This month marks the 150th anniversary of the Drake well, the shallow hole drilled in August 1859 in Pennsylvania that teed up commercial oil production to create a global business.

Technical innovations have continued to this day. For example, Enventure Global Technology just set a world record for the longest solid expandable liner used in drilling. The 6,935-foot (pre-expansion length) liner enabled a Gulf of Mexico operator to reach deep shelf targets through a sidetrack at depths below 20,000 feet. This is just one innovation among many that allow E&Ps to reduce drilling costs, project risk and nonproductive time.

We even got word recently that Saudi Aramco is now using Twitter. So the future looks mighty interesting. Companies are trying to figure out how to produce oil from shales in western Colorado, find the gas shales scattered throughout Europe, bring production from the Caspian region and North Africa to Europe—even drill in the high Arctic.

And now, all the majors are dipping their toes into alternative-fuel solutions as well. At press time, ExxonMobil unveiled its $600-million venture with Craig Venter, the man who first defined the human genome, to research making fuel from algae that is grown in futuristic onshore greenhouses.

But how serious should we be about transitioning from oil use? The Senate is taking up a bill that would incentivize more natural gas vehicles and pumping stations in the U.S., a commendable goal also meant to offset the environmental effects of burning oil. In July, California offered $100,000 grants to truckers to buy new Peterbilts and Kenworths that run on natural gas.

But the economics of adding to gas supply may end up being the bump in the road. On Nymex the price of gas is only $5.05 per thousand cubic feet for early in 2010 and maybe $6 by year-end 2010. Conversations I’ve had imply that many producers think $6 or $7 may end up being the more-or-less permanent ceiling for gas prices.

“Companies continue to guide towards costs that imply incredible economics at $7 or $8 per Mcf gas and strong returns at far lower prices. This has led some to suggest that the U.S. cost curve is being structurally lowered by the shales and that the long-term price of gas will never recover to the $7-per-Mcf range, let alone any higher,” according to Bernstein Research analyst Ben Dell.

“If ever there were a winter that could deliver shockingly low gas prices, this is it,” warn Wunderlich Securities’ Neal Dingmann and Ethan Bellamy.

This is the dilemma that the public and politicians never understand. The one fuel that makes the most sense is domestic natural gas. According to the Potential Gas Committee, the U.S. has 1,836 Tcf of gas resource potential, some 35% more than it estimated two years ago.

Such a significant increase is unprecedented, and it comes mostly from the shale plays. But this huge and ever-growing domestic resource is being trampled by weak demand and even weaker wellhead prices.

In 2008, when every day was a holiday, every meal a feast, operators drilled 4% more gas wells than in 2007. Footage drilled went up 18% over 2007 activity, reports the American Petroleum Institute. In the fourth quarter alone, an estimated 8,267 gas wells were completed, up 6% from the fourth-quarter 2007 pace.

That led to daily production in first-quarter 2009 being 9% higher than in the like period a year earlier—or, 2.6 billion cubic feet higher than the 2008 first-quarter level. Trouble is, this equates to 78 Bcf more per month of supply looking for a market—when gas demand has been about 75 Bcf less per month (year to date). The Energy Information Administration says slack demand will put us on track to reach total consumption of about 22.5 trillion cubic feet by year end, whereas last year, the U.S. consumed 23.2 Tcf.

Meanwhile, the pace of gas drilling has slowed. It was down 23% in the first quarter and down 43% in the second quarter, versus 2008 levels. And yet, some outstanding shale-gas plays thrive.

How can you not drill in a play that is yielding wells that test 6-, 7-, 8 million cubic feet a day? Forest Oil just announced a Marcellus well that flowed 20 million a day.

Deepwater royalty relief worked to build up offshore production. Section 29 tax credits boosted coalbed methane output. For long-term benefit to the environment and to the emerging batural-gas-vehicle industry, it is time to consider gas-well severance tax relief or other state and federal incentives to encourage drilling. There is a 100-year supply out there, just waiting for the drillbit.