Taxes, restrictions could stifle US shale gas potential, NGSA official warns

Natural gas production from US shale plays such as the Marcellus Shale in New York, Pennsylvania and West Virginia could double in the next 10 years and provide 25% of the nation's supply, a Natural Gas Supply Association official said on Nov. 21.

But NGSA Vice Chairman Terrence L. Ruder, who also is senior vice president for Devon Energy Corp.'s marketing and mainstream division, also warned that a windfall profits tax and restrictive new regulations could hurt that effort a time when more gas will be needed to help meet clean air requirements mandated by climate change legislation.

"What we've seen so far from shale fields is just the tip of the iceberg. To facilitate a steady supply growth of gas from shale, we need a stable tax and regulatory environment," Ruder told a Federal Energy Regulatory Commission conference on the US gas infrastructure.

He said that shale developments provide an estimated 6-8 billion cubic feet per day of gas, or roughly 10-12% of the projected 2008 US demand. Over the next 10 years, US shale gas production could double to 15-20 Bcf/d, with total reserve estimates ranging from 250 trillion to 750 trillion cubic feet, he indicated.

Ruder said that Devon has invested more than $10 billion in the Barnett Shale play in northern Texas. He estimated that the gas industry as a whole will spend an estimated $150 billion to fully develop the Barnett Shale play.

20 major US fields

He noted that there are approximately 20 major shale fields across the United States which could or currently do produce gas, including the Bakken play in North and South Dakota, the Woodford in eastern Oklahoma, the Haynesville in East Texas and Louisiana, and the Green River Piceance Basin play in Colorado.

"Shale developments are highly capital-intensive and a windfall profit tax assessment now being discussed in Congress would directly and adversely affect production," Ruder warned.

Another NGSA member, Clay Bretches, vice president of minerals and marketing at Anadarko Petroleum Corp., expressed similar concerns. "I cannot emphasize enough the importance of a stable regulatory environment. When exploration and production companies expend billions of dollars on capital projects, they can mitigate some of the risks stemming from price fluctuations, resource requirements, and transportation constraints. But in absence of a transparent and consistent regulatory environment, these projects may be delayed or worse yet, never get off the drawing board," he said.

"What we need is regulatory certainty that not only benefits the economics of the projects, but also provides adequate and on-time supply to consumers. Make no mistake about it, regulatory uncertainty strongly impacts price volatility," Bretches said.

Ruder said that shale developments have the potential to reshape the traditional domestic gas supply mix and aid in the replacement of declining conventional production.

"Industry has proven it can develop shale plays safely. These resources, however, will only partially satisfy the nation's growing demand for natural gas, demand that will increase even more rapidly with any new climate change policies," he said.

Contact Nick Snow at nicks@pennwell.com

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