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EIA's Caruso Calls Shale 'Important Game Changer' in Market

The discoveries of prolific natural gas shale formations in the United States could significantly reduce demand for liquefied natural gas (LNG) imports, said the head of the Energy Information Administration (EIA) last Tuesday.

"One of the most important implications of these new shale gas [formations] is that if we really do have the dramatic increase in resources [that] ultimately can be turned into productive capacity, I think it would have a large, significant impact on our demand for LNG, because I think LNG would continue as it has been going in recent years to Europe and Asia," EIA Administrator Guy Caruso told reporters during a Platts Energy Podium in Washington, DC.

He indicated that the EIA would likely lower its projections for LNG imports in its annual energy outlook for 2009, which is due to be released in early December, if producers "really can produce the shale gas at reasonable costs -- and that to me is probably $5 to $6 an Mcf, which is actually below what our long-term price assumption is."

Caruso said he expects the emergence of shale gas formations to have "very important implications for the regasification investments that have already been made and are still coming down the road" in the United States. "There's still dozens of projects that are in some form of regulatory review for permitting" at the Federal Energy Regulatory Commission, U.S. Coast Guard or state and local agencies.

"We have been relatively optimistic about unconventional gas. The new revelations about discoveries of the Haynesville shale gas and the Marcellus trend, in addition to Barnett, could be quite important game changers in the natural gas supply. We'll be watching that very carefully," he said. "Again it becomes an issue of the price and whether the demand will be there. The industrial sector has done a very good job of improving the efficiency in their use of natural gas, especially chemicals."

The EIA expects natural gas demand in the power sector to grow through 2015, and then start to taper off, Caruso said. The agency sees "very small demand" for natural gas in the transportation sector, he noted, citing infrastructure as a key problem.

Caruso dismissed talk of a "speculative bubble" in the crude oil market, saying that fundamentals (particularly lack of spare capacity) were driving prices to high levels. Having traded at nearly $150 a barrel in recent months, crude oil for October delivery was at around $117/bbl Friday.

And under an optimistic scenario, he said it would be at least five to seven years before an impact on oil and gas prices would be seen if Congress were to remove the moratorium on drilling in the federal Outer Continental Shelf this year.

Nor did Caruso favor using the Strategic Petroleum Reserve as a kind of "commodity buffer fund" to reduce the price of gasoline when crude oil prices are high.

Caruso, who has been head of the EIA for six years, will leave the agency Wednesday. During his term the EIA has come under fire from Congress and the industry for energy price projections that weren't on target.

Still, he told reporters that it "does make sense" for the EIA to continue to make price projections. "I think it's a valuable tool," Caruso said, but added that the projections shouldn't be used as a "predictor to plan investments." He also thinks they're "useful" for policymakers, as long as they recognize that the projections are "tools" and not predictors.

"No one could have predicted all of these events" in the political and economic arenas that have influenced the price of crude oil this year, he said. Caruso noted that the EIA's track record on price projections is "about average relative to peers" on Wall Street and with other energy analysts.

As for his successor at the EIA, "I think data quality would be the No. 1 issue" going forward, especially with shale gas and transportation fuels, he said. "We need to spend a lot more resources on improving [data]" in these areas.

Another challenge for the new EIA administrator will be staff. Caruso said he expects there to be a "large turnover" of experienced, senior staff at the agency in the upcoming year.

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