Analyst Says $2 Gas Prices 'In Rear View Mirror'
Natural gas prices are going to jump; the only question is --- how high?
Calling the rising natural gas demand "phenomenal" both now and
into the foreseeable future, Simmons and & Co. International vice president
David Pursell said prices are trending upward, and predicted that natural
gas is poised to gain a "good proportion" of the demand group.
Pursell, a petroleum engineer who analyzes the energy market for Simmons,
also predicted that it was "unlikely" producers would see prices
return to anywhere near $2 for at least three to five years. In fact, he
said that $2 prices were "in the rear view mirror" for natural
Pursell joined a growing list of analysts who foresee great things for
natural gas, including University of Houston professor Michael Economides
who has predicted $4 gas by the end of the year (see separate
report, this issue).
Pursell, meanwhile, told members of the Independent Petroleum Association
of America in Houston last week there's been no significant excess capacity
since the gas bubble burst in 1992. "In fact, I expect to see $3 gas.
This is important. It is accelerating. Prices haven't gone down per capita
since 1982, even though technology has gotten better," Pursell said.
"There is no magic techology bullet here that's making per capita
Pursell sees a "huge" demand for natural gas, fueled by growth
in electricity consumption. Even though technology in the energy field
overall has risen considerably since the early 1980s, demand for electricity
is rising at about 3% a year --- and the leading benefactor will be clean-burning
natural gas, whose demand is rising itself at 6% a year, Pursell said.
"Nobody is going to build a new coal plant or add significant capacity
till we know what we can do to make coal cleaner," Pursell said. "To
my knowledge, no one's going to build another nuclear plant. And people
now think we'll take hydroelectrical dams out of service so that salmon
can swim upstream. That leaves natural gas."
And while supply has been steady, and there isn't enough time for producers
to catch up with the demand projections.
"A way to characterize the natural gas industry is to say it's
on a treadmill, and it's tough to grow supply," he said. "Through
the 1970s, wells were declining and now they're accelerating.
And it's not just the offshore wells in the Gulf of Mexico Shelf caught
in the treadmill. An "onshore treadmill" also exists, especially
in East Texas and on the Gulf Coast. What's pushing the acceleration? Basically,
Pursell thinks it's moving upward because of several factors, all related
to better technology: 3D seismic capabilities; horizontal wells; more efficient
completion of wells; and of course, the unbelievable demand for cleaner
burning fuels like natural gas.
Higher prices are expected to continue. "You start looking at how
much gas you'll have in storage a year from now, increased Canadian imports,
another warm winter, and you've got lower storage than you have now,"
he said. "So, factor in a couple of things. Let's put a big hurricane
in the Gulf, and put in a 2 or 3% colder winter. It'd be tough to deliver.
We are very optimistic about the present pricing environment.
Carolyn Davis, Houston