Gas industry execs: High prices a certainty for winter

Natural gas producers said in a IOGCC summit this week the industry is responding to price incentives. But increased production won�t come in time to avert high prices for consumers this winter. The industry is trying to drill more to increase supply, but the very low prices two years ago that slashed drilling and exploration are the seeds for today�s natural gas price problem.

Ann de Rouffignac

Despite increased gas drilling, producers have warned that supply will be insufficient to avert higher prices or even price spikes this winter. But energy company officials said gas shortages were unlikely.

They spoke at the Governors� Natural Gas Summit Wednesday in Columbus, Ohio. It was sponsored by the Interstate Oil and Gas Compact Commission.

Producers said they were responding to $5/Mcf prices, but production increases won�t come in time to take the pressure off prices this winter. In fact, producers suggested that even for the mid-term, prices will remain higher than they have averaged recently.

The possibility of gas shortages this winter was downplayed but not ruled out.

�We�re trying to play catch-up, but we can�t turn it around overnight,� said Robert Allison, chairman and CEO of Anadarko Petroleum Corp.

He said current high prices are the result of the price collapsing to about $1.50/Mcf a couple of years ago. He said the industry infrastructure was damaged and exploration and drilling were slashed. Allison said there is a deliverability problem brought about by low and volatile energy prices. �The resulting lack of deliverability is behind today�s high prices,� he said.

When prices fell, drilling was insufficient to maintain, much less increase, deliverability. Demand for gas continued to increase; prices did too. Executives said prices will come down as deliverability increases.

The executives said the government should let supply and demand determine the market equilibrium price.

�Let the marketplace play out,� said J.J. Mulva, chairman and CEO of Phillips Petroleum Co.

The officials said US reserves are more costly to find and often are depleted faster. Mulva said, �We have to drill more to just maintain current levels of production.�

Jack Golden, group vice president, exploration, for BP, agreed that it takes more drilling to just �hold flat� and stave off a decline in production.

He was optimistic that supply could be sufficiently increased in a 3-year time frame by infield drilling in western Canada, the shallow Gulf of Mexico, and onshore basins.

Golden painted a bright picture for long-term gas supply. He said significant supplies were available from the deepwater Gulf of Mexico and North American Arctic regions and from liquefied gas imports. He said some studies estimate there are 1,200-1,600 tcf of gas resources in the US.

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