EIA conference: Ample US gas supplies pose challenges

US natural gas supplies are sufficiently ample that prices should continue to be $4-6/Mcf in the near term, market observers said Apr. 7 during the EIA's 2009 annual conference.

Nick Snow
OGJ Washington Editor

WASHINGTON, DC, Apr. 8 -- US natural gas supplies are sufficiently ample that prices should continue in the $4-6/Mcf range for the near term, market observers said Apr. 7 during the US Energy Information Administration's 2009 annual conference.

"Any perception that domestic supplies could run short is wrong, especially with the growth of hydraulic fracturing. Instead, we're in a much more difficult period of determining how and when this impressive national asset can be developed. The industry must develop a simple, incisive message," said Rick Smead, a director at Navigant Consulting Inc.

Other panelists suggested that demand for gas to generate electric power could grow if the administration of President Barack Obama exerts pressure through the US Environmental Protection Agency to close older coal-fired power plants in an effort to reduce carbon emissions.

"There's a lot of schizophrenia driving natural gas. There's a push for renewables that may create some demand. There also are several pro-gas people in the administration, and still others who would like to regulate hydraulic fracturing under the Clean Water Act," said Christine Tezak, an independent consultant who formerly was with the Stanford Cos.

"It could not be more serendipitous for the Obama administration to have prices around $4[/Mcf] because it makes it easier to switch if pressure builds to shut some coal-fired generation down," Tezak said.

Demand for gas to provide backup supplies to intermittent power sources such as wind and solar also could grow, according to Brian Jefferies, executive director of the Wyoming Pipeline Authority. He suggested that states with extensive oil and gas production experience could compete aggressively to develop policies to encourage gas production from shales.

"There is a lot more gas supply than demand. From 2005 to 2008, we added more deliverability than all the oil we import from Saudi Arabia," said James Simpson, vice-president of analytics and managing director at Bentek Energy LLC.

In the Haynesville shale play, technology is making gas that was budgeted at $7/Mcf producible at $4/Mcf, Simpson said. "Now, for the first time, the industry can ramp up and down in fairly small increments," he said.

Other panelists suggested that additional LNG could reach US markets despite low prices because of falling demand in Europe and Asia. But they were skeptical that economics would justify building a gas pipeline from Alaska's North Slope to the Lower 48 states any time soon, although some said demand for gas within the state could lead to construction of pipelines there.

Contact Nick Snow at nicks@pennwell.com.

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