Surplus Gas and Consolidation

If you didn't think America's energy policy battles could get any more confusing, consider this: Some fossil fuel companies are pulling for a carbon tax. Specifically, companies that focus on cleaner-burning natural gas would benefit from subsidies for energy that generates less carbon dioxide.

But it will be almost impossible to squeeze a carbon tax through Congress in the aftermath of the midterm elections. The new Republican majority means that more politicians in power support both the coal industry and the concept of less government regulation of businessThat knocks out one strut that could have supported energy companies through a recent tough spate where they are locked into producing more gas than the market demands.

Overproduction has led to a natural gas surplus. In the United States, we produce about 24 trillion cubic feet of gas per year. In 2009, the country consumed under 23 trillion cubic feet of gas. According to the U.S. Energy Information Administration, the United States had a record-setting amount of natural gas in storage this year, about 3.8 trillion cubic feet.

The makings of the surplus started in 2003 when Halliburton introduced a new well stimulation method called horizontal hydraulic fracturing to a shale play in Texas. The method enabled drillers to get much more gas out of wells, which ignited a gold rush on major gas plays in the United States. Companies scrambled to borrow money or go in on joint ventures to afford the drilling equipment and land leases. They started drilling, and producing, like crazy.