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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 gas producers.
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 consumption lower."
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
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