Looking ahead over the next decade the natural gas industry can be characterized as having excess supplies of the commodity and infrastructure that will be searching frantically for added demand, an industry strategist told the LDC Gas Forum: Rockies & West meeting in Los Angeles Tuesday.

With supply, demand and other drivers all in flux due to technological, economic and regulatory factors all weighing in, the potential growth in gas demand in the next 10 years is extremely broad, ranging from 8 Bcf/d to 31 Bcf/d, according to Colorado-based Ty Harrison, chief strategist for Societe Generale Energy (SGE).

In response to a question, Harrison said if 31 Bcf/d of added demand developed by 2020, the industry could be looking at wholesale gas prices going up to the $10/MMBtu level. "Generally with that much demand growth, we'd be moving toward a 100 Bcf/d overall gas market," he said, noting that such growth would tend to cut the long-term supply life from 100 years down to 68 years for current gas reserves.

"You could crack 100 Bcf/d of demand with $6 gas in today's cost structure. But the question is what sort of pressure does [100 Bcf/d] put on the supply chain in terms of the number or rigs, people, equipment and other factors? So if we were running toward that number in 2020, we would be looking at a number closer to $10."

In the near term, Harrison painted a picture of rig counts declining while production increases, prices remaining relatively stable and more rigs moving away from gas to oil and natural gas liquid (NGL) plays. Gas will remain in an oversupply mode relative to demand, he said.

Longer term, Harrison, who focuses on North American gas market fundamentals, views the possibility of a 100 Bcf/d U.S. gas market by 2020. That would have a profound effect on everyone from producers to end-users to regulators, he said.

Despite a 45% drop in the rig count since 2008, gas production has continued ever upward, Harrison said. "We keep seeing continued improvements in efficiency in all of the shale gas basins" whether they involve hydraulic fracturing (fracking) or traditional drilling.

"Our analysis shows that there is a 'break-even' point regarding rig count that is materially lower than where we are today," Harrison said. "We are at a little more than 900 rigs now, [and] my estimate is that 700 or 750 rigs [operating] is really what the market needs to stay flat, or stop growing."

Given that there is the oversupply with adequate resources in the ground that could be targeted, what was viewed as flat demand raises two interesting trends to monitor relative to rig counts, Harrison said. One is the drilling capital budgets that companies announce for 2012, and the other is how much movement from gas to oil or NGL production takes place.

A large part of the potential growth in demand to get close to a balance with production is the electric generation sector, and there the drivers are what Harrison called "largely regulatory factors." These include renewables, the more stringent cross-border Environmental Protection Agency (EPA) air emission rules and gas prices as they influence a resurgence of industrial gas use.

"The most significant near-term catalyst would be the cross-state air pollution rules that are scheduled to go into effect Jan. 1," Harrison said. "If they go into effect our estimates indicate it would boost power demand in 2012 by roughly 0.8 Bcf/d. In our view and a much broader group's view, the tougher standards can only be met at the margins by switching from coal to natural gas to a greater extent than we have seen so far."

Harrison noted there are challenges to the proposed EPA rules from states and companies suing the federal agency, but if the rules are implemented as scheduled, a big push in gas demand is expected to result. Coal to gas switching is a major issue going forward, he said, zeroing in on between now and 2015.

"Somewhere between 25 and 30 GW of coal-fired generation will need to be retired by 2015, and natural gas will pick up the lion's share of that," Harrison said. By 2015, he thinks there could be another 3-3.5 Bcf/d of gas demand from the move away from coal-fired generation to natural gas-produced power.

"What the market is essentially try to do is keep natural gas as the cheap, low-emission source of energy in the market," he said.