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$6 Gas Necessary to Halt Production Drop, Producer Says

Canadian production declines are part of a continent-wide trend that has the potential to cut the North American natural gas supply glut by 5-8 Bcf/d next year, according to Richard Moorman, strategic analysis manager for Houston-based Southwestern Energy Co.

Only a market recovery to prices higher than US$6/MMBtu will prevent the imminent production drop by mid-2010, he predicted at an annual Calgary conference of the Canadian Society for Unconventional Gas.

Financial analysts and commodity traders are overestimating the market role to date and growth prospects in the near future of shale gas, Moorman said.

After growing about eight-fold to about 8 Bcf/d over the past three years, shale production still represents only about 11% of U.S. natural gas supply, he pointed out. In the field, increasing experience and technical know-how has yet to cut a first-year average decline rate of 65% off initial production by shale gas wells, he reported.

High costs of shale gas wells to date have required investment exceeding current cash flow of participants in the new supply specialty and the big initial commitments to the technically demanding new supply source cannot be sustained if prices stay below US$6/MMBtu, Moorman said.

He predicted that maintaining total U.S. gas production of all types at current levels will require price increases into the $8-9 range. The emerging trends toward production declines, storage withdrawals and lags in reviving drilling point to a price recovery, Moorman assured a capacity crowd of Canadian producer representatives at the unconventional gas convention.

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