, natural gas was in a near-tie with coal for the lead in U.S. energy production.
Technology has been a major factor behind increased production of natural gas. In recent years, it has become practical to produce gas from "unconventional" sources once thought too expensive to tap. These include methane from coal beds, gas from shale formations, "tight gas" from other hard rock formations, and gas from extremely deep wells. Gas from unconventional sources now accounts for almost half of current production, and an even greater share of reserves.
There have been new developments on the demand side of the market, as well. One of them is an increased demand for low-carbon fuels. (Oil produces 37 percent more carbon per Btu than does natural gas, and coal 77 percent more.) Concerns about climate change have already led to increased incentives and regulations that encourage use of natural gas. If a comprehensive cap-and-trade scheme for carbon ever passes the Congress, natural gas will receive another big demand-side boost. Natural gas is not an environmental cure-all, however. Production from unconventional sources can have adverse environmental impacts of its own, including disposal of drilling wastes and ground water contamination.
On balance, the future of natural gas looks bright. The U.S. Energy Information Agency foresees an increasing role for gas over the next three decades.
Developments in the natural gas market make a good illustration of basic supply and demand concepts for your principles of economics course. To download a free set of PowerPoint slides on this topic, follow this link. If you find this material useful, please post a comment.