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Gas-price relief, if not reshaping, seen at meeting

Bob Tippee
Editor

Setting offers important context to predictions of near-term gains for recently abysmal gas prices in the US.

Such a message naturally receives a warm greeting from struggling developers of unconventional gas resources. But the greeting comes with irony.

Success of those developers is part of the problem.

At PennWell Corp.’s Unconventional Gas International Conference & Exhibition in Fort Worth, Advanced Resources International Pres. Vello Kuuskraa showed why this is so.

Development of gas-bearing coalbeds, tight sands, and shales has put US production capacity on a strong growth trend for the first time in a decade.

While tight sands still dominate unconventional gas production, the main growth is in shales, output from which has quadrupled in 5 years, Kuuskraa said.

The supply surge coincides with a demand decline occasioned by economic recession, pushing average wellhead prices to $3.43/Mcf in July from more than $10/Mcf a year earlier, according to the Energy Information Administration.

But two analysts at the conference offered comfort.

David Pursell, managing director and head of macro research at Tudor, Pickering & Holt, predicted the gas price will rebound to $7.50/Mcf next year and settle into a longer-term range of $6-6.50/Mcf.

And Don Warlick, president of Warlick International, said demand recovery will move gas prices back to the $6/Mcf neighborhood by the end of first-quarter 2010.

An audience member offered the intuition that, just as nature abhors a vacuum, economic laws won’t allow gas to trade indefinitely at a steep energy-equivalent discount to oil.

And during a panel discussion, Harvey Klingensmith, president of Stone Mountain Resources, a private producer active in the Horn River shale play of British Columbia, opined about a new price band for gas.

This might occur, he said, as decision-making about drilling into aerially extensive unconventional reservoirs comes to resemble that of manufacturing.

If he’s right, unconventional gas will have reshaped more than development technologies for hydrocarbon resources. And if the new shape means an end to 300% price swings, who’s to argue?

For most producers in a tough year, though, predictions about $6-7/Mcf gas sometime in 2010 may feel like hope enough for now.

(Online Oct. 2, 2009; author’s e-mail: bobt@ogjonline.com)


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